Moody’s: Aggressive insurer growth strategies threaten nonprofit hospitals

https://www.healthcaredive.com/news/moodys-aggressive-insurer-growth-strategies-threaten-nonprofit-hospitals/517691/

Dive Brief:

  • Disruptive growth strategies among health insurers threaten the future margins and volumes of nonprofit hospitals, a new Moody’s Investor Services report maintains.
  • Vertical integrations — such as the proposed CVS Health-Aetna merger and UnitedHealth/Optum-DaVita deal — put insurers “in direct competition” with hospitals for outpatient volume and revenue and could allow payers to carve out hospitals or specific services from their contracts, according to the report.
  • Moody’s warns that the embrace of value-based payment models by insurers is also a threat, as it shifts patients from high-cost inpatient care to cheaper outpatient settings.

Dive Insight:

Hospitals are already feeling the squeeze from cuts in Medicare reimbursements, which are driving patients with less serious ailments to urgent care and other outpatient treatment facilities. Depressed patient admissions and payments have providers searching for cost savings. The result has been a near constant stream of divestitures, mergers and layoffs that shows no signs of abating. At the same time, hospitals have been acquiring physician practice and outpatient care sites to diversify their revenue streams as demand shifts.

Those efforts could be undermined as insurers move into the provider space by buying up professional practices, for example.

“As the insurer owns more non-acute healthcare providers — particularly physician groups — it would be better able to carve out hospitals or certain services from its contracts, which would translate into lower volume and revenue for hospitals,” the report said.

Vertically integrated private payers will cut into hospital revenues by offering similar outpatient and post-acute care to members at lower costs than hospitals can afford, Moody’s says. With enough integration, they could siphon more patients and revenue from struggling hospitals.

Optum’s physician acquisitions and similar deals will also cut into hospitals’ referral volumes. “The acquisition of relatively large physician groups is noteworthy because these providers are the key decision makers in determining what type of treatment the patient will receive and where the care is provided,” the report said.

Increasing scale fueled by more Medicare and Medicaid managed care members, coupled with market concentration, will also give insurers the edge in price negotiations, according to the report. Meanwhile, reduced government payments will make hospitals more dependent on private insurance to cover their costs.

“Insurers flexing their negotiating power by offering lower rate increases will likely result in more standoffs and terminations of contracts between insurers and hospitals,” Diana Lee, a vice president at Moody’s, said in the report. “To gain leverage, we expect hospitals to continue M&A and consolidation.”

 

Moody’s: Nonprofit hospitals face volume, margin declines as insurers acquire physicians

https://www.beckershospitalreview.com/finance/moody-s-nonprofit-hospitals-face-volume-margin-declines-as-insurers-acquire-physicians.html

Image result for downward pressure on profits

As commercial payers swallow up more physician groups and nonacute care services, nonprofit hospitals will see greater pressure on their volumes and margins, according to Moody’s Investors Service.

Moody’s analysts predict insurers will be able to provide preventive, outpatient and post-acute care to their members through acquired providers at a lower cost than hospitals. As a result, insurers will begin carving out hospitals and select services from their contracts, leaving nonprofit hospitals with fewer patients and less revenue.

CVS Health’s $69 billion bid for Aetna and Optum’s takeover of Surgical Care Affiliates are examples of integrations that could threaten nonprofit hospitals’ bottom lines, Moody’s said.

On another front, nonprofit hospitals face increasing pressure from insurers moving quickly to value-based payment programs. Payers will also leverage their growing scale, driven by Medicare and managed Medicaid expansions, in rate negotiations.

“Insurers flexing their negotiating power by offering lower rate increases will likely result in more standoffs and terminations of contracts between insurers and hospitals,” according to Diana Lee, a Moody’s vice president. “To regain leverage, we expect hospitals to continue [merger and acquisition] and consolidation.”

 

Are Limited Networks What We Hope And Think They Are?

https://www.healthaffairs.org/do/10.1377/hblog20180208.408967/full/

 

 

There has long been an imperative to find ways to reduce health care spending, but the advent of public exchanges pressured the industry to find ways to offer health insurance at a more affordable premium. Health plans hoping to participate in public exchanges responded by creating insurance offerings that gave patient members access to a smaller pool of providers—limited or narrow networks. These smaller networks give payers leverage in negotiations and may eliminate more expensive providers. They have also caught the attention of employers and other health care purchasers and are growing in prevalence in the commercial market.

