Commentary: Consolidation without integration won't align incentives to improve quality of care

The healthcare landscape is again being reshaped by consolidations, with the prospect of more to come. The question is, will consolidation transform the industry, giving us a new business model that will deliver higher-value results?

Consolidation may be a necessary condition, but it is certainly not sufficient to drive the needed changes in the industry. The transformation that is desperately needed is a move toward more integration of care delivery, involvement of patients in their care, and alignment of financial incentives.

Among notable recent consolidations are deals affecting health insurers: Anthem's announced acquisition of Cigna and Aetna's offer for Humana. In addition, Walgreens Boots Alliance has agreed to buy Rite Aid Corp., and CVS Health recently bought Target Corp.'s pharmacy business. These realignments could increase pressure on hospital systems to combine. To this point, all we're talking about is size and market power, none of which necessarily creates more value in the market.

Consolidation may well increase efficiencies, standardization and bargaining leverage, but whether or not it leads to integration will, in the end, determine its contribution to healthcare improvement. Only integration enables the key components of paying for and providing care to work together toward the shared goal of improvement.

That's key when 30% or more of healthcare in the U.S. is not indicated by evidence and, therefore, might be described as overtreatment. Simply reducing the cost of that overtreatment misses the biggest opportunity for improvement. If we can create a healthcare system that provides all the care people need but none of the care they do not need, we will improve quality and reduce cost.

Why would any organization provide care that's not indicated? First, there are not enough evidence-based standards. Second, patients are not sufficiently engaged in their care or the cost of it. Third, in a fee-for-service system, there is a misalignment of financial incentives, with providers being paid to test and treat—and being paid more to do more of those things.

The need to transform those three conditions has led Intermountain Healthcare to pursue what the system calls “shared accountability.” This initiative emphasizes evidence-based care, patient engagement and alignment of compensation with quality of care. It requires systems of providers and patients to take responsibility for managing health and wellness.

This initiative is fundamental to fulfilling our mission of “helping people live the healthiest lives possible.” Integration is key to realizing it, thereby maximizing population health.

There are several models of integration, which typically combine the efforts of a health insurer, a healthcare facility or facilities, and physicians. Some models involve common ownership: Intermountain, for example, is a not-for-profit health system with 22 hospitals, 185 clinics, about 1,400 employed physicians and advanced-practice clinicians, and a health insurance subsidiary called SelectHealth. Other models are created contractually through negotiated operating agreements and other collaborative arrangements. And some combine the two: At Intermountain, we provide some integrated services in Idaho through a contractual relationship. We also collaborate with community clinics and other organizations that serve certain segments of the population and play a role in the continuum of care.

Integration is defined more by the reality of combining interests than by ownership. It is, therefore, available to all healthcare providers, not only those structured in a certain way.

That's good news, because we won't solve the big financial issues undermining the value of the healthcare system in America until we truly transform how to deliver better care. In fact, in our experience, better care often ends up being less expensive care.

Mergers and acquisitions alone will not deliver better care, although they can facilitate it. It's easier to comply with evidence-based standards of care if everyone's not an independent actor; it's easier to ensure the practice of high-quality medicine in an organization with a shared philosophy and the resources to support its application.

Yet as organizations grow and increase their leverage, they can either be a force for improvement or an even larger obstacle to it. That's why size alone—or consolidation alone—is not the solution. By the same token, shared ownership does not necessarily produce better care.

Improvement comes from properly aligning incentives for evidence-based care by integrating the interests of the insurer, the hospital and the physician—and most importantly, the patient. Only when they are each properly rewarded for better care and better health will the quality of our nation's healthcare be maximized.