Tag Archives: Competition

AMA: Nearly 70% of payer markets ‘highly concentrated’

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http://www.healthcaredive.com/news/ama-nearly-70-of-payer-markets-highly-concentrated/507916/

Dive Brief:

  • A new American Medical Association (AMA) report found that one health insurer has at least a 50% market share in 43% of metropolitan areas. Nearly 90% of markets have at least one insurer with a 30% or greater market share.
  • Anthem, a major Blues payer and one of the largest insurers in the country, had the largest geographic footprint. The payer had the highest market share in 82 metropolitan areas.
  • The report found that 69% of markets are “highly-concentrated.”

Dive Insight:

The AMA study looked at where payer consolidation “may cause anti-competitive harm to consumers and providers of care.”

The authors said market concentration is a “useful indicator of competition and market power” and is an area the U.S. Department of Justice and Federal Trade Commission analyze when evaluating proposed mergers.

The annual report found a further consolidation of markets. The percentage of markets with one dominant insurer increased by 8% over the past two years.

Consolidation of insurers can affect premiums and reimbursements. A recent Health Affairs report found mergers involving hospitals, providers and payers resulted in insurers achieving more bargaining power to reduce provider prices in highly concentrated markets. That report said hospital admission prices were 5% lower in highly consolidated provider and insurer markets compared to those that are not as dense.

The AMA report warned along a similar theme. “We find that the majority of U.S. commercial health insurance markets are highly concentrated. These markets are ripe for the exercise of health insurer market power, which harms consumers and providers of care,” according to the report.

The AMA said major mergers like Anthem-Cigna and Aetna-Humana are reasons why the organization conducts the annual report. Neither merger ultimately happened, but they would have further consolidated the payer market.

The AMA warned about further consolidation. “Our findings should prompt federal and state antitrust authorities to vigorously examine the competitive effects of proposed mergers between health insurers. Given the uncertainty in predicting the competitive effects of consolidation, some mergers that are allowed cause competitive harm,” according to the report.

Anthem’s growing market share comes as the payer is creating policies that attempt to bring down health costs by pushing services away from hospital inpatient settings. Anthem announced this year that it won’t reimburse for emergency department visits deemed unnecessary and will no longer pay for MRIs and CT scans at hospitals in 13 states unless the tests are an emergency.

Given Anthem’s footprint, the payer’s new policies may mean other payers competing in the same markets will follow suit.

Why for-profit hospitals in Chicago are losing

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http://www.modernhealthcare.com/article/20171002/NEWS/171009998?utm_source=Sailthru&utm_medium=email&utm_campaign=Newsletter%20Weekly%20Roundup:%20Healthcare%20Dive%2010-07-2017&utm_term=Healthcare%20Dive%20Weekender#

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The Chicago-area hospital market is notoriously fragmented, competitive and dominated by not-for-profits. The few for-profit players there, notably national hospital chains Quorum Health and Tenet Healthcare Corp., have failed to gain share while their charitable rivals bulk up and expand. Tenet and Quorum each accounted for roughly 2% of the market in 2015, according to an analysis by independent Minneapolis-based consultant Allan Baumgarten.

Now the for-profits might be skipping town. Quorum, which owns Vista Health System in north suburban Waukegan, has already inked a deal to sell one of Vista’s two hospitals to a for-profit behavioral health company. Tenet is apparently entertaining offers from potential suitors for its four Chicago-area hospitals. In fact, the entire company might be for sale, according to the Wall Street Journal.

So why is it so hard for investor-run health systems to succeed in the Chicago area?

For one, for-profit health systems have shareholders to answer to, so they aren’t inclined to balance services that generate revenue like orthopedics and cancer treatments with ones that don’t. Plus, Chicago’s population isn’t growing. Actually, it’s shrinking. And unlike in some other states, Illinois regulators control the fate of big-ticket items, like a new hospital wing or a pricey outpatient building.

“If you think about the amount of capital a for-profit has, where are they going to place their bets?” asks Elyse Forkosh Cutler, president of Chicago-based Sage Health Strategy. “If they’re looking for low regulatory barriers and population growth, Chicago is not going to be where they come.”

There’s also this: The hospital industry in the Chicago metro area is one of the most fragmented in the nation, with 95 medical centers in the six-county area. Of those, 16 are defined as for-profit, and nearly half are general hospitals. The rest are specialty, according to 2015 state records, the most recent available.

The competition for patients and doctors is fierce. Add margin pressures for for-profits, and it’s even tougher.

“Each (hospital) fights in its own little niche for something,” says Brian Sanderson, Chicago-based national managing partner for healthcare at tax and advisory firm Crowe Horwath. “If you can’t differentiate, and there’s a number of ways to do that, then you can’t really position yourself any better to garner more market share.”

Representatives for Dallas-based Tenet, Quorum in Brentwood, Tenn., and some of its hospitals in the Chicago area didn’t return phone calls or declined to comment.