But what exactly are limited or narrow networks, and are they what we want them to be? We set out to understand how health plans form limited networks, postulating that the criteria to select providers for participation in limited networks across health plans would be fairly consistent. We thought we might be able to conclude, for example, that a limited network is one in which health plans exclude providers whose prices are one standard deviation above the mean or that don’t meet minimum quality thresholds.

In addition, we wanted to learn how health plans determine who among certain provider types is eligible to participate (primary care physicians, specialists, hospitals). Is there a consistent process for selecting providers? Does the health plan, for example, generally start by selecting primary care physicians and then assess the hospitals with which those physicians are affiliated?

An Elusive Concept

Catalyst for Payment Reform (CPR) reached out to a dozen health plans, diverse in size and geography, to learn more about how they form narrow networks. We began by querying them about their use of cost and quality thresholds to select providers for their limited network products.

Across health plans, CPR found no consistent formula for selecting providers by type, below a certain price point, or above a specific level of quality. We learned that health plans primarily consider which hospital or provider group will agree to a certain price (based on a premium analysis), whether excluding others is feasible given each provider’s market power or “must have” status, and whether exclusions create access issues. It is notable that among the health plans we spoke to, none used provider quality as the primary selection criterion. Health plans may consider quality while developing a limited network, but it is secondary to other criteria.

Local market characteristics significantly influence how payers define a network. The design of a limited network depends on the number of providers available as well as the level of competition among them. If a health plan develops a limited network with few providers, consumers may have to travel significant distances to receive care. When there are more provider options, competition helps health plans find a provider group willing to offer a better price. The selected provider group assumes it will make up the potential lost revenue with an increase in patient volume. Therefore, health plans perceive the presence of competition among providers as critical to the development of a limited network product. In circumstances in which health plans have greater market power, they may also consider whether providers are willing to take on some financial risk—now or in the future.

CPR’s search also revealed wide variation in the types of providers health plans focus on when they begin narrowing their networks. While most start with the hospital and then select affiliated primary care physicians and specialists, others start with the primary care physicians and look at affiliated hospitals. Some health plans include all primary care physicians in the limited network and then tier the hospitals and specialists based on cost and sometimes quality criteria. The only consistency we found was that there is no consistency! The only commonality among the narrow networks we examined was that they all contained fewer providers than a given health plan’s broadest network.

A Strategy That Is Here To Stay?

Employer and other health care purchasers’ awareness about the variation in quality and payment amounts has steadily grown, as has their need for savings. Purchasers also recognize that threatening to exclude providers from a pool of patients will strengthen their negotiating position as well as that of other payers. The latest survey data suggest that narrow networks are becoming more prevalent—a trend that is likely to continue.

According to the Henry J. Kaiser Family Foundation’s 2017 Employer Health Benefits Survey, 12 percent of benefit-offering firms with 50–999 workers, 23 percent of firms with 1,000–4,999 workers, and 31 percent of firms with 5,000 or more workers offer a high-performance or tiered network. In addition, 6 percent of firms offering benefits said that they or their insurer eliminated a health system from a network to reduce the plan’s cost during the past year.

Furthermore, the 2017 Willis Towers Watson Best Practices in Health Care Employer Survey found that more than half of employers with more than 1,000 employees said that they might add high-performance networks by 2019.

Are Providers Likely To Participate In Them If Selected?

In markets where providers lack competition, they may easily push back on the formation of narrow networks. But in markets where there is competition, providers will likely want to be included instead of risk a loss of patient volume. For providers entering into new delivery models and accepting new forms of payment, they may see narrow networks positively, giving them a greater ability to manage and coordinate patient care as there is less “leakage” of patients to a broad pool of providers. In turn, participating providers may be more willing to take on financial risk for their patients if they know it is easier to control where they seek care, minimizing exposure to particularly high-priced providers.

Are Consumers Likely To Select Them?

The experience with the public exchanges suggest that consumers are willing to make the tradeoff of choice for affordability. By seeking care from a defined group of providers, consumers pay lower out-of-pocket costs and have a straightforward benefit design that clearly distinguishes between in- and out-of-network providers and accompanying cost sharing. Consumers may save further by receiving care from high-value providers who are more likely to provide effective and efficient care the first time.

