The first half of 2012 has been an incredibly busy and momentous one for healthcare. Most notably, the Patient Protection and Affordable Care Act was upheld by the Supreme Court, cementing the law's changes to healthcare coverage and delivery — at least until the outcomes of the November elections are decided.
Other events this year impacting the industry may not have been as closely watched, but they were certainly numerous and far-ranging. From the battle over the Medicare sustainable growth rate for physician payments, to the naming of more than 150 Medicare accountable care organizations, to the release of CMS' meaningful use stage 2 requirements, the changes announced for the industry so far this year are significant. Yet, the year is far from over. As we move to the second half of 2012, here are six key issues to watch.
1. Healthcare reform. Now that the Supreme Court has ruled the PPACA largely constitutional, this leads to several interesting questions for the second half of the year.
• Will the implementation of the law move quickly?
• Will the declaration of the Supreme Court that the individual mandate included in the Act is in effect a tax have an impact on the presidential election?
• Will the decision that the Act is constitutional give new legitimacy to President Obama in the face of the independent and the middle of the voting public?
• How much will this issue strengthen the resolve of the Republican party? Will it matter?
• How will funding of much of the Act be achieved, especially if Republicans take control of the Senate?
Healthcare certainly seems to be a key issue in campaigning, which could lead to an absolutely fascinating election. Becker's Healthcare is pleased to be hosting a debate on healthcare reform and the election featuring former Democratic presidential candidate Howard Dean and former press secretary for George W. Bush Ari Fleisher at the 19th Annual Ambulatory Surgery Centers Conference to be held Oct. 27-29 in Chicago.
2. Integration of healthcare systems in preparation for risk products. While clinical integration has been increasing among hospitals, physicians and other providers for several years, the next iteration of this strategy for advanced systems appears to be an entrance into the risk-bearing market.
Certain healthcare systems have gotten well ahead of others in preparing for risk products on the commercial side. For example, in June, closely watched for-profit Vanguard Health Systems announced it would acquire Medicaid HMO ProCare, and in February for-profit Steward Health Care, backed by private equity firm Cerberus, launched Steward Community Care, a limited network plan for small businesses.
A great question revolves around how much of an advantage these systems will have in the market and how quickly will the acceleration of risk sharing products happen. For example, while the country remains largely fee-for-service, will the acceleration lead to a tipping point where there is a much quicker movement towards alternative methods of delivering/paying for care?
We expect integration and the role of health systems in taking on risk to be a topic of discussion at the Becker's Hospital Review Annual CEO Strategy Roundtable to be held Nov. 1 in Chicago. The event features a panel of 12 outstanding healthcare leaders, including Charlie Martin, CEO of Vanguard. For more information on the event, visit https://www.beckershospitalreview.com/novhospitalevent.html.
3. Impact on consolidation. The pace of consolidation of independent hospitals and practices had vastly accelerated over the last few years. In 2011, 86 hospital merger or acquisition deals occurred in 2011, the highest number in the past decade, according to data from Irving Levin Associates. For the first quarter of 2012, hospitals had 23 deals worth $129 million, while physician groups had 20 deals. Numbers for the second quarter of 2012 are not yet available, but the uncertainty of the Supreme Court decision is expected to have caused a slight slowing of consolidation efforts. The question now is whether the decision will cause further acceleration of consolidation, particularly with smaller hospitals and with practices.
4. Investment in healthcare. Over the next few years, we expect there to continue to be tremendous interest in investment in healthcare. Aging of the baby boomer population is expected to drive demand for a variety of healthcare services and products, and if the expansion of health coverage called for by the PPACA does indeed come to fruition, the newly insured are expected to further positively impact volumes. Despite the consolidation of healthcare that has and is anticipated to occur, we have not yet see a reduced amount of opportunities for investment in healthcare.
5. Information system requirements. We continue to see health systems at all levels suffer in their ability to implement technology related to healthcare. Whether this is in the payor processing world or with regard to electronic medical records, it is not clear whether there is a systematic structural weakness or issues in the labor force that will not allow systems and companies to use the type of technology that has been so broadly encouraged by the government. It will be interesting to see whether there is sufficient talent needed to implement and run such concepts effectively.
For example, in February, CMS released its proposed requirements for stage 2 of meaningful use under the Electronic Health Record Incentive Programs for Medicare and Medicaid. While the requirements are intended to improve interoperability and data exchange — both important elements for using electronic data to better coordinate care — many in the industry voiced concerns over several elements of the requirements, such as making providers responsible for patient engagement with their electronic health information.
