ACOs and Mergers
Under the Affordable Care Act (ACA), an Accountable Care Organization (ACO) is a network of doctors and hospitals that share financial and medical responsibility for providing coordinated care to reduce spending (1). ACOs are exempt from anti-trust scrutiny if they can demonstrate less than a 30 percent market share in each independent service within a geographic market (2). There is little empirical evidence to support a 30 percent benchmark, but this is the parameter used by the Federal Trade Commission (FTC) (2). Only general attributes of clinical integration have been described by enforcing agencies so as not to stifle innovation with rigid mandates (2). These features include the selective choice of network members, mechanisms to ensure compliance with clinical protocols and investment in infrastructure such as shared electronic health records.
What Impact May an ACO Have on a Neurosurgeon?
Since the concept underlying an ACO is one of shared risk, it is important the neurosurgeons entering into an ACO-type agreement understand with whom risk is being shared. If a multi-specialty entity is involved, it is important that patient care be value based appropriately and fairly. In other words, neurosurgeons should ensure that a surgical intervention, which may provide definitive treatment but consists of a relatively small portion of the care encounter, is not devalued if the metric used rewards the percentage of the care encounter during which each physician provides care. For the example of a patient with back pain, a primary care physician may initially see the patient, then refer him or her to a neurologist, who may refer him or her for rehabilitation and to a physiatrist, and eventually, the patient may be sent to a neurosurgeon for surgical care. In this patient encounter, discussing the valuation of each physician’s care is important in arriving at a fair compensation apportionment.
Who distributes the payment delivered to an ACO is also important. If the hospital controls the bundle, or a specific specialty in a multi-specialty group does, it is important that neurosurgery be valued appropriately and compensated fairly. For subspecialties that utilize implantable devices or intra-operative imaging, incurring high costs without a connection to high-quality outcomes may penalize neurosurgeons. Neurosurgeons can strive to become more cost effective and exercise stewardship over resources used.
How are Mergers Analyzed for Being Anti-competitive?
The first step in analyzing a merger is to determine the impact on competition within the relevant market. There are two aspects to a relevant market: the product market and the geographic market (3). The product market is defined as the specialty or subspecialty in which physicians practice. Understanding the geographic market requires an analysis of the locations from which patients would be willing to obtain physician services. To understand market concentration, regulatory bodies use the Herfindahl–Hirschman Index before and after a proposed merger and focus on the change in concentration the merger would produce (4). If the only two practices in an area were to merge, or if two of the three practices in an area were to merge, this would likely raise concerns (4).
Key to any proposed merger or acquisition challenge is an assessment that prices will increase as a result of the transaction. In health care, this is more complicated because the actual user of services (the patient) is not typically the payor. Antitrust law considers managed care payors to be the consumer for antitrust purposes (5). The FTC’s investigations appear to be highly influenced by the reaction of payors in a relevant market (3).
Merging practices might have other defenses even if a transaction results in a high concentration. Typically, three sources of potential economic efficiencies result from a merger or collaboration in the healthcare services arena: capital cost avoidance, operating cost savings and economies of scale (5).
Does Merging Entity Ownership Matter?
Data demonstrates that ownership type — whether non-profit or for-profit – is not a deterrent to price increases, and prices are just as high in either type of organization (6). Non-profit hospitals seemingly share the goal of maximizing profit; the proceeds are distributed in different ways, for instance, to subsidize unprofitable service lines or to build up reserves. As a result of hospital mergers, price increases have occurred between 10 to 40 percent (7). Prices vary considerably across hospitals and are largely impacted by institutional reputation (8). Consolidation can negatively impact innovation; organizations with market power often lack the incentive to develop process-based measures, such as checklists and uniform protocols, that deliver services in novel, more efficient methods (9). In a competitor-less world, investing in process-based quality improvement, which is time-intensive and wrought with challenges, may be deemed unnecessary.