Some of the employers in CPR’s membership that offer limited or narrow networks, such as an accountable care organization product, find they are meeting or exceeding their enrollment expectations—an indicator that certain consumers will choose price over choice.

Americans are willing to make tradeoffs for now, but they may become skeptical if there isn’t an explicit effort to ensure quality and the perception grows that narrow networks are only about cutting costs. With more experience, Americans may find that physicians with targeted expertise (for example, subspecialists in oncology) or individual members of a care team (for example, anesthesiologists) may not be included in the narrow network, preventing access or resulting in surprise bills for consumers.

Conclusion

Through their use of limited networks, payers may be indicating to health care providers that affordable care will be rewarded with more patients (quality of care could also be a criterion). In markets where providers perceive a higher volume of patients as favorable, the introduction and presence of these networks can send a strong economic signal to providers to improve efficiency and lower prices. It may be too early to identify patterns in how health plans design limited networks; perhaps a standard formula will never materialize. As CPR learned, viable approaches depend on market-specific nuances.

Lawsuit filed against ObamaCare insurer over coverage

http://thehill.com/policy/healthcare/368584-lawsuit-filed-against-obamacare-insurer-over-coverage

Lawsuit filed against ObamaCare insurer over coverage

The insurance carrier Centene misled enrollees about the benefits of its ObamaCare exchange plans and offered far skimpier coverage than promised, according to a class-action lawsuit filed Thursday.

The lawsuit, filed in federal court in Washington state, claims customers who bought Centene’s ObamaCare plans had trouble finding in-network doctors or hospitals and often found that doctors who were advertised as in-network actually were not.

ObamaCare requires plans to meet certain minimum requirements.

Centene covers about 10 percent of the ObamaCare individual market and is one of the largest insurance carriers that participates on the exchanges.

As many other insurers have pared back their ObamaCare exchange plans, or completely left the market, Centene has expanded. In some areas of the country, Centene is the only insurer offering plans for ObamaCare customers.

Centene markets its signature product — its three-tiered Ambetter plans — in at least 15 states, and covers more than 1.4 million customers.

According to the lawsuit, Centene targets low-income customers who qualify for substantial government subsidies “while simultaneously providing coverage well below what is required by law and by its policies.”

A spokeswoman for the company told The Hill they have not been served papers and only learned of the lawsuit Thursday morning.

“We believe our networks are adequate. We work in partnership with our states to ensure our networks are adequate and our members have access to high quality health care,” Marcela Manjarrez Hawn said in an email.

Narrow networks — insurance plans that limit which doctors and hospitals customers can use — are not uncommon, as they are cheaper than more expansive plans. But the lawsuit says Centene went far beyond the norm.

“Centene misrepresents the number, location and existence of purported providers by listing physicians, medical groups and other providers — some of whom have specifically asked to be removed — as participants in their networks and by listing nurses and other non-physicians as primary care providers,” the lawsuit claims.

According to the lawsuit, customers found the provider network Centene said was available was “largely fictitious. Members have difficulty finding — and in many cases cannot find — medical providers who will accept Ambetter insurance.”

The suit was filed on behalf of two Centene customers, but seeks class-action status to represent all customers who purchased Centene plans on the ObamaCare exchange.

 

Why payers are flocking to the Medicare Advantage market

https://www.healthcaredive.com/news/why-payers-are-flocking-to-the-medicare-advantage-market/510589/

Medicare Advantage (MA) and the Affordable Care Act (ACA) exchanges are both federal programs, but they couldn’t be more different in payers’ eyes. Insurance companies are entering or expanding their footprints in the MA market, while simultaneously pulling back or out of the ACA exchanges. They’ve found success in MA. Not so much in the ACA exchanges.

Payers see MA as a stable market. That’s evident in the fact that MA premiums are expected to decrease by 6% next year. Insurance companies like stability. Insurers increase premiums by double digits when there isn’t stability, which is the case with the ACA exchanges.

A large part of the ACA exchanges’ problems is linked to actions and inaction in Washington, D.C. President Donald Trump’s administration stopped paying cost-sharing reduction payments to insurers, cut the exchanges’ open enrollment in half, reduced the exchanges’ advertising budget by 90%, offered proposed rules and executive orders that hurt the ACA and threatened not to enforce the individual mandate that requires almost all Americans to have health insurance.

