Denver Provider Market at ‘Tipping Point,’ Study Finds

https://www.healthleadersmedia.com/finance/denver-provider-market-tipping-point-study-finds?spMailingID=16259324&spUserID=MTg2ODM1MDE3NTU1S0&spJobID=1720747610&spReportId=MTcyMDc0NzYxMAS2

The report expects employers and health plans to exert more influence in demanding market power going forward.

Health systems and physician groups have dominated the Denver healthcare market in recent years, but a new study indicates that employer-purchasers and health plans are poised to disrupt that dynamic. 

Supported by existing legislation, activism from local businesses, and the efforts of Gov. Jared Polis, the Denver market is at a ‘tipping point,’ according to a Catalyst for Payment Reform (CPR) and the Colorado Business Group on Health (CBGH) report released Thursday morning.

The study specifically referenced the RAND report from May which found that payers were paying rates to providers well above Medicare levels, noting that employers have an opportunity to pressure insurers to engage providers in contract arrangements that better align with care rendered.

Researchers believe that payment reform is achievable in Denver, suggesting six policy recommendations to business groups, lawmakers, and insurers, including the expansion of price transparency measures and promotion of benchmarking prices relative to Medicare.

Corralling healthcare prices has been a primary issue in Colorado this year, with the state most recently pursuing a reinsurance program that Polis expects to lower premiums by 18%.

The study found that four major health systems, HCA Holdings, Centura Health, UC Health, and SCL Health, accounted for 85% of patient admissions in 2017. On the Herfindahl-Hirschman Index, this level is considered “moderately concentrated” but the report highlights that it also means the market is “concentrated enough to stifle price competition.”

While providers have concentrated in the market through continuous merger activity, the study found that insurers are governed by strict regulations. The result has been Coloradans facing 13% higher prices compared to the national average and 5% high utilization rates.

Two of the recommendations offered by the study were to align two-sided risk arrangements with Medicaid and the Polis-Primavera “Roadmap to Affordability,” the governor’s strategic initiative to make care more affordable, as well as to implement benefit designs to “encourage consumers seek higher value care.” The study also urges that employer-purchases to pursue value-oriented programs that hold providers accountable to the listed targets.

However, in an interview with HealthLeaders earlier this year, Centura Health CEO Peter Banko said the system was going to “pause on the mad rush” to value-based care models, citing the direction the market was taking on the issue.

As highlighted in the RAND report, CPR and CBGH believe that building on purchaser momentum through a statewide purchase cooperative can be an effective method at changing the market dynamics in Denver.

Similar to the Employers’ Forum of Indiana, an employer-led healthcare coalition which collaborated on the RAND report, the Peak Health Alliance, a Summit County-based purchaser cooperative, has sought to combat rising healthcare prices in the Denver area. The report states that Peak Health, which represents 6,000 covered lives, has already negotiated a “very aggressive” reduction in rates with Centura.

Bob Smith, MBA, executive director of CBGH, said that the report gives employer-purchasers “the tools to make changes” to the Denver healthcare market and stem the tide of rising prices.

“Healthcare costs, primarily driven by high prices and seemingly unwarranted increases, are edging out salary growth and economic development,” Smith said in a statement. “These trends are taking a toll on every employer from school districts to manufacturers and are simply not sustainable.”

Smith urged lawmakers to act on the report’s suggested reforms but also said that employers now have “the responsibility to act.”

 

 

 

 

Another round of debate over hospital consolidation

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Are hospital mergers a good thing or a bad thing?

Much of the answer to that question depends on what happens after the merger—does the combined organization provide better, more efficient care, or does it use its increased leverage to raise prices? Yet another round of back and forth on this issue took place this week, as the American Hospital Association (AHA) released the results of a study it commissioned from economic analysis firm Charles River Associates (CRA), while a group of academic antitrust specialists countered with their own briefing in response.

The AHA study, based on interviews with select health system leaders and econometric analysis by CRA, shows (surprise, surprise) that consolidation decreases hospital expenses by 2.3 percent, reduces mortality and readmissions, and reduces revenue per admission by 3.5 percent—indicating that the “savings” from consolidation are being passed along to purchasers. The economists, including Martin Gaynor at Carnegie Mellon, Zack Cooper at Yale, and Leemore Dafny at Harvard, countered in their briefing (surprise, surprise) that CRA’s research was biased in favor of hospitals, and cited numerous academic studies that indicate that hospital consolidation drives overall healthcare costs higher.

Beyond the predictable debate, our view is that consolidation can and should lead to better quality and lower prices—but that it largely hasn’t delivered on that promise. The prospect of “integrated care” that’s often touted by consolidation advocates hasn’t materialized in most places, both because hospital executives haven’t pushed hard enough on strategies to produce it, and because the market lacks sufficient incentives to encourage it.

AHA says hospital mergers are good — economists say otherwise

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/aha-says-hospital-mergers-are-good-economists-say-otherwise.html

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The American Hospital Association released a report stating that hospital acquisitions allow providers to provide better care at a lower cost to patients.

