With assistance from the Patient Protection and Affordable Care Act (PPACA), millions more Americans will now have basic health coverage and will be seeking services possibly resulting in billions of dollars flowing into the US health care marketplace. The health care industry has begun reacting to this new legislation and expected inflow of insured Americans, by moving rapidly toward a “bigger is better” model, says Chris Pritchard, national health care practice leader at Moss Adams.
“A key concept that consumers of health care services will deploy and one to which the health care market is reacting to is the concept of consumerism. Consumerism embodies the process through which consumers consider at a minimum three basis purchases attributes when choosing which health care services to buy. The three attributes consumers will consider at a minimum are cost of the services being provided, the quality of the services being provided and access to the required services needed,” says Pritchard.
To meet demands for better quality of care for less, Pritchard says health care providers have begun to merge and are creating affiliations to improve quality statistics, take advantage of cost synergies and provide for increased capacity to improve access to services being purchased by the public.
Whether it is the government, an employer or an individual, that entity is trying to get the highest quality in the quickest time for the least amount of money.
Smart Business spoke with Pritchard about how this transformative consolidation has positive and negative ramifications for employers and employees.
How is the concept of consumerism impacting health care?
Health care organizations know the importance of consumerism. States have departments that monitor quality, cost and access, while independent regulatory and watchdog agencies do the same. Health care providers themselves publish favorable quality of care, price lists and access time statistics on their websites for public consumption and consideration in their pursuit of services.
Consumerism will also be a factor with the state-based health insurance exchanges set to begin in 2014. Participating insurance companies will offer benefits in the exchanges, and employers and or employees will make their purchase decisions using cost, quality and access to purchase coverage. California has one of the largest groups of uninsured people, especially when considered on a per capita basis, so these exchanges will likely have a large effect. Employers have the choice of providing high-quality benefits to their employees as a retention and recruiting benefit, or they can choose to not provide benefits at all and have their employees participate in state exchanges to purchase health care coverage.
What are some examples of health care consolidation?
The health care marketplace is making substantial moves, as the number of transactions — health care affiliations, combinations or acquisitions — are up tremendously compared to previous years. Large private equity funds have put billions of dollars in play to reap the benefits of these mergers and acquisitions. In addition, on the quality side, community hospital providers that don’t have a higher quality score are looking for health systems or academic medical centers that do have high quality scores and available financial resources with which to affiliate or merge. That, in turn, helps attract additional patients. There is also the idea that the larger an organization gets, through economies of scale, the higher the probability of achieving cost synergies.
Physician groups have been an area of focused consolidation. They are primarily the gatekeepers of referrals, so organizations that can control physician groups can then control referrals into their organization and the associated revenue streams.
What are the possible negative implications of consolidation?
The potential problem is that health care organizations could get so large that eventually they have geographic leverage over the federal, state government payors as well as the local communities. Employers could potentially face higher costs because of the geographic control these organizations will have on the marketplace pricing of services.
In the early 1990s, a similar phenomenon transpired where mega health systems merged to a size where the Federal Trade Commission and or the Justice Department moved to break up these groups because they had too much control over the marketplace. There are investigations under way in California today to ensure that those grouping together won’t have the opportunity to raise prices and create a monopoly. So far, most of the mergers, affiliations and consolidations have gotten through the anti-trust laws, but at some point, the groupings are going to run into that.
Will this larger block of insured’s lessen the quality of care that employers and their employees can expect?
The quality of care won’t likely change because health care providers are or will be partly reimbursed based upon quality measures. The issue is likely going to be access — whether they can continue to provide access with a large base of users coming in. Organizations are strategically trying to make their waiting rooms larger or are looking at the concept of concierge service to make patients feel like they are being taken care of.
An employer and its employees will need to decide what is more important. If insureds can’t obtain access, they may decide on a plan with lower quality and better access, or they may be willing to pay more for both high quality and access.
Consolidation isn’t likely to stop any time soon, even if the political climate changes and PPACA is repealed or amended. The funding for certain aspects of health care reform may differ with changes in Congress or the presidency, but regardless of what happens, the industry will continue down this M&A path.
Chris Pritchard is the national health care practice leader at Moss Adams. Reach him at (415) 677-8262 or [email protected].
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