Large local not-for-profits, such as Advocate Health Care (the biggest hospital network in the state), UChicago Medicine, Northwestern Medicine and Rush are either scooping up community hospitals, forging less formal affiliations with them or investing heavily in outpatient facilities to feed back patients to their main campuses. “They’re leveraging themselves to create volume and expand the breadth of services,” says Dan Marino, a Chicago-based executive vice president at consultancy GE Healthcare Camden Group. “I don’t see the for-profits doing that. Historically, it’s a very traditional old-school model.”

To be sure, Vista has tried. With fewer dollars (about $203.2 million in 2015 net patient revenue) and a higher share of low-income patients than billionaire rivals such as Advocate and Northwestern, the system in recent years has expanded its intensive-care unit at its main general hospital, Vista Medical Center East in Waukegan, and opened a free-standing emergency center in wealthier Lindenhurst.

The system won state regulators’ approval to make all patient rooms at Vista East private, too, a move many hospitals have already made. But in June, Quorum put that project on hold, according to a letter interim Vista CEO Norman Stephens sent to state regulators. Perhaps the biggest blow was regulators rejecting Vista’s pitch to build a hospital in Lindenhurst, which the system argued would have been a lifeline to support its Waukegan facilities.

Quorum also owns MetroSouth Medical Center, a community hospital in south suburban Blue Island.

Some winners, more losers

Tenet arrived in the Chicago area in 2013, paying a premium for Vanguard Health Systems, which had four local hospitals. They are Weiss Memorial Hospital in Chicago’s Uptown neighborhood and three hospitals in the western suburbs: Westlake Hospital in Melrose Park, West Suburban Medical Center in Oak Park and MacNeal Hospital in Berwyn.

MacNeal was the most profitable of its sister hospitals by far, with $48.2 million in net income in 2015, according to Baumgarten’s analysis. Weiss and Westlake were money-losers, with losses of $2.8 million and $4.3 million, respectively, he said.

Weiss in particular is in one of the most competitive pockets of the Chicago area. Located along Lake Shore Drive, Weiss sits within a few miles of several hospitals with stronger branding power and cachet, including Advocate, and big Catholic provider Presence Health. Doctors and patients alike have plenty of options in terms of employment and care.

The Tenet hospitals in recent years have focused on smaller investments, too. Instead of glitzy new towers, improvements include renovations to an operating room waiting area, building a food pantry and buying software, state records show.

It’s not clear what the fate of Tenet’s investment is in the Chicago market. The company has been hustling to sell off weak hospitals in markets across the country that aren’t core to the brand. That could include Chicago: Piper Jaffray research analyst Sarah James says the market isn’t considered a major one for Tenet.

With a potential sale of the entire company, not-for-profit hospitals in the Chicago area would continue to dominate.

Study: Hospitals on doctor-buying spree raise legal questions

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Bigger and fewer doctor practices drive up prices for patients, employers and taxpayers, several studies confirm.

Hospitals have gone on a doctor-buying spree in recent years, in many areas acquiring so many independent practices they’ve created near-monopolies on physicians.

Research published Tuesday throws new light on the trend, showing that large doctor practices, many owned by hospitals, exceed federal guidelines for market concentration in more than a fifth of the areas studied.

But it goes further, helping answer some of health policy’s frequently asked questions: How could this happen? Where are the regulators charged with blocking mergers that have been repeatedly shown to drive up the price of health care?

The answer, in many cases, is that they’re out of the game.

Doctor deals are typically far too small to trigger official notice to federal antitrust authorities or even attract public attention, finds a paper published in the journal Health Affairs.

When it comes to most hospital-doctor mergers, antitrust cops operate blind.

“You have a local hospital system and they’re going in and buying one doctor at a time. It’s onesies and twosies,” said Christopher Ody, a Northwestern University economist and one of the study’s authors. “Occasionally they’re buying a group of five. But it’s this really small scale” that adds up to big results, he said.

The paper, drawing from insurance data in states covering about an eighth of the population, found that 22 percent of markets for primary care doctors, surgeons, cardiologists and other specialties were “highly concentrated” in 2013. That means that, under Federal Trade Commission guidelines, a lack of competitors substantially increased those doctors’ ability to raise prices without losing customers.

The research didn’t sort physician groups by ownership. But other studies show that large, predominant practices are increasingly owned by hospitals, which see control of doctors as a way to both coordinate care and ensure patient referralsand revenue.

According to one study, hospitals owned 26 percent of physician practices in 2015, nearly double the portion from 2012. They employed 38 percent of all physicians in 2015, up from 26 percent three years earlier.

In the study by Ody and colleagues, only 15 percent of the growth by the largest physician groups from 2007 to 2013 came from acquisitions of 11 doctors or more.

About half the growth of the big practices involved acquisitions of 10 or fewer doctors at a time. About a third of the growth came not from mergers but from hiring doctors out of medical school or other sources.

Federal regulations require notification to anti-monopoly authorities only for mergers worth some $80 million or more — far larger than any acquisition involving a handful of doctors.

