1

Addressing Increasing Provider Leverage

Paul B. Ginsburg, Ph.D.

May 19, 2015

Powerful Trend towards Provider Consolidation (1)

• Driven by fear as well as greed– Highly challenging environment for hospitals

and physician practices• Future is coordinated/integrated care• Large investments needed to prepare• Less attractive to be a small hospital or

physician practice

Powerful Trend towards Provider Consolidation (2)

• Record on hospital mergers well known

– Recent FTC successes in blocking horizontal mergers

• Additional concerns from vertical integration with MDs

– Besides higher payment rates

• Barrier to steering of patients to high-value hospitals• Reduce competitors in ACO/risk contracting

market

Approaches to Address Provider Consolidation

• Market approaches

• Government efforts to facilitate market approaches

• Direct regulation of prices

Better Information on Price and Quality for Enrollees

• Online tools for enrollees

– Great progress but disappointing use• But most opportunities on outpatient side

– Few incentives on inpatient provider choice in high-deductible plans

– Barriers to price estimates for an inpatient episode

• Inherent conflict with approaches emphasizing integration/coordination of care

Limited Networks (1)

• The most powerful market approach

– Leads to lower prices in two ways: steering and increased leverage

– Potential in concentrated markets as well– Far simpler for patients than price

transparency– Exchanges create ideal incentive structure

• Also avoid “one size fits all” requirements

Limited Networks (2)

• Regulatory threat: network adequacy and AWP

– Political economy 101– Muted so far

• Prominence of affordability issue• Pressing challenge for insurers: network

transparency

– Major vulnerability of approach– Resources to make directories more accurate– May require more structured network contracting

“Surprise” Balance Bills

• Physicians that patients do not choose

– Hospital-based– Issue in broad as well as limited networks

• Market solution: incorporate into hospital contracting

• Regulatory approach: Limit charges for such physicians to percentage (>100) of Medicare rates

Tiered Networks

• Potential for broader appeal than limited networks

– Point of service rather than annual decisions– Popularity of PPOs, tiered formularies

• Obstacle of anti-steering and all-or-none contracting by prominent hospitals

– Massachusetts barred anti-steering

• Blossoming of tiered networks– Fewer obstacles with physicians

• Key challenge is with data

Reference Pricing

• More aggressive approach to tiered networks

– But applies to smaller share of spending—only “shoppable” services

• CalPERS experience with joint replacement

– Successful but hard to do—small percentage of spend

• Works best with discrete outpatient procedures

– MRI, colonoscopy– Challenge is alerting patients

Fostering Physician Organizations (1)

• Goal: Slow movement of physicians to hospitals

• Payers acquiring practices

• Financial/technical assistance to independent practices

– Support for HIT– Advanced PCMH models with global upside

Fostering Physician Organizations (2)

• Policy options

– Loans/grants to establish infrastructure

• ACOs, practices– Eliminate higher Medicare payments for

physician services in hospitals

• Artificial incentive for hospitals to acquire practices

Anti-Trust Policy

• Need to develop policies on hospital acquisition of physician practices

• Recent FTC success in Boise not based on vertical combination issues

• Research base is developing– http://www.ipr.northwestern.edu/publicatio

ns/papers/2015/ipr-wp-15-02.html

Concluding Thoughts

• Upside in developments in financing and delivery has downside in increasing consolidation

– Proceed with developments and address the consolidation

• Significant opportunities for market approaches to offset growing provider leverage

– Important government role in fostering these market approaches

– Rate setting is a “stick in the closet” if market approaches cannot do the job