What Have We Learned About Health Care Consolidation?

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What You Can’t See May Be As Important As What You Can See

The growing emphasis on value-based payment in Medicare and commercial insurance has motivated health care organizations to assume financial risk. One result has been a swift increase in vertical integration: Health systems have been merging and acquiring physician groups and other providers in order to offer payers a sufficiently broad range of network providers for value-based payment contracts. However, mergers and acquisitions are not the only means for health systems to grow and compete in the marketplace. Various forms of affiliation—including joint ventures, affiliation agreements, accountable care organizations (ACOs), and clinically integrated networks—have emerged. Clinically integrated networks are not new, but in this context they have become increasingly prominent.

A clinically integrated network (CIN) is a group of health care providers who band together to provide better care at lower costs, thus establishing their market value. In contrast to other types of vertical integration, the organizations comprising a CIN do not merge formally—they contract to provide care jointly and to share profits. Such arrangements, in which formerly competing organizations jointly establish fees, raise antitrust concern—in particular that the establishment of CINs could result in higher prices for health care. We already know that consolidation increases prices; its effects on access, quality, and coordination of care remain uncertain as the research evidence is mixed (Beaulieu 2020; Short, 2019).

The Federal Trade Commission (FTC) and the Department of Justice (DoJ) Antitrust Division have together provided general guidelines for predicting whether a CIN is on the right side of antitrust law. But health systems don’t need prior permission to establish a CIN, and the FTC does not monitor CINs. In addition, because the datasets used to study health care markets are based on ownership status, it isn't possible to identify or study CINs using Medicare administrative data. As a result, CINs operate pretty much under everyone’s radar.

Researchers from RAND’s Center of Excellence on Health System Performance scrutinized CINs as part of a larger study to identify the characteristics of high performing health systems. The research team drew on interviews with senior executives from 24 health systems (and their physician organizations) across four states. Half of these systems either sponsored a CIN or collaborated with others to sponsor one.

In brief, we learned:

CINs bring competitive and operational advantages for health systems

Silhouette of two businessmen shaking hands in an office, photo by gradyreese/Getty Images

Photo by gradyreese/Getty Images

The executives said that CINs gave them sufficient size and geographic coverage to compete for managed care contracts. In addition, having partner organizations in the CIN allowed them to steer patients to lower cost care—for example, to outpatient surgery instead of hospitals. Hitting the quality targets required for value-based contracting becomes more difficult if patients are being treated in multiple systems. If a CIN has sufficient breadth, patients can be kept in network, making coordination of care easier. The executives also reported that the CINs brought operational advantages—for example, a single signature authority simplified the contracting process. In addition, CINs made it possible for health systems to offer their own health insurance products.

CINs foster mutually beneficial arrangements between health systems and independent physicians

Senior woman talking to her doctor, photo by Geber86/Getty Images

Photo by Geber86/Getty Images

Employment has become more acceptable to physicians as the burden of administrative requirements has increased, but many physicians prize autonomy. Within a CIN, affiliated private practice physicians can continue to run their own practices as they see fit while also benefiting from a variety of health system-provided supports and services, including access to managed care contracts; help with reporting on quality measures; and support for electronic health records (EHR) systems that are interoperable with hospitals and other physician practices within the health system network.

It’s not clear that all CINs operate within the FTC/Department of Justice guidance

The FTC and DoJ are not regulatory agencies. Instead, in a variety of guidance documents, the agencies have identified some characteristics of CINs that might indicate compliance with antitrust law. These include:

  • active physician participation in developing, managing, and operating the CIN;
  • developing and implementing shared goals of quality, efficiency, and lower cost;
  • including only efficient providers and removing inefficient ones;
  • developing and adhering to clinical care guidelines; and
  • using an EHR to integrate patient care.

This guidance isn’t provided in regulation—it is provided through speeches, public statements, and advisory opinions (when an opinion is sought prior to implementing a CIN). It is largely up to health system executives to interpret what the guidance implies for antitrust compliance.

The research team identified nine strategies that health system executives used in implementing their CINs and grouped them into three categories:

  1. providing infrastructure support to physicians — e.g., providing practice management services, subsidizing the cost of adopting EHRs;
  2. improving clinical integration — e.g., clinical guidelines and protocols, conducting quality measuring and providing feedback; and
  3. ensuring accountability — e.g., allocating incentive payments to reward quality and value, addressing non-compliant providers.

Most executives said they used multiple strategies, and an example of each attribute described in FTC guidance can be found across the CINs in this study. However, it is not clear that every CIN would meet federal agency expectations.

Concern about the cost effects of health care consolidation should not be limited to mergers and acquisitions

Close up of a doctor looking at papers on a clipboard with calculator and stethoscope in the foreground, photo by  Everyday better to do everything you love/Getty Images

Photo by Everyday better to do everything you love/Getty Images

CINs are potentially a way for health systems to improve their negotiating leverage with payers—a possibility that should concern the FTC, the DoJ, and the larger health care community. Although health care consolidation via merger and acquisition has long been considered a threat, it is possible that the threat is actually greater than recognized if less-visible affiliations (such as CINs) also threaten to drive up health care costs.

In theory, quality should improve with the alignment of health care organizations within a CIN, but at this point there is no empirical evidence to support that theory. If we do not monitor CINs, and if researchers cannot even document their existence in secondary data, how can we hope to evaluate whether a potential increase in prices is offset by better quality of care?

Learn More

  • Medical staff talking in a hospital corridor, photo by Wavebreakmedia/Getty Images

    Report

    The Emergence of Clinically Integrated Networks

    Aug 3, 2020

    Assessing clinically integrated networks (CINs), RAND researchers describe how CINs are used by health systems to compete in crowded health care markets and explain why CINs warrant further scrutiny.