Will Health Plans Continue to Buy Up Hospitals?

I doubt it.

IMHO, the recent acquisition by Highmark Blue Cross Blue Shield of West Penn Allegheny Health System (WPAHS) for $475 M is unique to local market conditions. It was done as a last resort and should not be taken as a signal that health plans are starting a hospital buying binge.

Why are hospitals unattractive investments for health plans:

Payment Transformation: From Volume to Value

by Jaan Sidorov MD, MHSA, FACP and Vince Kuraitis JD, MBA

In our introductory posting, we suggested that a huge shift is underway in the health care industry.  Decades of hospital-physician cooperation are not only eroding, we suggest this trend could accelerate.  Instead of a natural clinical and economic affinity with hospitals, we foresee the potential for physicians forming a new dyad with insurer-buyers.

In this post, we will examine what we and many other commentators view as inevitable: the demise of volume-based payment systems and how the drive for greater value will cause physicians and insurers re-examine their normally antagonistic relationship.

Table of contents for the series--The 100 Year Shift? Strategic Realignment among Physicians, Hospitals and Payers

  1. The 100 Year Shift? Introduction and Overview
  2. Payment Transformation: From Volume to Value
  3. Physician-Hospital Relationships: The Hospital Morphs from Revenue Center to Cost Center
  4. The Practice of Medicine: from Marcus Welby to ???

The 100 Year Shift? Introduction and Overview

by Vince Kuraitis JD, MBA and Jaan Sidorov MD, MHSA, FACP

Gazing at the horizon, we foresee the potential for a tectonic realignment among physicians, hospitals and payers. Here’s a quick visual representation:



This essay is the first of a seven part series. In this first post we will capsulize our vision of this potential 100 Year Shift, answer initial FAQs, and lay out the structure for the rest of the series.

The Lynchpin — Changing Economic Incentives

In the past, physicians and hospitals have benefited from mutually supportive economic interests.

Table of contents for the series--The 100 Year Shift? Strategic Realignment among Physicians, Hospitals and Payers

  1. The 100 Year Shift? Introduction and Overview
  2. Payment Transformation: From Volume to Value
  3. Physician-Hospital Relationships: The Hospital Morphs from Revenue Center to Cost Center
  4. The Practice of Medicine: from Marcus Welby to ???

Patient “Leakage”: Rethinking Two Field of Dreams Assumptions About ACOs

A study released last week by the Massachusetts Attorney General contains surprising data to challenge two commonly held ACO (accountable care organization) “Field of Dreams” assumptions. These assumptions relate to patient “leakage” — out-of-network patient care and referrals.

1) Hospital administrators assume that tighter physician-hospital integration (e.g., through employment of physicians) will result in “captive referrals” by physicians back to the mother-ship hospital.

2) Medicare administrators are assuming that Medicare Shared Savings ACOs will be able to coordinate patient care even without limitations on patients’ choice to go to providers outside of the ACO provider network.

Here’s the data that challenges the validity of BOTH of these assumptions:

BlogTalkRadio Interview — Is Hospital-Physician Alignment Sustainable?

BlogTalkRadio Logo

Why have hospitals increasingly been buying physician practices?  Are these marriages based on true love or convenience? Will these marriages survive?

To address these questions, let’s take the long view (50–100 years) and revisit 7 assumptions that have driven us to today’s healthcare non-system:

  1. Healthcare payment systems have rewarded piecemeal work.
  2. Despite uneasiness, hospital-physician relationships have been cooperative.
  3. Physicians can function effectively in small/medium size practices.
  4. The healthcare mindset: built on control, not collaboration.
  5. Barriers to sharing patient info and coordinating care are high.
  6. The hospital has been the economic bedrock of the community.
  7. Health plans are the bad guys.

For more details and discussion, tune in to tomorrow to BlogTalk Radio. Host and ACO guru Gregg Masters will be interviewing me and we’ll discuss the topic of “Is Hospital-Physician Integration Sustainable?”

The details:

Wednesday May 11th 2011 broadcast, at 11AM Pacific/2PM Eastern

Click here to add a reminder to your calendar or to read more information about our session.

UPDATE: May 11, 2011. A replay or download of the interview is now available by clicking here.

Is Hospital-Physician Integration Sustainable?

Reprinted courtesy of MCOL.

Perspectives on a Selected Key Topic |     April 2011/May 2011     |   Volume Three Issue Two


Will a material number of hospitals and their core medical staffs, that are relatively independent, evolve into highly integrated delivery systems during this decade, and why?


William J DeMarco MA, CMC
President and CEO, Pendulum HealthCare Development Corporation

The great momentum brought about by government and private payers demand for more accountability is unstoppable. Rapid consolidation of hospitals and consolidation of physicians by physician groups, hospitals and now insurers will shift referral patterns and consumer preference. 1 out of 4 hospitals will fall short of providing value and close or be absorbed within 10 years.

Physicians will be offered higher prices to sell out to insurers and investors who value the short supply of PCPs and will try to control care demand by retooling the care system building ASC and small scale short stay hospital.