If a hospital employs physicians, it increases its leverage in negotiating with health plans for payments for both hospital and physician services (10). The Congressional Budget Office has noted that for physicians in solo or small group practice, it is unlikely that internal cost savings will be realized from adoption of information technology systems, which is touted as one of the efficiencies gained (11). Hospitals have positioned themselves as vitally important social institutions, making enforcement of anti-trust challenging for regulators (12).
Recent Merger Activity
In 2000, the two largest health insurers, Aetna and UnitedHealth Group, had a combined membership of 32 million people (13). Aggressive merger activity since 2000 expanded UnitedHealth Groups’s membership to 33 million. WellPoint, Inc., which arose from the merger of Anthem, Inc. and WellPoint Health Networks, now owns Blue Cross Blue Shield plans in 14 states, covering approximately 34 million Americans (13). When UnitedHealth Group acquired Sierra Health Systems in Nevada, UnitedHealth Group owned over 50 percent of the Nevada market, including 90 percent of the health maintenance organization market (13).
In January 2015, a Superior Court judge rejected a deal that would have allowed Partners HealthCare’s plans to acquire three community hospitals in eastern Massachusetts and add hundreds of doctors to its network (14). The ruling was a setback for Partners HealthCare who had invested five years in pursuing the deal and negotiating (14).
Large-scale consolidation by insurers has not led to reduced costs for patients. Insurance premiums for patients have skyrocketed, and physician reimbursement has decreased. As of 2006, premiums for employer-based health insurance rose more than twice as fast as overall inflation and wages for the seventh straight year (15). More recently, premiums in some markets are increasing by as much as 26 percent (16). Previous studies have shown that a 1 percent increase in premiums results in a net increase in the uninsured of 164,000 individuals (17).
In July 2015, Anthem announced it would buy Cigna for $48.3 billion (18). The proposed transaction, coming three weeks after Aetna said it would buy Humana for $37 billion, would have shrunk the number of major companies in the health insurance industry from five to three (18). Combined, Anthem, which runs Blue Cross Blue Shield plans in 14 states and Cigna, which offers insurance plans through employers, would have around $115 billion in revenue. Cigna also had 24 million behavioral health customers, 14 million dental care members, 8 million pharmacy benefit plan members and 1.5 million Medicare Part D pharmacy customers (18). Anthem argued that the deal will generate $2 billion in annual cost savings (18).
Health plan executives and shareholders have reaped enormous profits with companies experiencing double-digit growth between 2001 and 2008 (19). UnitedHealth Group and WellPoint had seven years of consecutive double-digit growth that ranged from 20 to 70 percent year after year through 2003 (19). Since passage of the ACA in 2010, major health insurers have witnessed tremendous increases in the price of their stock per share (percent increase listed as of January 2015 stock price): UnitedHealth Group: 375 percent, Health Net: 224 percent, Anthem: 238 percent, Aetna: 290 percent, Cigna: 305 percent; and Humana 309 percent (20).
Neurosurgeons will face many practice changes in the years to come. The landscape has shifted since enactment of the ACA and more recently with passage of the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA). We have yet to see how strongly ACO’s will take hold. The presence of multiple mergers and intense consolidation, with hospitals acquiring practices, hospitals merging with other hospitals and insurance companies merging with other insurance companies, has created significant turmoil in health care. Recognizing the rapidly changing landscape and remaining flexible will help allow neurosurgeons to respond in a swift way to preserve their practices. [aans_authors] References
1. Gold, J. FAQ On ACOs: Accountable Care Organizations, Explained. Kaiser Health News, 2015.
7. Gaynor, M., Health care industry consolidation [statement before the Committee on Ways and Means Health Subcommittee, US House of Representatives], in Committee on Ways and Means Health Subcommittee 2011, Committee on Ways and Means Health Subcommittee: Washington D.C.
15. Trust., T.K.F.F.a.H.R.E., Employer Health Benefits 2006 Summary of Findings., 2009.