Can Blue Cross of North Carolina Help to Reshape Its State’s Healthcare Landscape? | Mark Hagland | Healthcare Blogs Skip to content Skip to navigation

Can Blue Cross of North Carolina Help to Reshape Its State’s Healthcare Landscape?

July 31, 2018
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Remarks made by Patrick Conway, M.D. this spring point to some of the opportunities—and profound challenges—facing the shift towards a value-based healthcare system in North Carolina

One of the more fascinating discussions of this spring that I was able to report on took place at the HLTH Conference, held at the Aria Resort in Las Vegas in early May. On Monday, May 7, I was able to attend a session that included Patrick Conway, M.D., the president and CEO of the Durham-based Blue Cross and Blue Shield of North Carolina (BCNC), and who had previously served as the Chief Medical Officer, Deputy Administrator, and Director of the Center for Medicare and Medicaid Innovation (CMMI), a division of the Centers for Medicare and Medicaid Services (CMS). Dr. Conway was interviewed onstage by Annie Lamont, managing partner at Oak HC/FT, a Greenwich, Conn.-based venture capital fund.

In addition to discussing his accomplishments at CMMI, Dr. Conway discussed at some length the payer-provider landscape in North Carolina right now. “Isn’t it true that five large multi-hospital systems dominate the state?” Lamont asked him. “Yes,” Conway responded, “five systems have the vast bulk of the market. And we’re looking at a new model, where” patient care organizations can partner more fully with Blue Cross North Carolina. “We’re saying, you can take this alternative pathway with us. And we’ll jointly be accountable for the total quality and cost of care. And we want you to go into two-sided risk. And we’re wondering, should we turn off all prior authorization? And documentation other than for risk coding and STARS measures, we won’t worry about how you document. And for people in the audience, those kinds of partnerships are very exciting, because you’ve now got a provider and payer that are no longer locked into rigid rules, but where you can innovate on quality and customer experience,” he added.

Meanwhile, Lamont asked, “How might the Blue Cross and Blue Shield Association be able to help facilitate healthcare system change among all the Blues plans, and beyond?” “I think the Blues system has a lot of potential, if we move past the traditional health insurance system,” Conway said. “The beauty is that we insure 100 million people—nearly as many as CMS. does And it’s mission-driven. And we have leaders like Mark Ganz [CEO of the Portland, Ore.-based Cambia Health, the parent company to four regional health plans] and Paul Markovich [president and CEO of the Sacramento-based Blue Shield of California], who really want to drive the system. The question is how you think about innovation, data and analytics, the customer experience, investments beyond the traditional ones, and think beyond being a traditional insurer.”

Later on in the interview, Lamont said, “You come in quickly and want change to happen fast in North Carolina. As you think about the things that can make the most change, I know you want to influence primary care. What are your thoughts about that” “I’d say a few things,” Conway said. “First, I’d reference our high-level goals as an organization: we talk about better care and outcomes, at lower cost, and with better service and experience. Buckets: working deep partnerships with providers, risk, etc. Second,” he said, “I’d talk about convenience: 24/7 access, telehealth-enabled, a real focus on higher quality and lower cost. And we’re like Medicare: we spend less than 10 percent of our costs on primary care, yet primary care physicians control most of the costs.”

“How do you do that—incent patients to show up in primary care?” Lamont asked. “First, there’s basic segmentation that has to take place in terms of Medicare, Medicaid, and commercial plan members,” in terms of thinking about how best to manage care and services for distinct populations, Conway said. And then, the providers who want to focus on discrete populations, are a factor as well, in planning, he said. “Some providers are involved in concierge-type care, which we’re looking at; other potential partners want to care for the sickest of the sick. There are different enablement capabilities,” and different levels of interest among different providers in terms of seeking to serve specific populations and sub-populations, he said.

“How do you define healthcare quality?” Lamont asked. “I was responsible for most of the measures from the federal government,” Conway said, “and always tried to move towards true outcomes measures rather than process measures, including patient-reported outcomes—process measures only if they have a real tie to outcomes measures. And then experience measures. I think healthcare, like other services, should have experience measures. And then I think about the total cost of care.”