Very few of the mergers that drove concentration over the market-power red line — or even further — in the studied areas would have surpassed that mark or a second standard that identifies “presumably anti-competitive” combinations.

But the little deals add up. In 2013, 43 percent of the physician markets examined by the researchers were highly or moderately concentrated according to federal guidelines that gauge monopoly power by market share and number of competitors.

(A market with three practices in a particular specialty, each with a third of the business, would be at the lower end of what’s considered highly concentrated. A market with one doctor group doing at least 50 percent of the business would be highly concentrated no matter how many rivals it had.)

Bigger and fewer doctor practices, fueled largely by hospital acquisitions, do drive up prices for patients, employers and taxpayers, several studies confirm.

Part of the increase results from a reimbursement quirk. Medicare and other insurers pay hospital-based doctors more than independent ones. But another part comes from the lock on business held by large practices with few rivals, Ody said.

“It’s a problem,” said Martin Gaynor, a health care economist at Carnegie Mellon University and former head of the FTC’s Bureau of Economics. “All the evidence that we have so far … indicates that these acquisitions tend to drive up prices, and there’s other evidence that seems to indicate it doesn’t do anything in terms of enhancing quality.”

The American Hospital Association, a trade association, declined to comment on the study since officials hadn’t seen it. But the AHA often argues that “hospital deals are different” and that doctor acquisitions keep patients from falling through the cracks between inpatient and outpatient care.

The FTC has moved to block or undo a few sizable doctor mergers, including an orthopedics deal in Pennsylvania and an attempt by an Idaho hospital system to buy a medical practice with dozens of doctors.

But the agency largely lacks the tools to challenge numerous smaller transactions that add up to the same result, said Ody.

An FTC spokeswoman declined to comment on the study’s findings.

Ody urged state attorneys general and insurance commissioners to look more closely at doctor combos. Sometimes state officials can question mergers overlooked by federal authorities. Or they can block anti-competitive practices, such as when hospitals seek to exclude competitor physicians from insurance networks.

Beyond that, “I hope that people notice this [research], and I hope people think creatively about what kinds of solutions might be appropriate for this,” he said. “I don’t know what they are.”

A snapshot into why some providers are eliminating positions

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http://www.healthcaredive.com/news/healthcare-workforce-growth-cuts/446182/

Employment in the healthcare industry has risen since the ACA was passed, but many health systems have been trimming their workforce under financial pressure.

It’s clear there have been a fair amount of hospital and provider layoffs in 2017.

In the past few months, hospitals of all sizes, and in all parts of the country, have said they are cutting jobs or eliminating open positions. Major providers affected have included Memorial Hermann, Brigham and Women’s Hospital, NYC Health + Hospitals, Summa Health and Hallmark Health. In May, Becker’s Hospital Review listed 48 layoffs across the industry the publication had reported on in 2017.

The layoffs come in contrast with the sharp rise in hiring in the healthcare sector ever since the Affordable Care Act (ACA) was enacted. While the hiring growth is a long-term trend — though it’s yet to be determined at what rate in 2017 — these layoffs are due in part to the short-term trends of softening admissions and flattening reimbursements. Many providers cited similar problems: declining reimbursements, lower admissions and shrinking operating incomes. Layoffs aren’t the only play for struggling organizations, but hospital expenses are rising on multiple fronts, and executives have to make some hard choices.

Big drivers of the growth are the aging population and the pending retirement of many registered nurses. It’s unclear how or when the layoff and healthcare job growth trends will change, but the underlying themes are not going away. The Bureau of Labor Statistics (BLS) is scheduled to release 2016-2026 occupational projections in October, while layoffs will continue to be tracked throughout the year.

Then there’s the elephant in the room over the buzzword of 2017: Uncertainty. Whether it be in Congress or in the executive branch, uncertainty over U.S. healthcare policy is making providers nervous as the insurance open enrollment period nears with no clear ACA reform or repeal in sight.

Healthcare hiring still on the rise, but the pace may be slowing

To date, the healthcare employment bubble hasn’t burst. Healthcare jobs, including hospital jobs, still are on the rise. While job growth is a different metric than layoffs and require different considerations, both underscore the themes affecting the industry’s workforce.

Ani Turner, co-director of Altarum Institute’s Center for Sustainable Health Spending, told Healthcare Dive there have been some clear trends in hospital job growth in recent years. In 2013, there was little job growth but the expanded coverage affect — where more individuals gained health insurance for the first time under the ACA — helped spur hospital job growth in 2014.

This expanded coverage helped hospitals experience new revenue opportunities thanks to more people entering the care delivery space, especially in states that expanded Medicaid. In addition, since the implementation of the ACA, the level of uncompensated care nationwide has gone down from $46.4 billion in 2013 to $35.7 billion in 2015.

