|WHAT WE’RE READING
Stuff we read this week that made us think.
Hospital mergers back in the spotlight
An article in the New York Times this week set off a flurry of reactions from across the industry concerning the impact of hospital consolidation on the cost of care. The well-researched piece draws on analysis from the University of California, Berkeley, which evaluated the 25 metropolitan areas with the greatest rate of hospital consolidation between 2010 and 2013, showing that prices for most healthcare services increased an average of 11 to 54 percent, casting doubt on the commonly-cited justification that hospital mergers increase efficiency and lower costs. The piece comes on the heels of other high-profile articles which assert that hospital mergers have failed to deliver value to purchasers and consumers.
Notably, the latest New York Times report delves deeper into the economic challenges facing independent hospitals, particularly those in smaller communities. (It’s worth noting that the markets examined in the Berkeley analysis are a step removed from the nation’s largest metro areas.) Smaller cities like Scranton, PA and Wichita Falls, TX are most likely to have seen the greatest levels of hospital consolidation. There’s a real question as to whether smaller cities or rural areas can sustain multiple hospitals, or whether they will inevitably see their hospital choices dwindle to one—or none.
It’s certainly fair to point out that we’ve yet to see the efficiency gains and price reductions promised by many hospital leaders involved in these mergers. In fairness, the traditional third-party payment system has rewarded a strategy of hospital consolidation to gain pricing leverage in rate negotiations with insurers, many of whom (particularly Blues plans) also enjoy oligopolistic positions in their markets. For many years, insurers were content to simply pass those rate increases along to employers in the form of higher premiums. But as costs continue to increase, employers are pushing back, shifting more cost onto individuals in the form of high-deductibles, and taking a more activist approach to purchasing care. And the Federal government’s exposure to rising costs is growing as well, with the Boomer population aging into Medicare, Medicaid rolls expanding, and individual-market subsidies adding a new stream of government health spending. Political decision-makers looking to rein in spending are finding eager allies in price-sensitive consumers, who will increasingly become healthcare voters as their exposure to costs rises. What was once an internecine battle between hospitals and insurers is rapidly becoming a political hot-button, adding urgency to the need for hospital industry leaders to deliver on the value they’ve promised from mergers, or to find other avenues to thrive in a challenging marketplace.
Advanced practitioners don’t lower primary care costs—but that’s not the point
A new analysis from the Health Care Cost Institute (HCCI) caught our eye, revealing just how pervasive the shift of visits from primary care physicians (PCPs) to advanced practice professionals (APPs) has been across the country. Using a large commercial claims database, the study found that visits to PCPs declined 18 percent between 2012 and 2016, while visits to APPs (including nurse practitioners, physician assistants and other non-physician providers) increased 14 percent. Notably this shift occurred in all fifty states, ranging from six percent in Washington DC to 31 percent in North Dakota. HCCI researchers also analyzed the impact of this shift on costs and found that utilization of APPs over PCPs did not significantly lower the cost of care (the average cost of a PCP visit was just three dollars more than one provided by an APP). We believe the focus on cost misses the point. The main goal of adding alternative providers to primary care is to expand access, not to lower the cost of providing those services, which account for only four to seven percent of US healthcare spending. More access to—and likely more spending on—primary care, whether through PCPs, APPs or other providers, will be necessary to lower the total cost of care.
Which brings us to the most worrisome data in the HCCI analysis: the increase in visits to APPs only offset 42 percent of the decline in PCP visits. While some patients may be using primary care services through retail clinics or telemedicine providers that aren’t billed to their insurer, it’s likely that use of primary care by commercially-insured patients may actually be declining. This is concerning for providers, given primary care’s importance in developing customer loyalty and managing the cost of care. Achieving these goals, particularly in the commercial population, will require multiple modes of convenient, reliable and affordable primary care access beyond a PCP or APP office visit.
What high healthcare costs look like on the ground
Two articles from Bloomberg this week provide further evidence, as if any were necessary, that our healthcare system is failing nearly everyone involved. First, the latest installment in Bloomberg’s year-long series “Risking It: Stories from America’s Uninsured”, which looks at the tough choices facing American families as they grapple with the high cost of health insurance. The article tells the story of the Maldonado family in Texas, a middle-class family of four who lost their employer-sponsored health insurance four years ago, when David Maldonado’s company dropped coverage for its employees, citing high premium costs. With his wife in remission from breast cancer, Maldonado quickly decided to purchase family coverage on the Obamacare exchange, only to watch premiums shoot skyward for their Blue Cross Blue Shield of Texas (BCBS-TX) plan, which was already costing the family more than their mortgage payments. Faced with paying for college for their two children, keeping up on car and house payments, and footing the bill for a $23,000 health plan (and its associated $5,000 deductible), David decided to drop coverage for himself and one of his children, leaving just half the family with health insurance. As premiums continued to rise, the family decided to drop coverage for their other child as well, and now carry coverage just for Mrs. Maldonado. The story is a sobering reminder that expanding coverage under the Affordable Care Act (ACA) has produced a mixed blessing at best on the ground—with the actual coverage available often unaffordable for many middle-class families.
Meanwhile, the ACA’s coverage expansion and broader trends in the insurance market have made the challenge of actually getting paid even harder for many healthcare providers. As a second article this week from Bloomberg frames it, “Doctors are Fed Up With Being Turned Into Debt Collectors”. Highlighting a key implication of the rise in high-deductible health plans, both on the ACA exchanges and in employer-sponsored insurance, the article describes a question now commonly faced by doctors and hospitals—how best to collect their patients’ portion of the fees they charge? As one Texas doctor tells Bloomberg, reflecting the experience of the Maldonados from the other side of the equation, “If [patients] have to decide if they’re going to pay their rent or the rest of our bill, they’re definitely paying their rent.” He reports that the number of people dodging his calls to discuss payment has increased “tremendously” since the passage of the ACA. Another Texas doctor reports that his small practice had to add an additional full-time staff member just to collect money owed by patients, adding further overhead to his practice’s costs and making it more likely that he, like many other doctors, will eventually seek shelter by being employed by a larger delivery organization. That trend, as has been repeatedly shown, further increases the cost of care, exacerbating the increase in insurance costs for families like the Maldonados. This Gordian knot of increasing costs, rising deductibles, and growing premiums has left us with a healthcare system that’s forcing difficult decisions at every turn, for patients and providers.