Meanwhile, what about the proposed mergers and/or business alliances involving CVS and Aetna, Walmart and Humana, and Amazon/Berkshire Hathaway/JP Morgan Chase, that have emerged in the past few months? Lamont asked. “What’s your perspective?” “North Carolina is an interesting market, we’ve got every major health insurer,” Conway noted. “On the integration point, they all vary a bit. CVS-Aetna—can you actually integrate well and get the full value out of that relationship? But it’s got a PBM play and an integration play to it. Interesting. Walmart-Humana—is it actually real? But I view all of these things as overall positive; [the very creation of disruptive new alliances] forces change. In terms of the Amazon/Berkshire Hathaway/ JP Morgan Chase announcement, my biggest take with that is, they’re so upset with the current system that they want to disrupt it; and my reaction is, we should listen. Because they’re identifying a real problem.”

Rethinking market change in a health system-dominated state

I honestly found so much of what Dr. Conway told Annie Lamont about the North Carolina regional healthcare market (which itself is, of course, an amalgam of various metropolitan and other markets within the state) to be quite fascinating. With the major metropolitan areas in North Carolina dominated by a small number of relatively very large multi-hospital systems, it’s not going to be easy to force clinical transformation and value-based transformation in that state, even as Blue Cross Blue Shield of North Carolina dominates the market to some extent on the health insurer side.

Indeed, Blue Cross Blue Shield of North Carolina itself recently sponsored a study of the state’s health insurance landscape. And the insurer stated on its website last year that “A recent study showed that North Carolina pays more for health care than all the other states. Why is that? It’s a pretty simple question. Of course, when it comes to health care, simple questions often have complicated answers. But let’s take a look at some of the big-picture reasons that contribute to consumers paying more for health care here. Our state has large regions with only a few major health care providers. Some areas like Western North Carolina are dominated by only one hospital system. That lack of competition not only drives up the cost of care but also makes it much more difficult for insurers to negotiate lower prices with hospitals.”

Further, the health plan stated on its website, “The reverse is also true. For example, the Raleigh-Durham-Chapel Hill area is served by Duke Health, UNC Health Care and WakeMed Health Services. According to research by the Brookings Institution, that competition has resulted in the Triangle boasting some of the most affordable health care in the state. Unfortunately, North Carolinians aren’t as healthy as the rest of the nation. That’s especially true of our children, which doesn’t bode well for healthcare costs in the future. Obesity-related issues like diabetes and heart disease are major problems in our state. These conditions often call for the long-term use of expensive prescription medicines, not to mention costly medical testing and procedures. On top of that, nearly one-in-five North Carolinians is a smoker, which is higher than the national average of about 17.5 percent.”

And the study on which those statements were based, “A Study of Affordable Care Act competitiveness in North Carolina,” by Mark A. Hall of Wake Forest University, stated this: “Sources consistently said that health insurers’ potential entry into the market and geographic coverage are driven by provider contracting. North Carolina is considered to have fairly consolidated provider markets, as shown in the map below. Until a few years ago, Blue Cross included a “most favored nation” clause in its provider contracts. It required providers to give Blue Cross their best discount, but Blue Cross no longer does so and state law now forbids this. Providers in some parts of the state are still reluctant to give favorable discounts to Blue Cross competitors, several interview sources said. Sources also said that, considering the strong brand recognition that Blue Cross enjoys, it is not sufficient for competing carriers to simply match Blue Cross pricing; competitors need to offer prices that are lower to attract significant enrollment.”

What’s more, Professor Hall stated in the report, “Aetna and UnitedHealthcare were able to achieve competitive provider contracts in two ways. Aetna partnered with major health systems in several metropolitan markets to offer cobranded plans, such as with Duke Medical Center in the Raleigh area or the Carolinas Healthcare System in Charlotte. UnitedHealthcare sought risk-sharing arrangements of different types with providers throughout the state, including some accountable care organizations (ACOs). Also, UnitedHealthcare offered only a closed-network gatekeeper health maintenance organization (HMO) model in the individual market and no point-of-service or preferred provider organization (PPO) option. Cigna entered the Raleigh-area market for 2017 by offering a narrow network based on providers affiliated with the University of North Carolina.”