Since that time, hospitals experienced great growth from a jobs perspective. In a 2015 Forbes article, Politico’s Dan Diamond noted that healthcare job growth surged at its fastest pace since 1991 starting in July 2014 up through May of 2015. In fact, healthcare practitioners and healthcare support positions are expected to be among the fastest growing jobs from 2014 to 2024. BLS notes the aging population and expanded insurance coverage will help fuel this growth as demand for healthcare services increases.

The recent surge is “somewhat unexpected,” Turner says. “One would think hospitals would be conservative in their hiring. Everything I’m seeing is flat or slightly declining volumes, especially on inpatient side.”

“The data don’t always cooperate with the story that makes sense,” Turner added.

Brian Augustian, principal at Deloitte, believes the job growth is going to continue to slow this year in part because there will be a push for greater automation and productivity. “As organizations are able to use machine learning, artificial intelligence and better utilize technology to get tasks done, it will not only result in…needing fewer people but also different types of people,” he told Healthcare Dive.

The rate of job growth will be an issue to watch throughout the year. As shown above, just two months worth of data changes the story from a narrative of “slowing growth” to “continuing to soar.” The looming retirement of registered nurses and the aging population do point to hospitals and providers arming themselves to smooth the transition of both the workforce as well as the pending flood of baby boomers entering into the care space.

Job growth doesn’t stop financial troubles for providers

However, as seen in the job cut announcements and recent quarterly earnings for hospital operators, providers are facing challenges that are affecting their bottom lines.

One of the biggest challenges for providers is declining or flattening admissions. In 2010, all hospital admissions totaled 36.9 million admissions. By 2013, admissions had dropped by 1.5 million; 35 million patients were admitted in 2015.

In the latest rounds of quarterly earnings, most for-profit hospital operators took a lashing, all acknowledging softening markets and weaker-than-expected patient volumes. Community Health Systems (CHS) reported it underperformed in Q2 2017 and is exploring more divestitures while HCA Healthcare reported it missed Q2 estimates due in part to higher expenses and lower-than-expected patient admissions. On Monday, Tenet Health reported a 4.5% decline in total admissions for the first six months of 2017.

Indiana University Health’s operating income suffered a 46% loss while seeing less individuals coming into the facilities, Modern Healthcare reported.

As seen in HCA Healthcare’s Q2 earnings call, lower acuity visits declined in the last quarter. At CHS, emergency department volume declined on the outpatient side, which Tim Hingtgen, president and COO of CHS, attributed to “industry dynamics, including urgent care growth, freestanding ED competition in select markets.” As Turner notes, the average person seeking a care setting visit is likely going to a physician’s office. This puts pressure on operators to rethink their lower acuity setting strategies and not rest on the strength of organic patient growth seen in previous years.

Another major issue for providers are expenses. More jobs equals more expenses, for example. Facility maintenance, equipment, electricity, telephone lines, internet, etc. all add up. According to the American Hospital Association, expenses for all U.S. registered hospitals are currently $936 billion, up from $859.4 billion in 2013. In addition to these changes, turning toward value-based care exposes providers more to risk-based contracts which can affect reimbursement formulas.

Hospitals know they need to lower cost structures, and personnel changes is one means

Ben Isgur, director of PricewaterhouseCoopers’ Health Research Institute, adds that squeezing costs isn’t a new concept for hospitals. There are many options for executives to manage out costs from its overhead. Supply chain, infrastructure and third party contracts are all go-to areas for such efforts. If two systems merge, departments can be streamlined or share services. In some cases, third-party contractors may be more beneficial to a provider than hiring for internal positions.

Igor Belokrinitsky, healthcare strategist at Strategy&, a member of the PwC network of firms, told Healthcare Dive in March many administrators faced with financial challenges tell their departments during the budgeting process to budget for zero cost increases or even for a reduction. “In the longer run, we are seeing and are working with health systems to take out pretty significant amounts of cost out of their operations, both clinical and nonclinical, and setting targets like 15-20%, which is a transformative change,” he said. “When talking about a 20% cost improvement, you’re questioning, ‘Do we need this facility? Do we need to provide this service at this location? Does this service need to be provided by a physician?'”

The current political landscape isn’t helping matters either

Isgur tells Healthcare Dive that healthcare industry layoffs should be watched closely and agrees with Turner that one of the biggest reasons is uncertainty in the industry.

As an example, he points to the Congressional Budget Office’s figure that 15 million individuals could have lost health coverage in 2018 if the Senate ACA repeal bill had become law. “Providers look at that and have to be ready for an environment where they have potentially fewer paying patients,” Isgur told Healthcare Dive.

During the heady time when ACA repeal-and/or-replace was on Congress’ plate this summer, many projections showed healthcare jobs would’ve been affected. One analysis of the House ACA bill estimated 725,000 jobs across the entire industry would be lost by 2026 if it had become law. The primary cause of the job disappearances and state economic downturns would have been attributable to cuts to healthcare funding, such as more than $800 billion to Medicaid, and lower premium subsidies.

Moody’s Investor Services projected the Senate ACA repeal bill would have caused uncompensated care costs to rise at hospitals.

