Two analyses of U.S. healthcare market concentration are getting extensive coverage through their publication in the September issue of Health Affairs. The analyses, by different sets of healthcare researchers, look at some of the policy and market complexities around accelerating market consolidation, among hospitals, physicians, and health insurers. And there are a lot of implications of the current shifts taking place in the landscape, for how healthcare IT leaders should respond, strategically and operationally.
As Brent D. Fulton writes in his introduction to the first article, “Health Care Market Concentration Trends in The United States: Evidence and Policy Responses,” “Policy makers and analysts have been voicing concerns about the increasing concentration of health care providers and health insurers in markets nationwide, including the potential adverse effect on the cost and quality of health care. The Council of Economic Advisers recently expressed its concern about the lack of estimates of market concentration in many sectors of the US economy. To address this gap in health care, this study analyzed market concentration trends in the United States from 2010 to 2016 for hospitals, physician organizations, and health insurers. Hospital and physician organization markets became increasingly concentrated over this time period,” Fulton notes.
“Concentration among primary care physicians increased the most, partially because hospitals and health care systems acquired primary care physician organizations,” Fulton writes. “In 2016, 90 percent of Metropolitan Statistical Areas (MSAs) were highly concentrated for hospitals, 65 percent for specialist physicians, 39 percent for primary care physicians, and 57 percent for insurers. Ninety-one percent of the 346 MSAs analyzed may have warranted concern and scrutiny because of their concentration levels in 2016 and changes in their concentrations since 2010. Public policies that enhance competition are needed, such as stricter enforcement of antitrust laws, reducing barriers to entry, and restricting anticompetitive behaviors.”
Meanwhile, the second article, “Physician Practice Consolidation Driven By Small Acquisitions, So Antitrust Agencies Have Few Tools To Intervene,” by Cory Capps, David Dranove, and Christopher Ody, looks at things from rather a different angle, noting the dramatic decline in small physician practices and the strong growth in large physician practices. “The decline of small physician practices and the growth of very large practices in the United States have been documented by several studies,” the authors write. “For example, the share of physicians practicing in groups of fifty or more increased from 30.9 percent in 2009 to 35.6 percent in 2011,1 while between June 2013 and December 2015 the share of primary care physicians practicing in groups of one or two fell by 5.7 percentage points and the share in groups of five hundred or more rose by 4.5 percentage points.2 Other research has found that prices are higher in more concentrated physician markets than in less concentrated ones, which suggests that the trend toward larger physician practices should be of concern to policy makers and antitrust agencies alike.”
In his article, Fulton does delve into policy prescriptions, making several recommendations, including that, “First, proposed mergers and acquisitions should be scrutinized by the federal and state governments to evaluate whether the net result is pro- or anticompetitive, as the DOJ and attorneys general from multiple states did in the previously proposed Anthem-Cigna and Aetna-Humana insurer mergers.” He also recommends that “policies that restrict market entry—such as hospital certificate-of-need laws, any-willing-provider regulations, and restrictive provider licensing and scope-of-practice regulations—should be evaluated to determine whether they enhance consumer welfare.” He also believes that, “[P]articuarly in markets where providers are already highly concentrated, anticompetitive behaviors should be restricted. Examples of these behaviors include anti-tiering clauses that force insurers to include a provider in the top tier and tying agreements that force insurers to contract with all hospitals in a system.” He further recommends that federal healthcare officials should rethink Medicare facility fees, as they encourage physician employment by hospitals; and he found that “At the insurer level, health insurance rate review and Marketplace active-purchaser states that use selective contracting have both been found to be associated with lower growth rates in premiums.”
On the physician group side, Capps et al found in their market analysis that “Twenty-two percent of the physician markets were highly concentrated in 2013, and an additional 21 percent were moderately concentrated. Not surprisingly,” they found, “market concentration and the market share of the largest provider tended to move together. For example, 64 percent of the highly concentrated markets had a single physician group with a market share of more than 50 percent. If these large groups maintained their shares, then these markets would remain highly concentrated regardless of the shares of the smaller groups.”
In fact, Capps and his fellow researchers write, “Our examination of the sizes of acquired groups revealed that the growth of large physician groups resembles ‘whale eats krill,’ rather than ‘shark eats shark.’ Roughly half of the growth of the groups that initially had more than a hundred physicians involved acquisitions of groups of ten or fewer physicians,” they found. “An additional one-third of the growth came from adding new physicians without an acquisition, which is consistent with other reports that newly minted physicians increasingly prefer large practices.20 By contrast, the acquisition of groups of eleven or more physicians accounted for only 15 percent of the growth of the largest groups. Overall,” they conclude, “the bulk of the growth of the largest groups resulted from either hiring new physicians or acquiring very small groups.”