So what’s the bottom line here? It’s this: complexity. There is a dominant health insurer in North Carolina, but because of the dominance of individual, multi-hospital-based health systems in their individual metropolitan markets, hospitals have tremendous clout in North Carolina. So Dr. Conway and his colleagues at Blue Cross Blue Shield of North Carolina have proposed a “third way” type of collaboration—what he called in his interview at HLTH, an “alternative pathway” in which that insurer, and individual hospital-based health systems, agreeing to “jointly be accountable for the total quality and cost of care.”

That certainly is a reasonable proposition. What remains to be seen is the extent to which hospital-based health system leaders will take it upon themselves to participate in such arrangements. Only time will tell; yet one would think that any forward-thinking health system leaders would find themselves open to the prospect of such arrangements, in order to prepare for the nationwide value-based healthcare system that’s beginning to emerge.

And the North Carolina statewide market is absolutely one of the healthcare markets to watch, in the coming months and few years, because the pace at which it moves into change will also indicate the pace at which the nationwide U.S. healthcare market shifts towards value.

Frankly, my honest guess is that change will take place more slowly than one might hope, in North Carolina, because hospital-based health systems have far less incentive to shift quickly towards risk-based contracts. They have the market power to resist such arrangements, and their cultures have not yet developed towards the more advanced cultures of markets like San Diego, Minneapolis, or Cincinnati.

So only time will tell; but it will be important to watch North Carolina healthcare evolve, for clues as to how U.S. healthcare will evolve forward more generally. And the next few years will absolutely be a pivotal period of time in that regard.





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Report: 34 Percent of Healthcare Payments in 2017 Tied to APMs

October 22, 2018
by Heather Landi, Associate Editor
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One-third (34 percent) of total U.S. health care payments were tied to alternative payment models (APMs), such as shared savings/risk arrangements, bundled payments, or population-based reimbursements, in 2017, up from 23 percent in 2015, according to a report from the Health Care Payment Learning and Action Network (LAN).

LAN’s latest progress report measures the use of APMs among public and private health plan and the analysis is based on data sourced from LAN, America’s Health Insurance Plan (AHIP), the Blue Cross Blue Shield Association (BCBSA) and the Centers for Medicare and Medicaid Services (CMS). The data was collected across commercial, Medicaid, Medicare Advantage and fee-for-service (FFS) Medicare market segments.

LAN is a public-private partnership launched in March 2015 by the U.S. Department of Health and Human Services (HHS) to drive adoption and alignment of APMs. At its inception, LAN set out a goal of transitioning 30 percent of total U.S. health care payments to APMs by 2016 and 50 percent by 2018.

According to LAN, the progress report, the largest and most comprehensive effort of its kind, confirms positive and sustained momentum shifting health care payments away from fee-for-service toward value-based payments aimed at improving quality, reducing costs, and providing better health outcomes for patients. Yet, there are additional opportunities to increase payments in episode- and population-based payments that have additional downside risk, according to the report.

Specifically, LAN’s progress report measures the shift away from the current fee-for-service models of payment in the health care system to models that pay providers and hospitals for quality care and improved health.  Like last year’s effort, the APM Measurement Effort includes FFS Medicare data, in addition to data from 61 health plans and 3 FFS Medicaid States, representing a total of 77 percent of covered lives in the United States.

The report data was categorized according to the four categories of the original LAN APM Framework—category 1 is traditional FFS or other legacy payments not linked to quality; category 2 is foundational payments like care coordination fees or pay-for-performance; category 3 is APMs built on FFS architecture and include shared savings, shared risk and bundled payments; category 4 is population-based payment and integrated finance and delivery systems.

According to LAN’s analysis, 41 percent of healthcare dollars fall into Category 1 (FFS with no link to quality and value); 25 percent of health care dollars fall into Category 2 (FFS with a link to quality and value) and 34 percent of health care dollars fall into a composite of Categories 3 and 4 (e.g., shared savings, shared risk, bundled payments, or population-based payments). That 34 percent represents approximately 226.3 million Americans and 77 percent of the covered population.