The fight over healthcare policy is likely now headed to the executive branch, as Congress has failed to pass a bill that repeals or replaces the ACA. President Donald Trump has cost-sharing reduction payments to insurers hanging in the balance, and hasn’t publicly stated if the White House will continue to make these payments.

If these payments are discontinued, Fitch Ratings found in a new report that premiums could increase to the point where customers won’t be able to pay for coverage, thus increasing the chance for uncompensated payments to rise.

In addition, state Medicaid waivers will have to be looked at. Some applications, such as the Maine’s, could include work requirements, mandatory premiums and asset testing. It would be one of the most conservative state programs, and some health policy experts warn that the restrictions would push out many low-income adults who would otherwise qualify.

“When you add uncertainty to what’s already been going on in the reimbursement environment around how many more uninsured there may be going forward, that’s not the cause of [layoffs] but it’s certainly going to accelerate the thinking of executive teams to make sure [their organizations] are efficient and ready for anything,” Isgur said.

Isgur does think the industry will see more layoff announcements this year, but that it is an important trend to watch, especially as more decisions come out of Washington.

 

How GOP Will Still Carve Up Medicare

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https://www.forbes.com/sites/johnwasik/2017/07/19/how-gop-will-still-carve-up-medicare/#48a9aa5943f1

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Now that the GOP’s plan for repealing and replacing Obamacare seems to be in a coma, the party has turned its attention to the 2018 federal budget.

Although specific spending details in the House committee mark-ups are still being hammered out, the GOP is back to its old script.

The GOP has a working blueprint to cut billions out of federal programs and balance the budget without tax increases. And, among other items, it still wants to privatize Medicare.

Speaker of the House Paul Ryan (R-WI). (Photo by Win McNamee/Getty Images)

Medicare covers more than 55 million Americans. Most of them are 65 or older and millions are permanently disabled. It’s the nation’s second-largest government-managed single-payer plan after Medicaid, which covers some 70 million.

 

While Medicare provides coverage for doctors and hospitals, it also covers prescription drugs if you pay an additional premium. You also have the option to buy into private policies through Medicare Advantage — if you don’t want the fee-for-service part of basic Medicare.

The rehashed House GOP budget blueprint wants to reshape Medicare into more of a Medicare Advantage model, which now covers some 19 million Americans.

What does that mean? Funding for the guaranteed part of Medicare would be shifted into the privatized scheme. You’d receive a fixed stipend or “premium support” to buy a private policy on an exchange.

Buying private plans on an exchange? Where have we heard that before? Oh yes, that was the model for the Affordable Care Act, or Obamacare, which the GOP has spent the last seven yearstrying to repeal. It’s been a staple of House Speaker Paul Ryan’s policy platform for years.

According to the House Budget Committee blueprint:

“The Medicare improvements envisioned in this budget resolution would adopt the popular simplified coverage structure of Medicare Advantage, and allow seniors greater plan choices while reducing costs.

It would resemble the private insurance market, in which the majority of Americans select a single health care plan to cover all their medical needs.”

In theory, having private insurers compete with the government to provide more coverage at a lower cost sounds like a good idea. But is it possible, given the government’s massive economies of scale?

Without generous subsidies, the prospect of insurers offering a better Medicare deal is like the corner grocer trying to compete with Wal-Mart. Moreover, using Medicare Advantage as a model is a horrible idea.

Medicare Advantage insurers have been embroiled in numerous billing scams, according to the non-partisan Center for Public Integrity. The Center, an independent watchdog, has published more than two dozen pieces on this ongoing morass. Here’s a summary of their findings:

“Congress created private Medicare Advantage health plans 11 years ago to help control health care spending on the elderly. But a Center for Public Integrity investigation found that billions of tax dollars are wasted every year through manipulation of a Medicare payment tool called a “risk score.”

The formula is supposed to pay health plans more for sicker patients and less for healthy people, but often it pays too much. The government has for years missed opportunities to corral tens of billions of dollars in overcharges and other billing errors tied to abuse of risk scores.

Meanwhile, the growing power of the Medicare Advantage industry has muzzled many critics in Congress, and turned others into cheerleaders for the program.”

Back to the main story: What House Speaker Paul Ryan and GOP congressional leaders are proposing is to tear down and remold basic Medicare into the troubled Medicare Advantage program, which would be like throwing kerosene on a house fire.

There’s even more of a muddle on how the GOP would calculate how much to give seniors for their yearly stipend to cover private premiums. What if policy costs go up double digits and the stipend doesn’t keep pace with the private market?

Would private insurers offer lower rates to healthier seniors and price less-healthy Americans out of the market? Although basic Medicare would still be available, wouldn’t the money diverted to premium support undermine funding for the traditional Medicare Hospital Trust Fund, which may be insolvent by 2029?

I think there’s a reason why there’s a billboard in Kenosha, Wisconsin — in the heart of Ryan’s Congressional District — that shows Ryan in a robber’s mask. There’s an attempted theft in progress, but older Americans and the disabled will be the victims.