What Does It All Mean for Healthcare IT Leaders?
So, what does this all mean for healthcare IT leaders? A fair amount. First, let’s add a federal healthcare policy overlay to this landscape. Tom Price, M.D., who became Secretary of Health and Human Services earlier this year, was a conservative Republican congressman from Georgia (and earlier, an orthopedic surgeon) who has for many years decried what he sees as over-regulation in healthcare, including administrative burdens on providers, especially physicians. Secretary Price has already sent signals indicating that he will deregulate wherever possible.
That means that market consolidation is unlikely to see many barriers under this Republican administration. So healthcare IT leaders should expect market consolidation—among hospitals, physicians, and health plans—to continue apace.
As a result, more and more physicians will flock either to direct employment by hospitals, large medical groups, or integrated health systems, or to contracted relationships that amount to semi- or pseudo-employment. And, given the new requirements for outcomes and process measurement reporting under MACRA and MIPS [the Medicare Access and CHIP Reauthorization Act of 2015, and its component, the Merit-based Incentive Payment System], healthcare IT leaders should expect a massive increase in service needs from practicing physicians.
At the same time, healthcare IT leaders need to expect that the organizations they themselves are working in could undergo significant change in the next few years, either acquiring or being acquired by, other patient care organizations, as well as continuing to acquire physician practices, per Brent Fulton’s research and analysis. Concurrently, health insurers continue to merge and to acquire each other, with only a few health insurer mergers having been challenged or stopped by federal officials (though the two mergers that have been stopped by federal judges—Anthem’s deal to buy Cigna, and Aetna’s attempt to acquire Humana—were extremely large deals, potentially among the biggest in the healthcare world in years).
The bottom line is that the M&A activity will only continue to accelerate; and with control of the Department of Health and Human Services in the hands of a Secretary who has vowed to deregulate to the extent possible, as well with a Republican administration unlikely to put a lot of energy into antitrust emphasis, at least on the provider side, it’s hard to see any strong countervailing trends here.
And the implications of that reality are many. First of all, CIOs, CTOs, CMIOs, and all other senior healthcare IT leaders will be under pressure as never before to serve the computing support needs of physicians in practice, both those who will be directly employed by hospitals and health systems, as well as those employed by physician groups, and those with contractual affiliations to both hospitals and to physician groups. Over time, most physicians in their communities will in some way be connected to contracts that will involve IT support.
First of all, this means that interoperability will become more important than ever. Closed systems that can’t communicate with each other will become less and less defensible to end-users than ever. And, as we move into the emerging era of standards-supported API (application program interface) development, we really do face a tremendous opportunity to leapfrog the limitations of current EHRs (electronic health records), if we as an industry can embrace standards like the FHIR (Fast Healthcare Interoperability Resources) standard, and deepen and enrich its capabilities, in the coming years. Physicians in particular have an intense need to be able to access the interoperable apps of the future, to improve the quality, safety, efficiency, and cost-effectiveness of patient care.
Second, the network management, network security, and end-user support and training implications of all of this are rather mind-boggling, really. With hospitals, medical groups, and health systems constantly coupling and uncoupling and recoupling, there will be a need to develop the most physically and conceptually flexible IT and computing infrastructures possible, for the foreseeable future. Inevitably, that means some reliance on cloud-based computing and storage, though precisely what types of cloud-based development will be up to every CIO and their team of HIT professionals to determine; and developing high levels of security around data and the IT infrastructure, will be incredibly important.
Speaking of which, all of this also holds tremendous implications for data and IT security going forward, in patient care organizations. With constant streams of new individual users, and with the bridging of different information systems happening virtually every day, CIOs, CISOs, and other healthcare IT leaders are going to need to rethink their data and IT security strategies at both broad and deep levels. How will CIOs, CISOs and their colleagues develop continuous end-user education strategies that work? How will they rethink issues such as passwords, and two-factor identification strategies and policies? How will they find a balance between the need to ramp up data and IT security, while at the same time providing for the end-user friendliness that staff and especially clinicians, are demanding ever more vociferously these days?
There are no simple answers to any of these questions. But the reality is that CIOs, CISOs, CTOs, CMIOs, and their IT, clinical informaticist, clinician leader, and administrative leader, colleagues are going to need to figure out those answers, against a rapidly shifting backdrop. Because the leaders of hospitals, medical groups, health systems, and health plans are going to continue to engage in business transactions, including mergers, acquisitions, and contract-based relationships, going forward. So supporting end-users in all of this is going to be a bit like leaping back and forth from moving trains. But end-users of all kinds, most especially clinicians in practice, are going to be relying on healthcare IT leaders as never before, to make their work lives more, well—workable.