When comparing APM adoption across different market segments, it is clear which markets are driving the overall adoption of value-based payments, according to the report. Medicare Advantage had 49.5 percent of health care dollars in Categories 3 and 4 and FFS Medicare had 38.3 percent of health care dollars in Categories 3 and 4. The commercial line of business had 28.3 percent of health care dollars in Categories 3 and 4, while Medicaid had 25 percent of health care dollars in Categories 3 and 4.

This year marks the first time the LAN’s measurement effort reported findings at the payment or subcategory level. Notably, the findings show most of the spending tied to Category 3 and 4 APMs falls within the Framework’s 3A category, which focuses on shared savings. Only 12.5 percent of payments were made in Categories 3B, 4A, 4B and 4C combined, which represents APMs with shared savings and downside risk as well as population-based payments with additional risk.

LAN notes that these findings indicate there are additional opportunities to increase payments through episode- and population-based payments that have additional risk.


This year also marks the first time the LAN reported payment data by line of business (i.e., commercial, Medicaid, Medicare Advantage, and FFS Medicare), rather than across lines of business only. Like last year’s effort, the APM measurement effort includes FFS Medicare data, in addition to data from 61 health plans and 3 FFS Medicaid States, representing a total of 77 percent of covered lives in the United States.

“The report’s findings reinforce our understanding that there is sustained, positive momentum in the effort to shift healthcare payments from traditional fee-for-service into value-based payments,” Mark McClellan, co-chair, LAN Guiding Committee, and director of the Robert J. Margolis Center for Health Policy, said in a statement. “While we celebrate the increase in overall APM adoption, we also know further progress on payment reform will be important to ensure health care dollars flow through models that have more risk.”

“Our healthcare spending is growing faster than our overall economy and by 2026, 1 in 5 dollars spent in the United States will be spent on healthcare,” CMS Administrator Seema Verma said in a statement in the LAN press release. “This is simply unsustainable, and we must change this trajectory. CMS values our partnerships with those on the frontlines of our healthcare system, and we continue to work with innovators to develop new ways to pay for and deliver care that focuses on patients.”

LAN’s report also included the payers’ perspectives on the future of APM adoption. Ninety percent of payers indicated that APM activity will increase, 9 percent said it will stay the same, while zero payers surveyed indicated that APM activity will decrease.

In responding to a follow-up question regarding which APM subcategory will be most impacted, nearly half (48 percent) of payers identified subcategory 3B: Fee-for-service-based shared-risk, Procedure based bundled/episode payments, and Population-based payments that are not condition specific.

“[3B’s] selection as the APM to be most impacted by future APM adoption reflects a likely shift to two-sided risk arrangements,” the report stated. Apart from the 48 percent that selected 3B as the APM most impacted, another 25% of payers identified subcategory 3A (traditional shared-savings, utilization-based shared-savings) as the APM most impacted by future activity.

Payers responded that APM activity will result in better quality of care, more affordable care, and improved care coordination. While they felt that payment reform may drive further consolidation among healthcare providers, they did not expect higher unit prices as a consequence.

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Heritage Medical Systems’ Voyage to Value—and How Physicians are Leading the Way

October 11, 2018
by Rajiv Leventhal, Managing Editor
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“If you have no risk at all, how hard you work at something is different than if you have some risk,” says one healthcare leader

As the accountable care train continues to speed up, innovative healthcare leaders are realizing that physicians—the ones who are working side-by-side with patients on a regular basis—will be key to making the transition to value successful. In California, Heritage Medical Systems, which also has providers operating in New York and Arizona, has been at the forefront of the accountable care revolution, and its senior executives point to its physicians as the ones who are leading the change.

Mark Wagar, president of Heritage Physicians Organization, which operates under the broader Heritage Medical Systems umbrella, recently spoke with Healthcare Informatics about his organization’s value-based care journey, its accountable care organization (ACO) progress, and how physician culture can be changed as providers take on more risk for their patients. Below are excerpts of that interview.

Where do things stand regarding Heritage’s value-based care evolution?