Congress, meanwhile, has tried and failed to repeal the ACA this year. All of this created an unstable exchanges market, which resulted in payers leaving the exchanges or jacking up premiums by 20% or more for 2018.

Meanwhile, the MA market is a picture of stability and payer success.

  • There is a steady stream of new people eligible for Medicare daily, and many choose MA.
  • People usually don’t switch back from MA plans after leaving traditional Medicare.
  • Payers can easily convert members from traditional Medicare to MA via marketing campaigns.
  • The MA demographics are usually people who once had an employer-based plan, so they know insurance and how healthcare works. That also means they usually don’t have pent-up healthcare needs.
  • The CMS pays MA plans upfront for covering people with high healthcare costs and payers have enjoyed stable MA payments from the CMS.

So, MA members are easier to get and keep, they usually have fewer health needs and payers like the MA payment structure better than the exchanges, which get compensated at the end of the year. All of that equals a stable market for payers.

One-third of Medicare beneficiaries are enrolled in an MA plan this year compared to 25% just six years ago. Enrollment grew by 8% between 2016 and 2017 and the CMS recently announced that MA membership will grow by 9% to 20.4 million members in 2018.

Gretchen Jacobson, associate director with the Kaiser Family Foundation’s (KFF) Program on Medicare Policy, told Healthcare Dive that more than half of those in Medicare will have MA plans in many counties next year.

That growth isn’t expected to slow — especially with Republicans controlling both houses of Congress and the White House, according to Steve Wiggins, founder and chairman of Remedy Partners.

“With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth,” Wiggins told Healthcare Dive.

What more MA members and payers mean for hospitals and providers

With more MA members expected next year, the continual shift to MA will have mixed benefits for providers. Jacobson said it’s not entirely clear how more MA members will affect hospitals and providers. “One of our studies recently showed that the provider networks for Medicare Advantage plans greatly varies and these networks will become even more important as enrollment in Medicare Advantage plans grows,” she said.

Fred Bentley, vice president at Avalere Health, told Healthcare Dive that MA’s growth will present a whole new set of challenges for hospitals and health systems.

Bentley listed two issues:

  • Narrow networks
  • Tighter utilization management compared to Medicare’s fee-for-service model

recent KFF report found that 35% of MA enrollees were in narrow-network plans in 2015. Payers have increasingly turned to narrow networks to control costs and improve quality of care. To take part in the narrower networks, physicians usually have to agree to payer demands concerning cost and quality.

“Differences across plans, including provider networks, pose challenges for Medicare beneficiaries in choosing among plans and in seeking care, and raise questions for policymakers about the potential for wide variations in the healthcare experience of Medicare Advantage enrollees across the country,” KFF said.

Another issue for hospitals and providers is that more payers involved in capitated plans like MA will result in more pressure on providers and hospitals to focus on the cost of care, Michael Abrams, partner at Numerof & Associates, told Healthcare Dive.

“With Republican control of the federal government, it is conceivable that Medicare Advantage will become a centerpiece of CMS’ strategy to control spending growth.”

There’s also the issue of having too few MA payers in some regions. Aneesh Krishna, partner in McKinsey & Company’s Silicon Valley office, told Healthcare Dive the concentration of MA plans in certain markets is a worry for providers. “This concern would be magnified in markets where there is a similarly high concentration in commercial segments from the same payers, and where overall MA penetration is high,” he said.

There’s also a potential payment issue. MA generally reimburses at a slightly higher level than traditional Medicare, but utilization is managed more tightly. Krishna said providers willing and capable of sharing medical cost savings are “likely to see more benefit from the shift to Medicare Advantage plans.” However, MA networks are often narrow, which means providers will need to weigh the relative price/volume trade-offs of accepting MA.

More MA growth in the coming years

MA will have more payers and members than ever next year and the two largest payers, UnitedHealth and Humana, are expected to increase their footprint. Despite new payers showing interest in the market, Jacobson expects the market break down will look similar in 2018. She said small payers entering the market will offset the plans exiting MA next year.

The Congressional Budget Office (CBO) and HHS both project MA enrollment will continue to grow over the next decade. The CBO estimated that about 41% of Medicare beneficiaries will have an MA plan in 2027. UnitedHealth even predicted half of Medicare beneficiaries will eventually have an MA plan.

MA’s popularity with payers is easy to understand — 10,000 people turn 65 every day. The CBO expects 80 million Americans will be eligible for Medicare by 2035.