True clinical integration will follow for the survivors. The ability to prospectively develop clinical budgets and bundles of services will connect regional tertiary and quaternary care facilities to local hospitals so integration can be regionalized across larger populations and payer segments.

Once these delivery systems realize they need a product recognizable to individual consumers they will seek alliance with select insurers or create their own insurance company thereby achieving the true definition of integration which is to integrate financing and delivery of care.

This offers the shared savings with themselves and stabilizes patient flow and overhead to achieve value to purchasers and users of care.

We think these opportunities will be at a tipping point on a market by market basis over the next 5 years and will be a national definition of success within 8 years. We believe this will happen because already the bond rating companies are looking at physician alignment and payer alignment as factors in establishing credit worthiness of hospitals for expansion and mergers.

Benjamin Isgur
Director, PricewaterhouseCoopers LLP’s Health Research Institute

Integration is certainly on the rise. The notion of independent physicians may be a myth because so-called independent physicians are becoming increasingly financially tethered to hospitals. In fact fifty-six percent of physicians PwC surveyed want to more closely align with a hospital in order to increase their income. The new health reform law focuses on population health and adopts a Medicare compensation model that penalizes poor quality and rewards cost savings and electronic information sharing. Some commercial payers are also pushing this business model.

ACO Roundtable on blogtalkradio: Friday, April 1

On Friday April 1st, 2011 (yes, ‘April Fools day’) at 4 PM Eastern and 1 PM Pacific

ACO Watch: A Mid Week Review will host a special roundtable series on the ‘hot of the press’ Notice of Proposed Rules’ pertaining to the implementation of Accountable Care Organizations. For the published rule, click here.

The roundtable team will consist of Mark Browne, MD, PYA, aka @consultdoc, Vince Kuraitis, e-Care Management blog, aka @VinceKuraitis, and David Harlow, the Harlow Group, LLC,  aka @healthblawg, with Gregg Masters, aka @2healthguru, as moderator and host.

To listen live, or via archived replay, click here. During the broadcast you may also listen in via (619) 393-2836, and even participate in the chatroom.

A One in a Hundred Whitepaper: “Better to Best” Transcends PCMH, Care Coordination, Access, HIT, and ACO Payment Reform

Let me try to get you in the right frame of mind to read one of the most remarkable white papers in a long time: Better to BEST: Value Driving Elements of the Patient Centered Medical Home and Accountable Care Organizations — released yesterday by the Commonwealth Fund, Dartmouth Institute, and PCPCC.

Having been a debater in high school and then trained as a lawyer, my default mode of thinking is to be critical:

“Hey, Vince, how ya doin’? Great day isn’t it?”

“Well, …err…maybe, maybe not…actually, here’s 14 reasons why not.”

My wife and friends kindly tell me that this personal quality can be insufferable, and if you’ve ever met a lawyer you know what I’m talking about. My internal defense mechanism against my inner-critical brain is simply to turn it off — just go along for the ride and live in the moment.

To the extent that you can connect with what I’m saying, I suggest that before reading this report that you turn off the critical part of your brain.

If you’re a regular reader, chances are you’ve read individual white papers on these topics:

  • PCMH — the Patient Centered Medical Home
  • Care Coordination
  • Access to care for the un and underinsured
  • HIT — health information technology and the HITECH Act
  • Payment reform, especially as it’s been discussed around ACOs (accountable care organizations).

“Better to Best” transcends all these topics — it weaves them together, displays the interrelationships, and describes specific components of what a truly integrated health system could look like.

The 6th Thing to Watch in the Medicare ACO Regulations

Health care lobbyists and advocates are bracing for six pages of the health care reform law to explode into more than 1,000 pages of federal regulations when the Department of Health and Human Services releases its long-delayed accountable care organization rules this week. Politico

What should you be looking for as you snuggle by the fireplace this weekend reading the draft ACO regs?

Rob Lazerow writes a helpful article listing 5 Things to Watch in the Medicare Shared Savings Program Proposed Rule. His list of five key design issues includes:

  1. How will patients be assigned to ACOs?
  2. To what cost benchmark will ACOs be compared?
  3. How will bonuses be calculated and paid?
  4. For which quality metrics will ACOs be responsible?
  5. What is the application process?

I’d like to add a sixth  item — which actually would be #1 on my list.

As I’ve previously written, IMHO the central issue around ACOs is:

Are (hospitals and doctors) viewing ACOs as a way to truly develop patient centric, collaborative care or as a means toward consolidating market power against payers? We really don’t know.

So here’s item #6:

The Crucial Distinction Between “Accountable Care” and ACOs

AccountablecareWhile in Philadelphia earlier this week, my colleague Dr. David Nace presented me with a print copy of McKesson Relay Health’s newest whitepaper — Providing Accountability: Accountable Care Concepts for Providers.  I felt honored as he handed it to me and confided that it was one of only six copies in print.  I took time to read it carefully on the long flight home.

The whitepaper is a great overview of accountable care and ACOs (Accountable Care Organizations). It’s a quick and easily digestible read.

However, there is one key point articulated in the paper that I’d like to emphasize here:

accountable care is not synonymous with ACOs.