Heritage Physicians Organization is part of Heritage Medical Systems, which has lots of medical organizations in several states. I believe we have about 3,700 primary care physicians and 12,000 specialists that are involved in our ACO endeavors. This has been driven off the original and largest piece of our business in California. And it was a policy decision early on, from our founder, Dr. Richard Merkin, to get into [the Center for Medicare & Medicaid Services’] Pioneer ACO model, even though it was not our core business.

We have been involved in value-based care, the full-risk version, for decades, but we wanted to demonstrate that if you can surround private fee-for-service physicians with the kind of capabilities and infrastructure that we give our traditional business, an ACO has potential. So we did that and are continuing to move forward with that program. But we also believe this: the country would benefit if this all moved faster.

Heritage has evolved from the Pioneer ACO model, to the MSSP (Medicare Shared Savings Program), now to the Next Generation ACO model. Can you talk about the biggest lessons learned so far?

Generally, it’s a step in the right direction. The ability to get more of the funding earlier enables provider organizations to have the funding, change the system, and change what we do. You don’t have to drive off billable events only. We finally have this exploding recognition suddenly that social determinants and behavioral health are important. But that has been apparent to any physician organization for decades, particularly for us as we have been involved in value-based care and risk arrangements since the 1970s.

It became obvious that depending on the patients and the circumstance—what happens in their home and community, what surrounds them, and what their other issues are—may be more important than the physical interaction with their providers. You have to know that in order to manage their health. Once you move away from the mindset of, “I just need to be excellent when you fall in the door, sick or injured,” and move toward, “I will try to help you not fall in the door sick or injured,” or at least have it take longer for it to happen, or maybe you won’t be as bad when you do fall in the door, that’s when the light bulb goes on. We are happy that it’s becoming a broad part of the equation.

Mark Wagar

What are some of the most important IT and data elements to being successful in this transition?

I think as much real-time data and access as you can get is extremely important—so what care a patient is getting, and where, and what is happening in his or her life. If you work from the traditional basis, we pay claims in partnership with our health plan partners, and we pay the claims on the vast majority of our business. And when we do that, our physicians, nurses, pharmacists, social workers, and everyone else involved in the patient’s care, don’t have to wait every three to six months for a review of the data. We see the data today—this hour.

If someone shows up with a conflicting set of prescriptions, or an event that the primary care physician didn’t know about, you want to find out about that right away, and find out what’s happening and what’s wrong. Looking back at trends is important in terms of a future planning perspective, but in terms of what is happening with the patient right now, especially those who are at risk, you want to have that information right now—today, tonight, this hour—and do something about it.

Dr. Merkin’s next question after he talks with physicians about a patient is, “So you know this information, and what are we doing about that right now?” It’s much different than the traditional fee-for-service system where the data just isn’t available to the provider at the level until much later.

What are your thoughts on the recent policy developments on the ACO front these days? Are the government’s proposals to push providers into risk more aggressive than some would like?

Yes, it’s more aggressive than some would like. But this is not about what all of us would like; it’s about how you get to where things are optimal and most effective faster. If you fully embrace both the access to the resources, and the risk, and you are able to spend the money on the resources—in terms of changing the system, changing the way you do business, and not accepting the status quo—you can make a significant difference.

The one-sided risk models are a very important way for providers who may be uncertain to get started, but we are talking about managing a human being-based system of care. If you have no risk at all, how hard you work at something is different than if you have some risk. Providers always want more dollars to do something with, but you don’t get dollars if you aren’t in a position to do something materially different, and essentially guarantee that at least some of it will happen.

We still have a fee-for-service-based system and much of the value-based payments that health plans have moved to is a positive thing that has stimulated some change, but it’s paying you a year or a year-and-a-half later—maybe a little differently if you happen to administer a result as a bonus—but you are still getting that underlying fee-for-service payment. If you are in a one-sided model, it masks and slows down how quickly you get to what could be done if you had more of the resources.  

How have you and your colleagues been able to change the physician culture, in terms of moving physicians to a new understanding of what’s going on in healthcare?