There’s also an opportunity in the MA market to sign up members quickly. Rachel Sokol, practice manager of research at Advisory Board, told Healthcare Dive that utilizing a strong marketing engine allows payers to grow MA membership. This is quite different from the employer-based market, which relies on payers working with companies.

Potential MA barriers

The MA market is largely positive for payers, but it does face challenges, including:

  • A small number of payers dominate the market
  • The CMS expects improved efficiency and savings
  • There is increased federal oversight, especially concerning possible overpayments to MA insurers

CMS is all in supporting MA plans and its marketspace. The agency last week proposed a rule with an aim toward improving quality and affordability in contract year 2019. According to the agency, the number of plans available to individuals will increase from about 2,700 to more than 3,100.

The agency is proposing to expand the definition of quality improvement activity to include fraud reduction activities, changing the medical loss ratio (MLR) requirements for Medicare Advantage plans. This change should excite payers because they can add the administrative service to the MLR ratio they are required to spend on healthcare, which is at least 85%. CMS states it believes the service will help combat fraud.

For now, the MA market is consolidated around only a handful of payers. UnitedHealth and Humana have more than 40% of the market. UnitedHealth has one-quarter on its own. KFF said UnitedHealth, Humana and Blue Cross Blue Shield affiliates make up 57% of MA enrollment and the top eight MA payers constitute three-quarters of the market.

Also, CMS is imposing improved efficiency in the traditional Medicare program. This could ultimately affect MA. Accountable care organizations (ACO) and bundled payments will “put downward pressure on the benchmarks used to set payment rates for Medicare Advantage plans,” Wiggins said.

This pressure will result in MA payers needing to either cut costs or trim benefits. “The former is difficult, except through narrow networks, and the latter will diminish the attractiveness of Medicare Advantage plans,” he said.

Then there’s the 800-pound gorilla in the market — potential overpayments. The Department of Justice (DOJ) has joined whistleblower lawsuits against UnitedHealth Group concerning MA overpayments. The lawsuits allege that UnitedHealth changed diagnosis codes to make patients seem sicker, which resulted in higher reimbursements to the insurer. A federal judge threw out one of the lawsuits in October.

The DOJ is investigating other MA payers for the same reason, and Congress is also interested. Sen. Charles Grassley (R-Iowa), chairman of the Senate Judiciary Committee, sent a letter to CMS Administrator Seema Verma in April questioning what CMS is doing to “implement safeguards to reduce score fraud, waste and abuse.” Grassley said there was about $70 billion in improper Medicare Advantage payments between 2008 and 2013 because of “risk score gaming.”

It’s understandable that investigators and Congress have grown interested in MA payers. The federal government paid $160 billion to MA payers in 2014. The CMS estimated about 9.5% of those payments were improper.

The combination of billions being paid to insurers, the potential for fraud and growing membership numbers make MA ripe for oversight. The stability of the market, particularly compared to other options for payers, however, will mean growth continues.

 

Insurers Can Bend Out-Of-Network Rules For Patients Who Need Specific Doctors

Insurers Can Bend Out-Of-Network Rules For Patients Who Need Specific Doctors

The Affordable Care Act has so far survived Republican attempts to replace it, but many people still face insurance concerns. Below, I answer three questions from readers.

Q: I have a rare disease, and there is literally only one specialist in my area with the expertise needed to treat me. I am self-employed and have to buy my own insurance. What do I do next year if there are zero insurance plans available that allow me to see my specialist? I cannot “break up” with my sub-specialty oncologist. I must be able to see the doctor that is literally saving my life and keeping me alive.

If the plan you pick covers out-of-network providers, you can continue to see your cancer specialist, although you’ll have to pay a higher percentage of the cost than if you were seeing someone in your plan’s network.

But many plans these days don’t provide any out-of-network coverage. This is certainly true of plans sold on the health insurance exchanges.

The situation you’re concerned about — that a specialist you consider crucial to your care isn’t in a plan’s provider network — isn’t uncommon, said Sabrina Corlette, a research professor at Georgetown University’s Center on Health Insurance Reforms.

If this happens, you can contact your plan and make the case that this particular provider is the only one who has the expertise to meet your needs. (Unfortunately, you probably can’t get this coverage assurance before you sign up.) Then ask your plan to make an exception and treat the out-of-network specialist as if she were in network for cost-sharing purposes. So, if in your plan an in-network specialist visit requires a $250 copayment, for example, the plan would agree that’s what you’d be charged to see your out-of-network specialist.