6. Increased tension between payors and providers. While we expect large, integrated providers to work more collaboratively with payors on new payment models in the future, pressures on payors to lower premiums may also lead to contentious negotiations or even litigation for providers who aren't willing to come to the table and help payors lower costs.
As consolidation increases, we see more tension between the non-consolidated provider groups and large payors. The payors may need to accommodate large systems but are more willing to play hard ball with less critical providers. As discussed in the Wall Street Journal report "Aetna, Doctors Face Off on Costs" (July 5, 2012) :
"Under pressure from cash strapped customers, including large employers, managed-care companies are increasingly focused on limiting their physician and hospital networks to rein in costs, and calling out doctors who rack up big charges. Analysts say the trend reminds them of 1990s-era managed-care strategies that helped constrain health spending, but that frustrated doctors and patients.
In a separate suit filed in February, Aetna alleged that Los Angeles-area physicians it contracted with intentionally sent patients to six of the outpatient surgery centers that are plaintiffs in the current filing, all run by a company called Bay Area Surgical Management. The centers aren't part of Aetna's network. According to the court records in February case, the doctors were investors in the outpatient centers and stood to profit. The first hearing in the case is scheduled for July 20. The management company didn't respond to requests for comment. Because the surgery centers were out-of-network, they could charge higher prices. Aetna alleged that the doctors agreed to waive copays the patient would fact as a result of receiving out-of-network treatments. Their bills to Aetna totaled $23 million for 1,900 procedures the insurer says were worth only $3 million, according to the suit."
While smaller provider groups may be more at risk for this type of situation, larger providers who are unwilling to meet payor demands can also expect contentious situations. Take University of Pittsburgh Medical Center and insurer Highmark who were at a head for most of the year over the renewal of their contract until Pennsylvania Governor Tom Corbet stepped in, with the help of a mediator, to negotiate a deal. When negotiations began, Highmark refused the rate increases initially requested by UPMC. As the battle ensued, Highmark announced it would acquire UPMC competitor West Penn Allegheny Health System — a competitor that in 2009 had actually filed suit against UPMC for anticompetitive behavior. The suit is still playing out in court. Following Highmark's announcement, UPMC President Jeffrey Romoff told legislators the health system would refuse further negotiations with the insurer. While the two eventually agreed to the deal after lawmakers got involved, the drama garnered close attention from the national business press and suggests just how combative providers' relationships with payors can become.
With an eye on these six key issues, we are expecting an extremely interesting second half of the year.
Other events this year impacting the industry may not have been as closely watched, but they were certainly numerous and far-ranging. From the battle over the Medicare sustainable growth rate for physician payments, to the naming of more than 150 Medicare accountable care organizations, to the release of CMS' meaningful use stage 2 requirements, the changes announced for the industry so far this year are significant. Yet, the year is far from over. As we move to the second half of 2012, here are six key issues to watch.
1. Healthcare reform. Now that the Supreme Court has ruled the PPACA largely constitutional, this leads to several interesting questions for the second half of the year.
• Will the implementation of the law move quickly?
• Will the declaration of the Supreme Court that the individual mandate included in the Act is in effect a tax have an impact on the presidential election?
• Will the decision that the Act is constitutional give new legitimacy to President Obama in the face of the independent and the middle of the voting public?
• How much will this issue strengthen the resolve of the Republican party? Will it matter?
• How will funding of much of the Act be achieved, especially if Republicans take control of the Senate?
Healthcare certainly seems to be a key issue in campaigning, which could lead to an absolutely fascinating election. Becker's Healthcare is pleased to be hosting a debate on healthcare reform and the election featuring former Democratic presidential candidate Howard Dean and former press secretary for George W. Bush Ari Fleisher at the 19th Annual Ambulatory Surgery Centers Conference to be held Oct. 27-29 in Chicago.
2. Integration of healthcare systems in preparation for risk products. While clinical integration has been increasing among hospitals, physicians and other providers for several years, the next iteration of this strategy for advanced systems appears to be an entrance into the risk-bearing market.
Certain healthcare systems have gotten well ahead of others in preparing for risk products on the commercial side. For example, in June, closely watched for-profit Vanguard Health Systems announced it would acquire Medicaid HMO ProCare, and in February for-profit Steward Health Care, backed by private equity firm Cerberus, launched Steward Community Care, a limited network plan for small businesses.
A great question revolves around how much of an advantage these systems will have in the market and how quickly will the acceleration of risk sharing products happen. For example, while the country remains largely fee-for-service, will the acceleration lead to a tipping point where there is a much quicker movement towards alternative methods of delivering/paying for care?