In Heritage’s markets where the models are most mature, it’s a combination of physician groups where the doctors are employed, as well as significant numbers of independent practices and smaller offices in the community, and we can blend those. But the physicians individually are not at personal material downside risk. There is an organizational structure that manages the money that comes in when we are fully at risk, but regardless of whether they are employed or an independent practice, they are all tied to a payment at the individual physician level.

That’s one of the things that is missed in the whole conversation over providers being put more at risk—an individual practice office with a few thousand patients is not in a position, actuarily, to accept all that risk. You have to be partnered with some kind of system.

In our instance, in our most mature markets, it’s a blend of employed physicians and independent practices, but in some markets all we have are independent practices. So we can do this if we surround them with the infrastructure if you aggregate enough members from the plans that give you an actuarily valid risk base, and then you have the money up front, so you can help them with information and give them information faster. Then, they can do good things for their patients faster.

What advice can you give to others who are just starting out on this journey?

I [wouldn’t] sit and stew about how difficult it is to be in your position and be surrounded by all these regulations and requirements that can become tough to manage. You can talk about that all day, but it’s ultimately the people’s money and they are asking for better quality, better service and access, and more moderated costs. The only people that can ultimately change things on all those fronts, for the better, are provider organizations—predominately those led by physicians.

But we cannot afford to take decades to make the next set of changes, unless we want government intervention that breeds mediocrity as a result. Physicians and providers should lead this change, and moving this faster will bring the best things for their patients in the long run. Demand more of the dollar in your control immediately, and in order to do that you have to have the structure around you and the willingness to accept responsibility for that dollar. We are trying to show people out there that you can partner with others, and it’s possible to get net better across these factors if you enable the physicians to manage more of the dollar from a clinical perspective, to the patient’s benefit.

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Are Disruptive Forces in U.S. Healthcare Accelerating Now? Notes on the Now-Approved CVS-Aetna Deal

October 10, 2018
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The DoJ’s approval of the CVS-Aetna merger signals a new phase in the healthcare business world—and it’s time for patient care executives to rethink the meaning of competition

As Associate Editor Heather Landi noted in her news report Oct. 10, on Wednesday, the Department of Justice (DoJ) approved a proposed $69 billion merger between CVS Health and health insurer Aetna, after Aetna entered into an agreement with the Department to divest its Medicare Part D prescription drug plan business.

“The deal,” Landi wrote, “is the latest in a wave of combinations among healthcare companies, including many pharmacy benefit manager (PBM) and insurer integrations. Last month, the Justice Department approved Cigna’s $67 billion takeover of Express Scripts. CVS Health announced in early December 2017 its intention to acquire Aetna in a $69 billion-dollar merger, marking the largest ever in the health insurance industry. Woonsocket, R.I.-based CVS operates the nation’s largest retail pharmacy chain, owns a large pharmacy benefit manager called Caremark, and is the nation’s second-largest provider of individual prescription drug plans, with approximately 4.8 million members. CVS earned revenues of approximately $185 billion in 2017. Aetna, headquartered in Hartford, Connecticut, is the nation’s third-largest health-insurance company and fourth-largest individual prescription drug plan insurer, with over two million prescription drug plan members. Aetna earned revenues of approximately $60 billion in 2017.”

As Reed Abelson wrote in a report in Wednesday’s New York Times, “The approval marks the close of an era, during which powerful pharmacy benefit managers brokered drug prices among pharmaceutical companies, insurers and employers. But a combined CVS-Aetna may be even more formidable. As the last major free-standing pharmacy manager, CVS Health had revenues of about $185 billion last year, and provided prescription plans to roughly 94 million customers. Aetna, one of the nation’s largest insurers with about $60 billion in revenue last year, covers 22 million people in its health plans.”