Or not. It’s up to the plan officials, and they may argue that someone in network has the expertise you need. If you disagree, you can appeal that decision.

But it may not come to that, said Corlette.

“Plans are prepared for this — the good ones are, anyway,” she said. “My understanding is that it’s pretty routine to grant exceptions for narrow subspecialties.”

Q: My company has asked employees to pay the Cadillac tax rather than putting the burden  on the company. They are also telling us not to worry because it will never happen, but want us to agree that if it does we will take on the cost. Can they do that?

Let’s step back for a minute. The so-called Cadillac tax is a 40 percent surcharge on the value of health plans above the thresholds of $10,200 for single coverage and $27,500 for family plans.

A few months ago when it looked as if the ACA was going to be replaced, many employers believed, as yours apparently still does, that the Cadillac tax would never become effective. Both the House and Senate bills delayed the tax until 2026, and a lot can happen between now and then. With the collapse of efforts to repeal the ACA, however, the tax is on the front burner once again, said J.D. Piro, who leads the health and law group at benefits consultant Aon Hewitt. It’s set to take effect in 2020.

Under the law, insurers or employers would be responsible for paying the tax, but experts say the costs would likely be passed through to enrollees (whether or not you explicitly agree to absorb them). So it may not matter how you respond to your employer.

Also, employers who don’t want to pay the surcharge might sidestep the issue by reducing the value of the plans they offer, said Piro. For example, they could increase employee deductibles and other cost-sharing, make coverage less generous or shrink the provider network.

“That’s simplest way to avoid the tax,” he said.

Q: I need to purchase affordable health insurance for my two daughters who are 19 and 17. Is Trump insurance available yet? I need something I can afford and everything is so expensive.

President Donald Trump never put forward a proposal to replace the ACA. Instead, he backed the House and Senate replacement versions, which ultimately failed. But those versions might not have addressed your concerns, and you could have several options through the ACA.

“Coverage wouldn’t necessarily have been cheaper,” said Judith Solomon, vice president for health policy at the Center on Budget and Policy Priorities.

Under the Senate bill, for example, the nonpartisan Congressional Budget Office predicted that average 2018 premiums for single coverage would be 20 percent higher than this year’s. In 2020, however, premiums would be 30 percent lower than under current law, on average. But deductibles and other out-of-pocket costs would be higher for most people under the Senate bill, according to the CBO.

Premiums for young people would generally have declined. The bill would have allowed insurers to vary rates to a greater degree based on age, resulting in lower premiums for young people. In addition, premium tax credits generally would have increased for young people with incomes above 150 percent of the poverty level.

Your current coverage options under the ACA depend on your family situation. If you have coverage available to you through your employer, you can keep your daughters on your plan until they turn 26. For many parents, this is the most affordable, comprehensive option.

If that’s not a possibility, assuming the three of you live together and you claim them as dependents on your taxes, you may qualify for subsidized coverage on the health insurance marketplace next year. Your household income would need to be no more than 400 percent of the federal poverty level (about $82,000 for a family of three). You can apply for that coverage in the fall.

If you live in one of the 31 states plus the District of Columbia that have expanded Medicaid coverage to adults with incomes below 138 percent of the poverty level (about $28,000 for a family of three), you could qualify for that program. You don’t have to wait for open enrollment to sign up for Medicaid.

 

Independence Is Not a Strategy for Health Systems

http://www.healthleadersmedia.com/leadership/independence-not-strategy-health-systems?spMailingID=11725844&spUserID=MTY3ODg4NTg1MzQ4S0&spJobID=1221639238&spReportId=MTIyMTYzOTIzOAS2#

Image result for john gribbin centrastate

There are ways to keep going it alone in the face of massive consolidation, says one health system’s CEO. It’s not a strategy, but a means to end, he says.

Afraid your hospital or health system can’t compete because you lack size and scale?

A merger might help, but it’s not the only possible answer to your problems. Freehold, NJ-based CentraState Healthcare System’s top leader is certain it’s not the best solution for his organization.

Consolidation continues to upend the acute and post-acute healthcare industry. In fact, in a recent HealthLeaders Media survey, some 87% of respondents said that their organization is exploring potential deals, completing deals already under way, or both.