We expect integration and the role of health systems in taking on risk to be a topic of discussion at the Becker's Hospital Review Annual CEO Strategy Roundtable to be held Nov. 1 in Chicago. The event features a panel of 12 outstanding healthcare leaders, including Charlie Martin, CEO of Vanguard. For more information on the event, visit https://www.beckershospitalreview.com/novhospitalevent.html.
3. Impact on consolidation. The pace of consolidation of independent hospitals and practices had vastly accelerated over the last few years. In 2011, 86 hospital merger or acquisition deals occurred in 2011, the highest number in the past decade, according to data from Irving Levin Associates. For the first quarter of 2012, hospitals had 23 deals worth $129 million, while physician groups had 20 deals. Numbers for the second quarter of 2012 are not yet available, but the uncertainty of the Supreme Court decision is expected to have caused a slight slowing of consolidation efforts. The question now is whether the decision will cause further acceleration of consolidation, particularly with smaller hospitals and with practices.
4. Investment in healthcare. Over the next few years, we expect there to continue to be tremendous interest in investment in healthcare. Aging of the baby boomer population is expected to drive demand for a variety of healthcare services and products, and if the expansion of health coverage called for by the PPACA does indeed come to fruition, the newly insured are expected to further positively impact volumes. Despite the consolidation of healthcare that has and is anticipated to occur, we have not yet see a reduced amount of opportunities for investment in healthcare.
5. Information system requirements. We continue to see health systems at all levels suffer in their ability to implement technology related to healthcare. Whether this is in the payor processing world or with regard to electronic medical records, it is not clear whether there is a systematic structural weakness or issues in the labor force that will not allow systems and companies to use the type of technology that has been so broadly encouraged by the government. It will be interesting to see whether there is sufficient talent needed to implement and run such concepts effectively.
For example, in February, CMS released its proposed requirements for stage 2 of meaningful use under the Electronic Health Record Incentive Programs for Medicare and Medicaid. While the requirements are intended to improve interoperability and data exchange — both important elements for using electronic data to better coordinate care — many in the industry voiced concerns over several elements of the requirements, such as making providers responsible for patient engagement with their electronic health information.
6. Increased tension between payors and providers. While we expect large, integrated providers to work more collaboratively with payors on new payment models in the future, pressures on payors to lower premiums may also lead to contentious negotiations or even litigation for providers who aren't willing to come to the table and help payors lower costs.
As consolidation increases, we see more tension between the non-consolidated provider groups and large payors. The payors may need to accommodate large systems but are more willing to play hard ball with less critical providers. As discussed in the Wall Street Journal report "Aetna, Doctors Face Off on Costs" (July 5, 2012) :
"Under pressure from cash strapped customers, including large employers, managed-care companies are increasingly focused on limiting their physician and hospital networks to rein in costs, and calling out doctors who rack up big charges. Analysts say the trend reminds them of 1990s-era managed-care strategies that helped constrain health spending, but that frustrated doctors and patients.
In a separate suit filed in February, Aetna alleged that Los Angeles-area physicians it contracted with intentionally sent patients to six of the outpatient surgery centers that are plaintiffs in the current filing, all run by a company called Bay Area Surgical Management. The centers aren't part of Aetna's network. According to the court records in February case, the doctors were investors in the outpatient centers and stood to profit. The first hearing in the case is scheduled for July 20. The management company didn't respond to requests for comment. Because the surgery centers were out-of-network, they could charge higher prices. Aetna alleged that the doctors agreed to waive copays the patient would fact as a result of receiving out-of-network treatments. Their bills to Aetna totaled $23 million for 1,900 procedures the insurer says were worth only $3 million, according to the suit."
While smaller provider groups may be more at risk for this type of situation, larger providers who are unwilling to meet payor demands can also expect contentious situations. Take University of Pittsburgh Medical Center and insurer Highmark who were at a head for most of the year over the renewal of their contract until Pennsylvania Governor Tom Corbet stepped in, with the help of a mediator, to negotiate a deal. When negotiations began, Highmark refused the rate increases initially requested by UPMC. As the battle ensued, Highmark announced it would acquire UPMC competitor West Penn Allegheny Health System — a competitor that in 2009 had actually filed suit against UPMC for anticompetitive behavior. The suit is still playing out in court. Following Highmark's announcement, UPMC President Jeffrey Romoff told legislators the health system would refuse further negotiations with the insurer. While the two eventually agreed to the deal after lawmakers got involved, the drama garnered close attention from the national business press and suggests just how combative providers' relationships with payors can become.
With an eye on these six key issues, we are expecting an extremely interesting second half of the year.