While the movement toward consolidation in healthcare has been
based in large part on the goal of reducing costs, it seemingly
has resulted in increased prices, at least in certain markets. Almost all
the literature I reviewed shows that when a system achieves a significant
market share via horizontal integration, it can command significantly
higher prices. This has now been repeated in multiple markets where
hospital systems have become larger by, in many cases, acquiring
community hospitals or merging with other systems.
The Affordable Care Act, in pushing for the formation of Accountable
Care Organizations where alignment between physicians and hospitals
is critical, has stimulated many hospitals and health systems to acquire
physician practices, which results in vertical integration. The leverage
that results once a significant volume of physician practices has been
acquired also, in many cases, has resulted in higher prices. Higher prices
also may result in certain communities where the reputation of a hospital
or system is such that higher prices can be demanded because payers
can’t afford not to have them in the system based on demand from their
beneficiaries.
Consolidation in the healthcare industry is destined to continue. I think
that, in most major cities, we will see a couple of dominant systems,
if that has not already occurred. In part, this is to defuse some of the
leverage that resides with the payers. In our own market in Philadelphia,
with really only two payers dominating the market and almost complete
fragmentation on the provider side, there is considerable discussion about
consolidation. I think payers will try to offset some of that in any way that
they can—often by playing one system against another. Circumstances
will vary from city to city, depending on the level of concentration on
the provider side vis-à-vis that level on the payer side. The formation
of limited networks may also offset some price increases as systems may
compete to be included, and the deciding factor ultimately may be price.
Another phenomenon we will see is some of the larger urban systems
looking to expand in suburban areas, recognizing that the site of care
and the cost of care are important, especially as we look toward some of
the risk models that we are all getting into with payers. It is becoming
increasingly important to provide care in the most appropriate and costeffective
settings for systems to continue to survive.
I believe we are going to see more and more physicians aligning
themselves with hospitals or health systems, either with an employed
arrangement or some other relationship. Anyone in a leadership position
needs to be looking at how best to align physicians, whether they are
employed or independent, with the goals and vision of the organization.
In the long run, this type of alignment may be more easily achieved in an
employment model.
Academic health center leaders need to be deeply cognizant of the market
in which they exist. They need to be looking at how they interact with
payers, and whether they are set up to provide care in the most costeffective
setting for the problem being treated. In a risk-sharing model,
keeping people out of the emergency room and out of the inpatient
setting—essentially prospectively managing wellness—is going to be the
way that we can work most efficiently and best utilize the healthcare dollar.
The situation right now is very dynamic. Things are changing almost
on a day-to-day basis. The full implications of the implementation of the
ACA are not yet known. A number of states have not accepted Medicaid
expansion. In those that have, people who may have been previously
uninsured are availing themselves of insurance, and when they do,
they tend to use it; so I think access is going to continue to be an issue.
Accordingly, we need to position ourselves to address the demands that
will be placed upon us as more people are insured. That means we have
to be looking at the most efficient ways to practice medicine. Clearly, that
is going to involve not just physicians but other healthcare providers—
nurse practitioners, dietitians, pharmacists, physical therapists—in
population management strategies. Every major system, and every
hospital for that matter, needs to be looking at ways to align with their
physicians and to be prepared to work with them to achieve high-quality,
cost-effective care in risk-sharing arrangements with payers.
Larry R. Kaiser, MD, FACS
Senior Executive Vice
President for the
Health Sciences
President & CEO,
Temple
University Health System
Dean, School of Medicine
Temple University