But CentraState isn’t among them, says John Gribbin, its president and CEO.

On a continuum basis, CentraState is already diversified. That’s one of the potential selling points of an M&A deal.

Anchored by the 248-bed CentraState Medical Center in Freehold, NJ, the 2,300-employee organization also contains three senior care facilities—one assisted living, one skilled-nursing facility, and a continuing care retirement community.

It can be argued that CentraState may not possess the scale to compete with multifacility, multistate large health systems that can take advantage of a hub-and-spoke strategy for referrals. Nor may it be able to afford expensive interconnected IT systems.

But there ways other than mergers to achieve scale and collaboration, says Gribbin.

Means to an End

Gribbin insists that he and CentraState’s board, which supports and encourages independence, are not dogmatic about it.

“Independence is not a strategy,” he says. “It’s a means to an end. The moment that ceases to be worthwhile is the moment we’ll consider another way to achieve our mission.”

Change is part of that strategy, he says, adding that healthcare in 2017 needs to be far more collaborative, not only with patients and family, but with other healthcare organizations. That’s a big difference from previous generations.

“Our real strategy is scale and relevancy,” he says.

And there are ways to create scale short of taking on all the legacy costs and “baggage,” as Gribbin calls it, inherent in any merger.

“There’s a lot of costs involved in merging… and while mergers work in some instances, they don’t work in all, and in many communities, they are increasing costs to the consumer,” he says.

In addition to the commonly stated goals of improving the community’s health and wellness, patient costs are extremely important in fulfilling CentraState’s mission, Gribbin argues.

Many mergers involve replacing hospitals and adding patient towers and high-cost equipment. That adds to their cost structure means they have to extract higher pricing, says Gribben.

“That’s the vicious circle you find yourself in. I prefer to create scale in a different manner.”

Focus on the Mission

Gribbin, who has led CentraState for 17 years, prefers to solve that challenge in part through a strong network of physicians unburdened by excessive administrative overhead.

He says the health system has to increasingly take on value-based contracting and financial risk. To be successful under such value-based reimbursement, partnerships with physicians are increasingly important, as is a redefinition of the relationship with the patient.

“We used to look at our relationship with the patient as a typical hospital stay,” says Gribbin. “What we’re preaching now is that hospital stay is a temporary interruption in our relationship. What happens before or after defines the relationship’s success.”

With its physician alliance and clinically integrated network in place, CentraState, unlike many hospitals, has been able to avoid, in large part, expensive physician practice acquisitions that can be a financial challenge.

“I’ve done it in the past, and may do it again, but we’ve tried to avoid it,” he says. Instead, contracts define the relationships and incentives.

As an example of those relationships, CentraState partners with a major patient-centered medical home primary care practice on four performance and three utilization measures.

As a result of the shared savings generated in the first year, which came largely from hospital-based savings, the physicians in that group referred 59% of their patients to CentraState.

This year they’ve referred 71% of their patients to CentraState because of its low costs, which help drive financial reward for both parties under the contract.

“On one hand, we’re keeping people appropriately out of acute care, but on the other hand, they’re sending [more] people here. So we’re experiencing higher but more appropriate volume. In this scenario, everyone wins,” Gribbin says.

A New Deal with Physicians

In order to avoid the need to acquire physician practices, Gribbin says it helps to have a suite of services to offer them as a starting point.

“Most don’t want to sell their practice, but they feel like they have to, he says. “If you give them the opportunity to stay independent, they’ll take it.”

Helping them with access to better revenue cycle management, malpractice insurance, and risk management, and helping them create the ability to enter into risk-based contracts is another big help with defining a new relationship based on shared goals with physicians that ultimately benefit the patient, he says.

Physicians can establish a relationship with CentraState through its independent practice association, or a physician hospital association, and avoid surrendering their autonomy, he says.

“The physicians got paid better, the payer saved money even including the bonus, the hospital won because it’s high value care, and the patient’s winning too,” he says. “It’s a microcosm of what we’re trying to accomplish.”

As a small organization, both Gribbin and the board worry about being frozen out of narrow networks. Much of the energy they’ve expended in being a low-cost organization is wasted, he says, if they can’t get the big payers to include them in contracting.

“As long as the market isn’t rigged against us, we’re OK, because we’re a high-value organization.”