Why Are Prescription Drug Prices So High?

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http://www.commonwealthfund.org/publications/issue-briefs/2017/jul/getting-to-root-high-prescription-drug-prices?omnicid=EALERT1240145&mid=henrykotula@yahoo.com

Increased prescription drug prices and spending are among the main drivers of health care costs in the U.S. About one-third of the rise in prescription spending from 2010 to 2014 was a result of either price increases for drugs or a shift toward prescribing higher-price products, with patients caught in the middle.

A new issue brief by former Rep. Henry Waxman and his colleagues at Waxman Strategies summarizes major problems behind high U.S. prescription drug prices, while also offering feasible policy actions. For instance, the authors identify the use of patent protection and market exclusivity laws by brand-name drug manufacturers as one driver of high prices.

Among other potential solutions, the authors suggest introducing price competition sooner for such drugs and making government-purchasing arrangements for medications that protect public health

Palomar Health sticks with medical group it created despite $82 million loss

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Palomar Health in Escondido will continue to support the medical group it helped to created seven years ago despite mounting losses that have reached $82 million.

While it might seem intuitive for the North County hospital operator to pull the plug on a relationship that has run in the red for seven years now, experts said market forces that require doctors and hospitals to work together more closely are keeping partnerships like this one intact — even if they bleed cash.

At its meeting Monday, Palomar’s elected governing board is set to forgive a line of credit that was extended to Arch Health Partners Medical Group for $76 million in principal and $6 million in interest. In exchange, the public health district and the medical group would agree to share responsibility for Palomar’s present and future debts, which currently exceed $500 million, according to the district’s most recent financial statements.

Big players such as Kaiser Permanente, Scripps Health and Sharp HealthCare have been creating special doctor groups for decades as a way of feeding patients to the hospitals they operate. California law forbids them from requiring physicians to send their patients to any specific location for care, but these arrangements nonetheless, make it more likely that patients seen in an affiliated medical office will end up in a facility of the same name when they need hospitalization.

The Affordable Care Act only accelerated this trend when it started penalizing hospitals for patients who are readmitted shortly after being sent home.

New payment programs established by the government and private insurers have also started offering better reimbursement to organizations that can deliver high-quality care at a lower cost. Being able to pull off that feat means now is not the time to walk away from a partner like Arch, even though that medical group estimates a $14 million operating loss this year and an $11 million loss for next year, said Della Shaw, Palomar’s executive vice president of strategy.

“The reality today is that it’s nearly impossible for a system to operate without an aligned physician group,” Shaw said.

Though it has not operated in the black and currently cannot say when — or if — it will be able to do so in the future, Shaw said Arch has been crucial in helping Palomar turn around a financial mess that had it operating at a $22.2 million deficit in 2013, one year after opening the $956 million Palomar Medical Center in Escondido.

Today, according to Palomar chief financial officer Diane Hansen, the health district is expected to post a $20 million profit on its operations and will have increased its savings for four years in a row.

Palomar’s willingness to sink cash into Arch year after year has not been without opposition.

Graybill Medical Group, one of the largest independent health operators in North County and an entity that has supported Palomar for decades, has regularly objected to the ever-growing subsidy for Arch. Its doctors have occasionally raised questions about Arch’s management decisions and financial strategies at public meetings of Palomar’s elected governing board. Graybill has even successfully backed slates of candidates for the board in the past two elections.

The group did not comment Thursday on Palomar’s impending decision to wipe out the debt that it has questioned for years. However, Alan Smith, a San Diego attorney who has served as Graybill’s public affairs adviser, said the group has generally questioned whether creating Arch, which was built from pre-existing specialty and primary care practices that already existed in inland North County, was truly necessary.

“The fear has been, ‘My gosh, if we don’t subsidize these specialists, they’re going to pick up and leave. We don’t think they were going any place, and we just thought there were better places for Palomar to spend its money,” Smith said.

This is not suggesting that Graybill lacks respect for Arch’s doctors, Smith added.

“We love these guys as physicians. The doctors themselves get along famously. They send patients back and forth all the time. It’s just the business model that Palomar created that’s the point of contention,” Smith said.

It does seem that Arch has been able to deliver quality care. Medicare rates the group 4.5 out of five stars from the Centers for Medicare and Medicaid Services, and Arch has twice won the Integrated Healthcare Association’s “Excellence in Healthcare” award.

As to the “why bother?” question that Graybill raises, Deanna Kyrimis, Arch’s chief executive, said in an email that bringing together previously separate groups of doctors under one organizing structure has allowed creation of services that are hard to do on an ad-hoc basis. Sharing electronic infrastructure, for example, is a very important activity that the federal government is increasingly requiring in its payment structures for Medicare.

Shaw, the Palomar strategy executive, added that while private doctor groups — Graybill chief among them — have been great allies, creating Arch has allowed the health care district to open offices in areas such as Ramona, Rancho Peñasquitos and Rancho Bernardo, where there is either fierce competition with larger health operators or where demographics are more financially challenging. Subsidizing Arch has allowed Palomar to request that certain services, such as mental health, be bolstered even though doing so would not make financial sense to an independent group, she added.

