Some say accountable care organizations will allow hospitals and health systems to monopolize markets, while others predict ACOs will increase competition.
A few years ago, Nashville, Tenn.-based Saint Thomas Health, recognizing an increasingly difficult environment in the midst of major changes and mounting financial pressures for healthcare providers, founded MissionPoint Health Partners, a clinically integrated health network that aims to provide patient-centered, coordinated care while improving quality and lowering costs.
After six months of operating as an accountable care organization, MissionPoint joined the Medicare Shared Savings Program. The ACO experienced more than 12 percent savings for the first 15,000 lives it managed, and as of October it had grown to 80,000 members, according to Saint Thomas CEO Mike Schatzlein, MD.
Additionally, Dr. Schatzlein says the ACO has affected Saint Thomas' desirability as a preferred partner in the region. "A MissionPoint member is 15 percent more likely to utilize us than they were before they became a MissionPoint member," he says. “When you are helping someone transition from the hospital, doing a safety check in their home, and helping communicate with family members, patients naturally want to return to a facility that provides a best in class experience.”
He says his health system didn't seek out or plan for the uptick in members choosing Saint Thomas Health; it's just a side effect. He also anticipates the local market becoming even more competitive as healthcare reform continues.
"I expect there will be at least three ACOs and maybe more in middle Tennessee," he says of the near future. "At some point, when they realize that it's working, the other systems will create them. I see a sort of cowboy period here where new players are entering into the field."
However, others see ACOs leading healthcare markets in the opposite direction. In September, various legal experts testified before House lawmakers concerning healthcare consolidation, and some of them expressed concern that the ACOs formed under the Patient Protection and Affordable Care Act could pose a serious danger by giving providers more market power and fueling monopolies.
ACOs: A meaningful opportunity for reform or a potential pathway to monopolization?
Hospital and healthcare consolidation has been on the rise lately as providers face mounting pressure to improve quality of care while holding down costs. Healthcare merger and acquisition activity increased by almost 20 percent year-over-year in the third quarter of 2013, with 267 deals announced, according to a report from Irving Levin Associates. Hospital deals went up by 20 percent to 24 deals.
This surge in consolidation has raised concerns about hospitals and health systems forming monopolies and using their status to push for higher prices. The highest-priced hospitals within a market often have charges 60 percent higher than the lowest-priced market competitor, and the high-priced hospitals often wield a huge amount of influence, according to a study released this fall by the Center for Studying Health System Change.
Heightened merger and acquisition activity led to the House hearing in September. One of the experts who testified before federal lawmakers was Barak Richman, JD, PhD, a healthcare economics, law and policy professor at the Duke University School of Law in Durham, N.C. He devoted a section of his testimony to the "special problem" of ACOs, which he said could be a primary target for revived antitrust scrutiny.
The healthcare reform law encourages providers to integrate and form ACOs to improve quality of care and lower costs. These coordinated care efforts could revolutionize healthcare delivery, but they could also have the unintended consequence of giving providers more market share and greater power to drive up prices, according to Dr. Richman.
"Organizers of ACOs are forging collaborations among entire markets of physicians and hospitals, entities that would otherwise compete with each other," he wrote in his testimony. "In fact, providers' main purpose in forming ACOs may not be to achieve cost savings to be shared with Medicare but to strengthen their market power over purchasers in the private sector."
Subsequently, Dr. Richman advised antitrust policymakers to carefully scrutinize the formation of ACOs.
The ACO perspective: Monopolistic behavior won't be a problem
In response to the warnings of Dr. Richman and others who feel ACOs could lead to hospital and health system monopolies, Dr. Schatzlein and other executives running ACOs say they aren't engaging in the coordinated care efforts to gain more market share.
"You're going to get providers working together, but I don't think you're going to see monopolistic behavior," MissionPoint CEO Jason Dinger says of ACOs in general. "ACOs, most often, take independent players that create a check and balance system. You get the benefits of people working together without that consolidation."