The report, which revisited an analysis concluding similar results three years ago, found acquisitions decrease cost due to the increased size of a combined system as well as clinical standardization.

Specifically, the AHA said hospital acquisitions lead to a 2.3 percent reduction in annual operating expenses at acquired hospitals. The study also said readmission and mortality rates decline at merging hospitals, and acquired hospitals see revenues per admission decline 3.5 percent, suggesting “savings that accrue to merging hospitals are passed on to patients and their health plans.”

However, the AHA’s findings — which were largely based on interviews with leaders of 10 health systems who weren’t randomly surveyed — contradict a wealth of economic data published that argues the opposite.

Last year, researchers found hospitals in monopoly markets, compared to hospitals in markets with four or more competitors, have prices that are 12 percent higher. In markets with four or more competitors, hospitals have lower prices and take on more financial risk, researchers said. Another independent analysis found hospital prices rise after hospitals combine. Researchers have also questioned whether consolidation really leads to better quality.

 

Merger creates 5-hospital system in Georgia

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/merger-creates-5-hospital-system-in-georgia.html

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The merger of Sandy Springs, Ga.-based Northside Hospital and Lawrenceville, Ga.-based Gwinnett Medical Center will be official Aug. 28.

Northside Hospital, a three-hospital system, and Gwinnett Medical Center, a two-hospital system, will create a combined organization with 1,636 inpatient beds, more than 250 outpatient locations and nearly 21,000 employees.

Several of Gwinnett’s facilities, including its two hospitals, will be renamed once the merger is finalized. Gwinnett Medical Center-Lawrenceville (Ga.) will be renamed Northside Hospital Gwinnett, and Gwinnett Medical Center-Duluth (Ga.) will be renamed Northside Hospital Duluth.

 

Allegheny Health Network adds 9th hospital

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/allegheny-health-network-adds-9th-hospital.html?origin=cfoe&utm_source=cfoe

Highmark's Allegheny Health Network has reached an affiliation agreement with Grove City Medical Center in Mercer County.

Pittsburgh-based Allegheny Health Network signed an affiliation agreement with Grove City (Pa.) Medical Center, the organizations said Aug. 19.

AHN, a subsidiary of Pittsburgh-based Highmark Health, and GCMC plan to close the affiliation in the next few months, pending government approval. GCMC will become AHN’s ninth hospital.

Under the agreement, AHN and GCMC will co-fund an independent Grove City Health Care Foundation, with an initial endowment of up to $30 million. In addition, GCMC will get a $40 million investment from AHN to support GCMC’s clinical programs, technological assets and physical infrastructure over the next 10 years. GCMC will also go live on Epic as part of the transition.

GCMC, a small, rural hospital, has faced growing financial struggles, according to the Pittsburgh Post-Gazette. For the past five years, the hospital has recorded negative operating margins. 

 

Myth Diagnosis: Do hospitals charge more to make up for low government pay?

https://www.healthcaredive.com/news/myth-diagnosis-do-hospitals-charge-more-to-make-up-for-low-government-pay/560021/

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It’s a mantra from providers to justify the disparate prices charged patients depending on their level of insurance coverage: It’s all in the name of cost shifting to make up for stingy government reimbursement.

The idea is that hospitals bill commercial payers more to make up for low rates from government payers and the costs from treating the uninsured. Providers and payers both insist the practice occurs, but academics are skeptical — and the notion is notoriously difficult to measure.

No one is doubting that the prices are different depending on who is footing the bill. The issue is whether they are dependent on each other.

“What is crystal clear is that there’s a huge unit cost payment differential between government and commercial payers,” John Pickering of Milliman told Healthcare Dive. “What isn’t clear is whether there’s a causal effect between those two.”

Heath economists, doctors and industry executives have been arguing about whether hospitals perform cost shifting for at least 40 years.

Government efforts to tamp down on runaway payments to providers may have sparked the debate. These include Medicare’s shift from strictly fee-for-service reimbursement to the prospective payment system in the 1980s.

Also, the Affordable Care Act attempted to codify efforts to pay providers based on performance with initiatives like the Hospital Readmission Reduction Program and alternative payment models.

Part of the difficulty is untangling factors like differences in geography, quality and market share, said Michael Darden, an associate professor at Carey Business School.

The body of research on healthcare cost shifting is mixed. There is evidence that some hospitals perform cost shifting, but not strong and clear results showing hospitals make such adjustments consistently or what exactly is causing them.

The debate has received some renewed attention as more states approve Medicaid expansion under the ACA and as employers consider offering high-deductible health plans that patients on the hook for more costs, Rick Gundling, senior vice president for healthcare financial practices with the Healthcare Financial Management Association, told Healthcare Dive.

“As folks get more price-sensitive through higher cost-sharing with patients and employers and these types of things — it’s certainly talked about. As it should be,” he said.

Policy implications

The topic may get even more attention as healthcare has come to dominate the early days of the 2020 presidential election, at least among the 20-plus contenders running in the primary.

