Over the past two decades, consolidation has become as inherent to medicine as a stethoscope in a doctor’s office. Health systems are growing, exponentially. The auditing firm Deloitte predicts that only 50 percent of existing health systems will remain by 2024. And so in nearly every major U.S. city, market share has become more important for survival. Meanwhile, the cost effects of all the merging and acquiring and partnering are still undetermined.
Hospital systems say that adding more doctors and more locations to provide care improves access and allows them to better manage the health of a population. That, theoretically and ideally, would push costs down by eliminating wasteful procedures and slowing readmissions. But the jury’s still out on that. Last June, for instance, research in the Journal of Health Care Organization found rates for procedures at California’s two largest health systems were 25 percent higher than at other, smaller hospitals.
It’s a narrow view, but one worth considering: consolidation in other industries often makes prices go up. Can healthcare bend that cost curve? Recently, D CEO invited three experts from North Texas to talk about the history and impact of consolidation here: Joel Allison, the former CEO of Baylor Scott & White Health who orchestrated Baylor Health Care System’s 2013 merger with Scott & White Healthcare; Dr. Christopher Crow, independent doctor and the CEO of the Catalyst Health Network, an accountable care organization for independent doctors; and Dr. Daniel Varga, the chief clinical officer for Texas Health Resources.
“Taking us back to 1994 … we believed that if you were going to be able to manage the care of patients and be accountable for total care and total cost, you needed a strong primary care network.” —Joel Allison
Allison was discussing formation of the Health Texas Provider Network, the physician network affiliated with what was then the Baylor Health Care System. This was the first large-scale push in the Dallas market to hire independent physicians. As Allison noted, Baylor realized early on that family doctors, the foot soldiers of the healthcare delivery system, would be a key component to building a patient population to help manage chronic conditions. Today, the network counts 965 physicians and nearly 300 nurse practitioners and physician assistants among its ranks. These affiliated 501(c)3 groups are as integral to growing a health system as the brick and mortar facilities they practice in.
“You see consolidation happening over the last 15 years, especially in the independent space going to the integrated delivery networks, because it’s just hard to run a practice these days. You run through medical school, you go through residency, there are no business classes. You get out and the first thing you have to do is figure out: I need a phone system.” —Dr. Christopher Crow
Physicians are a fiercely independent bunch, and aligning with a health system means giving up at least some of their autonomy. So why do it? As Crow says, there are benefits on both sides—joining up with a hospital system means the infrastructure requirements fall to your parent organization rather than to you. Systems can help with data analytics and provide administrative staff, both things that can be a challenge for smaller practices. And considering the way the Affordable Care Act transformed Medicare reimbursement models to pay for value instead of volume, independent physicians must figure out ways to stay engaged with their patients even after they leave their offices. (At least, they did until Donald Trump took office. Now, who knows?)
“If there’s not pricing transparency, you will see costs go up … we’re now the third most expensive metro area.”Dr. Christopher Crow, Catalyst Health Network
This confluence of factors has helped plunge the percentage of doctors nationwide who identify as independent from 48.5 percent in 2012 to 33 percent in 2016, according to a survey by the Physicians Foundation. The effect of this, too, is being studied. Back in California, a 2014 study in the highly regarded Journal of the American Medical Association found that doctors there spent 10.3 percent more per patient when they were employed by a hospital system compared to their independent counterparts.
“If you want to talk about cost, first of all, in this marketplace, historically we’re a very expensive marketplace. The question is how do you turn the cost curve? In the Baylor Scott & White Quality Alliance, in their Medicare Shared Savings program, they currently have a benchmark cost performance that’s about $1,500 per beneficiary per year below the ACO (accountable care organization) average nationally. That’s exceptional performance. … We can turn cost in this market if the incentives are [established in] the right way.” —Dr. Daniel Varga
Medicare Shared Savings is a federal program that incentivizes integrated delivery networks to keep the cost of care for their populations below a certain benchmark level. If they do that to a certain percentage, the providers get to share in the savings with the government. The Quality Alliance is an accountable care organization, which involves providers monitoring patients after they leave the physician’s office to help make sure they’re taking their medications properly and adhering to the doctors’ orders. These alternative payment models are widely considered to be what motivates the push toward quality and lower costs.
Both Baylor Scott & White and Texas Health Resources, in its new network with UT Southwestern, have had success with the public program. On the commercial side, meanwhile, Crow’s Catalyst Health Network has attracted more than 300 primary care physicians and accounts for around 200,000 patient lives. All four of the major insurance companies in the market have value-based contracts with Catalyst. And other networks for independent doctors are growing as well.
Varga notes that Dallas is unique in that it’s home to a variety of delivery models. They’re all attempting to lower the cost curve—and they’ve all got a long way to go.
“The question of consolidation and whether it’s good or bad—it’s both. You get a lot of good efficiencies. There are things you can do that you absolutely could not do without that. And at the same time, if there’s not pricing transparency, you will see costs go up. In this market, although we’re doing these great things you’re talking about, we’re now the third most expensive metro area in the nation. … The American dream for the middle class has been gone the last 10 to 15 years because of healthcare costs.” —Crow
Last year, the Brookings Institution dug into numbers from the Department of Labor and found that the middle class was paying about 25 percent more for healthcare in 2014 than it was in 2007, before the Great Recession. Essentials like food, housing, transportation, and clothing all sailed downward during that time. Part of this is due to the rise of high deductible health plans and health savings accounts; employers, spending more on healthcare, shifted more of the medical costs onto the employees in the hopes of increasing personal responsibility. Deductibles jumped from $303 in 2006 to $1,077 today, according to the Kaiser Family Foundation.
All the parties in this story are trying in their own ways to meet this challenge, whether through consolidation or partnerships. But whether it happens will be decided by the incentives. The big groups are finding success in value-based arrangements, but volume is still the driving force in most payer contracts. Which is to say, the providers have positioned themselves with enormous networks and ever-growing patient populations. Until their existing volume-based contracts make way for value, however, the question of whether their strategies will truly bend the cost curve remains to be seen.
Matt Goodman is D’s online Editorial Director and the former Editor of D CEO Healthcare.