David Shulkin, MD, president of both Morristown (N.J.) Medical Center and Morristown-based Atlantic ACO, says he doesn't think Atlantic — which was formed in 2011 — will have any impact on the hospital's market share. "The ACO is not a strategy to drive market share," he says. "The ACO is a strategy to improve the delivery of healthcare."
Dr. Shulkin says his ACO couldn't drive up prices because it doesn't negotiate rates with payers.
"The individual participants negotiate the rates," he says. "If you had an ACO that was aggregating doctors and hospitals and then negotiating the price of the contract, maybe they're concerned about them getting so large that they have an unfair ability to demand rates, but that's certainly not how we're doing this in New Jersey."
Others acknowledge increased market share could become an issue but have taken steps to avoid it. Horizon Blue Cross Blue Shield of New Jersey has collaborated with various types of providers including hospitals and physicians as a preventive measure against monopolization, says Joseph O'Hara, the health insurer's director of ACO models.
"We're doing a medical home program with primary care physicians, and we're doing ACO programs with both physicians as well as hospitals," he says. "We want a marketplace that continues to have diversity of business partners. We think it's that kind of activity which will limit the ability of any player to gain too much power in the marketplace."
Some such as Nalin Jain — delivery director of advisory services for CTG Health Solutions' provider services division — say the hype about declining competition in the healthcare industry has been overly emphasized.
Mr. Jain says that despite warnings of monopolies driving up prices, healthcare spending growth has slowed in recent years due to a combination of the economy and reform efforts. National healthcare spending grew only 3.9 percent in 2012 and will likely see a similarly slow growth rate in 2013, according to CMS. However, that rate is expected to accelerate to 6.2 percent in 2014 as 11 million currently uninsured Americans gain coverage through Medicaid or the health insurance exchanges.
Mr. Jain predicts ACOs will drive spending down through integration and care coordination.
"Healthcare is highly fragmented," he says. "That's one of the reasons why costs have been so high. ACOs require building partnerships in establishing high value delivery systems where care quality is not merely measured but is factored in provider reimbursement."
According to Mr. Jain, ushering in the volume-to-value transformation is a watershed event and bodes well for the healthcare marketplace. "Monopolies often feed on volume and rarely on value," he continued. "Far from taking over a marketplace, driving out competitors and driving up prices, ACOs have the potential to boost creation of dominant centers of care excellence across the country delivering higher quality outcomes per dollar spent."
Market share impact: The FTC offers a safe harbor
ACOs have caused concern from the beginning because they integrate operations and finances, says Angelo Russo, JD, partner with McGuireWoods in Chicago. However, he says it's "way too early" to tell what kind of an impact they will have on hospital and health system market share.
In terms of antitrust enforcement, the Federal Trade Commission has established a "safety zone" for ACOs in the Medicare Shared Savings Program, encompassing those who have a combined share of 30 percent or less in their primary service area. Those within the safety zone won't face antitrust challenges except under extraordinary circumstances, according to a 2011 FTC notice. The FTC has also specified behavior ACOs should avoid, such as improper sharing of competitively sensitive information and preventing or discouraging private payers from directing or incentivizing patients to choose certain providers.
Mr. Russo said federal regulators will likely take recommendations concerning ACOs from experts such as Dr. Richman under advisement.
"It's an evolving process right now," he says of ACO antitrust scrutiny. "We're just in the infancy stages of it."
Conclusion
Overall, the effect ACOs will have on hospital and health system market share is still up in the air. Still, it seems that ACO leaders such as Dr. Schatzlein of Saint Thomas Health and MissionPoint Health Partners don't foresee issues with monopolization.
"This town is full of healthcare entrepreneurs," he says of Nashville. "I probably know half a dozen people who are getting ready to jump in, and there's plenty of venture capital to back them. And these people aren't planning on just playing in Nashville. They're planning on playing nationwide."
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