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Sponsored Content Provided By The Commonwealth Fund
This content was created by and paid for by an advertiser. The Crain's editorial department was not involved in the creation of this content.
November 01, 2022 12:00 AM

Making healthcare consolidation work for patients

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    David Blumenthal

    The U.S. healthcare marketplace has become increasingly concentrated. Payers and providers have come together as “payviders,” pharmacies are merging with pharmacy benefit managers, and hospitals are buying up independent practices. We asked Commonwealth Fund president David Blumenthal, MD, an expert on U.S. health system performance and costs, about the effects of market consolidation and what it might take to ensure that mergers yield benefits for patients as well as investors.

    Transforming Care is a publication series from the Commonwealth Fund that explores the people and places reinventing healthcare.

    It seems every week we read about another healthcare merger or acquisition. What do we know about how these affect costs and quality?

    Blumenthal: We know that horizontal consolidation — that is, hospitals merging with other hospitals or physician practices merging with other practices — increases prices, and it’s hard to find evidence of quality improvement. There’s less data on vertical integration, though it seems to have the same effect. Vertical integration brings different types of providers together, such as hospitals acquiring physician practices, home health agencies, X-ray facilities, and rehabilitation clinics. It clearly facilitates some infrastructure development that improves care coordination, like a common electronic health record. And in theory, having multiple types of care under one roof should facilitate care coordination. However, some integration seems to be occurring not for the purpose of coordinating care, but for increasing leverage in the marketplace.

    Should policymakers intervene in those cases?

    Blumenthal:
    It’s an open question whether they could do so. It's easier to do with horizontal integration because you can more easily quantify the market share of an organization that has 80 percent of hospital beds than one that has 20 percent, but also a percentage of the cardiologists, and cardiac surgeons, and so on. It's also one thing to talk about regulating a service that is a distinct commodity, like laptops. It's very hard to regulate a service that has as many attributes as healthcare. Just consider the hundreds of DRG and CPT codes used to bill for hospital and physician services.

    There may be ways in which regulation can create performance requirements to encourage merged organizations to improve. I'm thinking of the pressure that some state commissions are exerting on large healthcare systems to meet cost thresholds. They're not telling them to disaggregate — to get rid of a cardiology practice here or a surgical center there. They're saying, “You are what you are, and we are expecting to see the cost of care in your organization only go up at the rate of inflation. And we want you to report quality metrics along the way.”

    As part of the employer coalition Haven, Amazon tried and failed to disrupt healthcare markets. How might Amazon’s recent purchase of the primary care startup One Medical play out?

    Blumenthal:
    Amazon has shown us that it can turn many economic markets upside down, but its primary care venture faces challenges. Even with its subscription model, One Medical struggled because of the low payment rates for primary care. As I’ve described elsewhere, to wring greater value out of primary care, startups may need to take on financial risk for the specialty and hospital services that account for so much waste. But to date, employers — which comprise most of One Medical’s clients — have had little appetite for this. And, of course, if Amazon’s primary care venture does take on risk for the full spectrum of patient care, it will need to operate in hospital and specialty markets that are increasingly consolidated, which may limit its capacity to negotiate prices.

    What would it take for new startups to fundamentally change healthcare?

    Blumenthal:
    We need to distinguish between succeeding as a business — getting a return for investors — and succeeding as a positive influence on our healthcare system. There’s no question many of these startups will make money. What I’m uncertain about is whether that will result in cheaper and better care for the population as a whole. They may be good at providing convenient care to relatively healthy people, and maybe a fraction of the not-so-healthy people who have serious but not complicated illness, but I’m concerned about whether they will take care of people whose insurance is not desirable or patients who are very complex and hard to manage. Smaller startups have to give their investors a payback within three to five years. That’s what gives me pause, though I think some new market entrants are exciting and potentially positive.

    If you were to imagine a healthcare marketplace that delivers higher-quality care at lower costs and doesn’t leave people out, where would you find hope?

    Blumenthal:
    As our population ages, a larger and larger proportion of healthcare will be consumed by Medicare beneficiaries. That will give government more and more leverage. While market advocates find this worrisome, I find it hopeful because of Medicare’s increasing interest — which enjoys bipartisan support — in value-based purchasing: using payment to encourage providers to prioritize quality, safety and equity as well as monetary returns. We need lots of experience to figure out what works. But we’ve made a start. I hope that private purchasers will follow suit once Medicare has shown the way.

    About the authors

    Sarah Klein and Martha Hostetter produce the Commonwealth Fund's Transforming Care publication series, which explores the people and places reinventing healthcare.

    Sponsored by

    commonwealth fund logo

    The Commonwealth Fund is a nonprofit foundation supporting independent research on healthcare issues and making grants to promote better access, improved quality and greater efficiency in healthcare, particularly for society’s most vulnerable, including people of color, people with low income and those who are uninsured.

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