And, while executives from the two mega-companies assert that this merger will allow them to better coordinate care for consumers, while also better controlling costs, some consumer advocates believe that the opposite could actually take place—that consumers could lose both choice and reasonable medication costs. “This type of consolidation in a market already dominated by a few, powerful players presents the very real possibility of reduced competition that harms consumer choice and quality,” George Slover, senior policy counsel for Consumers Union, an advocacy group, said in a statement. “The combination of CVS and Aetna creates an enormous market force that we haven’t seen before.” The consumer organization, the Times report noted, had opposed the Aetna-CVS merger, arguing that people enrolled in Aetna health plans could be forced to seek care at CVS retail clinics, and that those who were not insured by Aetna could pay higher prices for drugs than those who were.

Meanwhile, what fascinates me in all this is the potentially accumulative impact of all the various disruptive business combinations that have been emerging in U.S. healthcare—not just CVS/Aetna, but also the Amazon/Berkshire Hathaway/JP Morgan Chase collaboration on healthcare costs and other challenges; Wal-Mart’s interest in potentially acquiring Humana; and the forays into consumer-facing healthcare IT on the part of Google and Microsoft.

All of these business deals, collaborations, and potential connections involve either “interspecies” combinations, or forays into new areas on the part of companies from outside those core business areas. And that should concern traditionalist-thinking leaders in patient care organizations, especially senior executives in tradition-bound hospitals and health systems, who have historically thought about competition as being direct hospital organization to hospital organization competition. With all sorts of non-traditional business combinations emerging, that kind of thinking ends up being not just limiting, but potentially debilitating.

The reality is that every part of the policy, business and operational landscape on which hospital-based organizations is now in motion—at the same time. Physicians are coalescing into ever-larger multispecialty physician groups, some of them affiliated with hospital-based integrated health systems, but many of them totally independent. Health plans are acquiring physician practices, and are, in many markets direct competitors with hospitals in the acquisition of those practices. Health plans are also continuing to consolidate among themselves. Employer-purchasers are eliminating the health plan “middleman,” and setting up direct contracting with some of the largest and best-known nationally branded patient care organizations; and on and on.

I wrote last year about attending a fascinating session on employer direct contracting that took place at the World Health Care Congress in Washington, D.C. last spring. Employer-purchaser executives talked with great enthusiasm about such contracts. One executive, representing the nationwide Lowes home improvement retail company, shared his enthusiastic response to contracting directly with the Mayo Clinic, to bring patients from places as faraway as Montana and Mississippi, to Cleveland, for total joint replacement surgeries, at scale.

I quoted Bob Ihrie, who had recently retired as senior vice president, compensation and benefits, at the North Wilkesboro, North Carolina-based Lowe’s Companies, about that contracted relationship. “As Ihrie noted, for an extremely far-flung self-insured employer like Lowe’s, with its 1,800-plus home improvement stores spread across the U.S., doing what the Chicago-based Boeing Corporation, with its massive plants in Washington state, California, Missouri, and South Carolina, and its ability to build bricks-and-mortar corporate medical clinics in those locations, the options for Lowe’s are rather different,” I wrote. “Thus, the desire to create systems to improve their patient outcomes for their covered lives, and improve costs.” Indeed, I wrote that Ihrie told that World Health Care Congress audience, that, “The quality results have been so overwhelming that for Lowe’s for 2017, if you elect not to go to a center of excellence, you need a mandatory second opinion, and if it doesn’t approve, you won’t be covered.” He further noted that “Wal-Mart actually mandates travel to a center of excellence.”

In other words, the old thinking among hospital organization senior executives—to think primarily about market competition as being illustrated by the fact that the hospital down the road is building a new facility—is hopelessly outdated at this point. Indeed, it’s time to consider that market competition may now mean a major nationwide retailer with a strong local presence, compelling its employees and their family members to fly across the country to a patient care organization with national branding and presence, rather than to one’s own facility, or to the facility down the street.

In short, it’s time for hospital executives to think very differently about what market competition and market disruption might mean for their organizations. It’s time to start playing three-dimensional chess.

And I haven’t even discussed the role that consumer-facing technologies, many of them spread through online apps and wearable technologies, will begin to play in all this. That adds yet another cross-hatch factor to this entire discussion.

So it’s time for healthcare executives to rethink the very definition of market competition, and to think in unprecedented ways about market disruption; because this DoJ approval of the CVS-Aetna merger should absolutely be taken as a sign of things yet to come.




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