While still a long way off, a “Medicare for All”-type system seems closer than any time in recent history.

While not all of the proposals explicitly or fully eliminate the private insurance industry, some (including those put forward by Sens. Bernie Sanders, I-Vt., and Elizabeth Warren, D-Mass.,) do, and others would at least severely curtail it. One key question for those plans is whether government rates would have to increase in order to keep hospitals and providers above water, and if so, by how much.

To counter, President Donald Trump and his administration have stepped up their scrutiny of industry billing practices. These efforts include pushing Congress to ban surprise billing and executive orders to revamp kidney care in the country and advance price transparency.

For their part,  providers say they’ll be forced to raise other rates if government programs pay less. Insurers will say the phenomenon means they must raise premiums to keep up.

In a statement to Healthcare Dive, America’s Health Insurance Plans pointed the finger at rising hospital prices, spurred in part from provider consolidation. The payer lobby argued health plans do their best to keep out-of-pocket costs affordable for customers through payment negotiations and by offering a number of coverage options.

“However, insurance premiums track directly with the underlying cost of medical care. The rising cost of doctor’s visits, hospital stays, and prescription medications all put upward pressure on premiums,” the group said.

Employers care about this issue as well, especially those that self-insure, said Steve Wojcik, vice president of public policy for the National Business Group on Health. Coverage can get expensive for businesses because they don’t get as good of a deal as government payers, he told Healthcare Dive.

Wojcik suggested more radical change away from fee-for-service payment arranges would be a better way of dealing with the issue. It’s an argument for many who push the healthcare sector’s slow march toward paying for quality and not quantity of treatment.

“I think, ultimately, it’s about driving transformation in healthcare delivery so that there’s more of a global payment for managing someone’s health or the health of a population rather than paying piecemeal for different services, which I think is inflationary,” he said.

Regardless, whether hospitals cost shift isn’t as important as whether they go out of business. “We may be missing the point if we focus on cost shifting,” Christopher Ody, a health economist at Northwestern University’s Kellogg School of Management, told Healthcare Dive.

Charging as much as they can?

A paper Darden helped author in the National Bureau of Economic Research found some hospitals that faced payment reductions from value-based Medicare programs did negotiate slightly higher average payments from private payers.

Health economist Austin Frakt noted the ability to negotiate better pricing could be related to quality improvement these hospitals likely undertook, knowing their quality measures would directly affect future payments.

It comes back to determining causality, Frakt, who holds positions with the Department of Veteran’s Affairs, Boston University and Harvard, told Healthcare Dive.

“It’s an important distinction, because the simplest economic model which is consistent with the evidence is that hospitals charge as much as they can to each type of payer,” he said. “So, they can’t really change what they receive from Medicare — those prices are fixed. But they charge private payers whatever the revenue- or profit-maximizing price is.”

Hospitals assert there is causality, but haven’t pointed to evidence that convinced Frakt of their argument. Frakt, for the record, understand why hospitals make the argument to policymakers, however.

“I’m not implying that this, throughout, is just to make a profit,” he said. “I think it’s possible to also have the best interests of patients in mind and to have this argument.”

Grundling said there has to be a breaking point somewhere so long as government rates fail to keep up with medical inflation. Also, hospitals have a federal legal responsibility to stabilize any patient regardless of ability to pay and have other philanthropic investments.

“It just puts a greater pressure on other payers in the system,” he said.

Frakt said the argument providers give for cost shifting doesn’t necessarily make sense for the average consumer. “It’s very strange that people find it intuitive that hospitals can readily cost shift because we don’t talk about any other industry like that,” he said. “Nobody says, well, my theater tickets was so much higher because you paid less.”

The idea that healthcare is vastly different from other industries is enduring, however, he said. “People don’t even want to think of healthcare as having prices,” he said. “How do you put a price on that?”

 

Proposed merger would create 14-hospital system

https://www.beckershospitalreview.com/hospital-transactions-and-valuation/proposed-merger-would-create-14-hospital-system.html

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Peoria, Ill.-based OSF HealthCare and Evergreen Park, Ill.-based Little Company of Mary Hospital and Health Centers are negotiating a full merger, according to a July 17 announcement.

OSF HealthCare, a 13-hospital system, and Little Company of Mary Hospital and Health Centers, a single-hospital system, will spend the next several months finalizing an agreement. The two Catholic healthcare organizations expect the merger, which is subject to regulatory and canonical approvals, to be completed in early 2020.

“Partnership development, particularly with other mission-driven organizations, is a key component of how we are successfully responding to the call to share our Ministry,” OSF HealthCare CEO Bob Sehring said in a press release. “We have long admired the strong Catholic heritage and commitment to the gift of life demonstrated by Little Company of Mary, and believe that together, we can create better health and deliver value for our communities.”

The merger of OSF HealthCare and Little Company of Mary Hospital and Health Centers would create a 14-hospital system with nearly 24,000 employees.