“There is no margin in that service. However, Arch Health Partners was able to fill that gap that needed filling in the safety net,” Shaw said. “That’s an example of where I would say the subsidy we have provided has been effective for the public.”

But it is also clear that Arch’s business model has required some refinement.

Kyrimis, who was hired in late 2014 during a major management shake-up, said the group previously provided an average subsidy of $415,000 per doctor in 2015. The number has been reduced to $261,000 this year and is expected to fall further to $192,000 in 2018.

The executive said she has been able to bring costs down by reducing employee benefits and salaries after a financial review in 2015 showed they were above industry averages.

“Fortunately, the staff overages were in administrative areas — furthest away from the patient, if you will,” Kyrimis said. “We have reduced our administrative management and administrative support staff to the appropriate level.”

The cost-cutting process has not been without protest. A well-known cardiologist spoke up at a recent board meeting about being forced out of the group for no good reason, and those remarks were immediately followed by a rebuttal statement from Arch’s lawyer.

It is hard to say exactly how the Arch experience compares to other, often much larger relationships between medical groups and hospitals. Most of those tie-ups — such as the ones for Sharp HealthCare, Scripps Health and Kaiser Permanente — involve privately run nonprofits and thus do not have to report their year-end results publicly.

Penny Stroud, founder of Cattaneo & Stroud, a health care consultancy that collects and publishes a California medical group inventory list for the California Healthcare Foundation, said it is very difficult to create a new medical group these days, especially in San Diego County.

“The investments are so high for everything from electronic medical records to recruiting and retaining physicians. Especially in primary care, it’s a high-overhead, low-margin business, and the San Diego marked is so consolidated among a small handful of very large players that it’s a very challenging environment for a smaller group,” Stroud said.

She added that it is not uncommon for hospital operators to regularly subsidize the medical groups they affiliate with, though that cash flow is generally not shared publicly.

Typically, she said, medical groups that operate in areas with high concentrations of Medicare and Medicaid patients generally tend to need more support than those in areas with lots of people who are privately insured. In addition, offering ancillary services — from X-ray suites to private labs — can make the difference between those that are profitable and those that aren’t.

Setting up multi-specialty groups, especially cobbling them together from existing practices as Arch has done, is always expensive. But an $82 million loss over seven years? Isn’t that a lot of cash?

“It would certainly cost as much for Palomar to develop its own foundation-model medical group from scratch anywhere where you have a highly competitive market like you have in San Diego,” Stroud said.

The unexpected political power of dentists

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https://www.washingtonpost.com/politics/the-unexpected-political-power-of-dentists/2017/07/01/ee946d56-54f3-11e7-a204-ad706461fa4f_story.html?utm_term=.d637119c01a6

As the cost of dental care rises beyond the reach of millions of Americans, the dental lobby is coming under increasing scrutiny. Critics say the ADA has worked to scuttle competition that could improve access to dental care in underserved areas and make routine checkups and fillings more affordable.

The Federal Trade Commission has battled dentists in state after state over anti-competitive conduct. In 2007, the FTC successfully settled a complaint over a South Carolina dental board requirement that dentists examine children in school clinics before hygienists can clean their teeth, adding greatly to the cost. In 2015, the FTC won a Supreme Court ruling against the North Carolina dental board, which tried to block teeth-whitening businesses from operating in malls.

This year, the FTC publicly commented on a growing campaign to improve access to dental care by creating a category of mid-level practitioners, or “dental therapists,” to provide some routine services. In a letter to the Ohio lawmakers considering such a measure, FTC officials said therapists “could benefit consumers by increasing choice, competition, and access to care, especially for the underserved.”

More than a dozen states are considering similar proposals, despite fierce resistance from the ADA and its state affiliates. During the Maine debate, so many dentists flooded the statehouse in Augusta that besieged lawmakers taped up signs declaring their offices a “Dental Free Zone.”

The dentists had a unique way to get around the blockade: the regular checkup. While the bill was pending, some lawmakers found themselves getting an earful when they stretched out and opened wide for an oral exam.

“I’m certainly a captive audience when I am in the dental chair,” said Brian Langley (R), a Maine state senator who also got calls from four other dentists in his district and ended up siding with them.

Former lobsterman Michael Hanson, 54, says the American dental system is broken. (Linda Davidson/The Washington Post)

The bill establishing a new provider type ultimately passed, but “it was brutal, very brutal,” recalled David Burns, a Republican state senator who retired after supporting the measure. Afterward, Burns said, he got a call from his dentist, who vowed never to treat him again, saying, “This relationship is over.”

Most of the 200,000 dentists in America work solo, in offices that are essentially small businesses. They are known for projecting a remarkably unified voice on issues relating to their livelihood. The ADA says 64 percent of dentists belong to the association. By comparison, only 25 percent of physicians belong to the American Medical Association.

 

A Brief Analysis of Health Insurance Competition and Commercial Market Share

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http://www.markfarrah.com/healthcare-business-strategy/A-Brief-Analysis-of-Health-Insurance-Competition-and-Commercial-Market-Share.aspx

Pennsylvanias Commercial Market as of December 2016

Health plan market share is an important measure of competitive positioning for insurers. Health insurance carriers often assess the number of people enrolled in their health plans at the state level or at a more defined geographic area to determine their market position. Companies not only look at their own market position but also routinely analyze competitor membership to evaluate relative market share. In this brief, Mark Farrah Associates (MFA) presents an overview of market demographics and market share data, with a focus on health plan market position in three Metropolitan Statistical Areas in Pennsylvania.

Market Demographics

Health insurance competition can be assessed by using many performance variables with health plan enrollment and market share metrics being the most common. Enrollment can be divided into two core segments, commercial health insurance and government-sponsored programs. The largest segment within the commercial market is employer-based plans, also known as the group segment. The group segment includes fully-insured/risk-based policies or self-funded/ASO (administrative services only) arrangements with employers. Individual or non-group plans, including Marketplace products, are also part of the commercial segment. Government programs, Medicare and Medicaid, provide coverage for the elderly or people with disabilities and low income populations.

As of December 31, 2016, insurance companies provided medical coverage for approximately 264 million people, based on enrollment as reported in Mark Farrah Associates’ Health Coverage Portal™. The employer-based ASO and risk-based segments remained the largest sources of coverage in the industry, collectively enrolling 196 million people in the commercial segment. Medicaid and SCHIP programs enrolled nearly 75 million people and within this segment, approximately 51 million are covered by managed care plans. Approximately 57 million seniors were enrolled in Medicare programs at year-end 2016. This included more than 38.7 million people with original Medicare and 18.7 million members enrolled in Medicare Advantage plans.

Competition and Market Share

To analyze health insurance competition, analysts often start with state-by-state assessments of competitor enrollment and market share. Data from statutory filings can provide valuable insights about state health insurance competition. Based on data filed in statutory financial reports from the NAIC (National Association of Insurance Commissioners) and the CA DMHC (California Department of Managed Health Care), Mark Farrah Associates’ Health Coverage Portal™ is a tool widely used by health plans for easy access to market share data and financial performance metrics.

For the purposes of this brief, MFA first looked at the competitive mix in Pennsylvania’s commercial market by analyzing state enrollment figures from the Health Coverage Portal™. The chart below illustrates the leading companies in Pennsylvania’s commercial health insurance market. Three Blue Cross Blue Shield affiliates and Aetna comprise the largest percentage of market share for the state.

Market power matters

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Market power matters

Image result for competitive market muscle

It’s the clash of titans.

In January the Massachusetts the Group Insurance Commission (GIC) — the state agency that provides health insurance to nearly a half-million public employees, retirees, and their families — voted to cap provider payments at 160% of Medicare rates. Ignoring Medicare (~1M enrollees) and Medicaid (~1.6M enrollees), the GIC is the largest insurance group in the state.  According to reporting from The Boston Globe, the cap would be binding on a small number of concentrated providers, including Partners HealthCare, one of the largest hospital systems in the state.

David Anderson summed the development up perfectly.

The core of the fight is a big payer (the state employee plan) wants to use its market power to get a better rate from a set of powerfully concentrated providers who have used their market power to get very high rates historically.

Anderson also pointed to a relevant, recent study that illustrates how a specific payer’s and provider’s market power jointly affect prices. In Health Affairs, Eric Roberts, Michael Chernew, and J. Michael McWilliams studied the phenomenon directly, which has rarely been done. Most prior work aggregate market power or prices across providers or payers in markets.

Their source of price data was FAIR Health, which includes claims data from about 60 insurers across all states and D.C. In a county-level analysis, the authors crunched 2014 data for just ten of those insurers that offered PPO and POS plans and that did not have solely capitated contracts. These ten insurers represent 15% of commercial market enrollment. They then looked at prices paid by these insurers to providers in independent office settings for evaluation and management CPT codes 99213, 99214, and 99215. These span moderate length visits to longer visits for more complex patients and collectively represent 21% of FAIR Health captured claims.

They computed insurer market share based on within-county enrollment. They computed a provider group’s market share as the county proportion of provider taxpayer identification numbers (TIN) associated with that group’s National Provider Identifier (NPI) — basically the size of group in terms of number of physicians.

Some of the findings are illustrated in the charts below and are largely consistent with expectations. For all three CPT codes, insurers with greater market shares tend to pay lower prices. That’s shown just below. The biggest price drop occurs when moving from <5% to 5-15% market share. Greater market share than that is associated with still lower prices, but not by as much. For example, insurers with <5% market share pay an average of $86 for CPT code 99213; insurers with 5-15% market share pay 18% less and insurers with ≥15% just a few percent less than that. It’s roughly the same story for other CPT codes.