The corporatization of healthcare:  Why consolidation matters to all of us

Debra L. Glasser, M.D.

PHOTO BY GLORIA TOWNE

In this past year writing about the healthcare system, I came to realize that most of us feel depressed and powerless. Pawns in a system rather than patients, wondering if it will ever get better. We all experience issues with access, care, and cost, which we feel hopeless to change.

What is going on to cause us to feel so hopeless?

It is complicated in ways I could not begin to grasp until recently.

For me, a deeper understanding of the issues we face comes from a variety of sources but is eloquently summarized in the published testimony of Cheryl L. Damberg to the US House of Representatives in May 2023 titled - HealthCare Consolidation: The Changing Landscape of the U.S. Health Care System. Ms. Damberg is an economist and researcher for the non-profit, non-partisan Rand Corporation.

Here is what is happening:

Consolidation of healthcare is happening everywhere and in every part of the healthcare system.

Consolidation began around 1998 with hospital system mergers. Between 1998 and 2021, 1887 such mergers occurred across the US. Economists call this HORIZONTAL CONSOLIDATION. For instance, most western Washingtonians were aware when Providence merged with Swedish and Virginia Mason with Franciscan.

Presently, in most parts of the country, a single hospital system controls over 50% of the beds, which is the case in our county. In Washington, 90% of hospitals and 50% of doctors are part of large consolidated healthcare systems.

Mergers and HORIZONTAL CONSOLIDATION have maxed out.

Now the dominant trend in healthcare is VERTICAL CONSOLIDATION (also known as VERTICAL INTEGRATION).

In business economics, VERTICAL INTEGRATION (VI) occurs when a combination of two or more stages of production which normally operate under separate companies combine into one company.

VERTICAL INTEGRATION in healthcare is more insidious than mergers and is happening ‘under the radar’ of our awareness.

VERTICAL INTEGRATION occurs when health systems buy physicians and their groups, outpatient clinics, surgery centers, home health agencies, nursing homes, and more. These ‘softer’ forms of consolidation are not (YET) subject to regulatory filing data. Lack of regulation and data collection blinds researchers’ and regulators’ ability to monitor the impacts of such integration contracts. This would be like the FDA approving a drug without clinical research on its benefits and safety.

Silhouettes of a corporate group or board meeting

So far research shows that there is no direct benefit to physicians to vertically integrate. Physicians working with large health systems see lower income in non-surgical specialties, no difference for primary care physicians, and slightly higher for surgical specialists. In large systems, physicians are pressured ‘to produce’, which means more patients in less time and more burn-out.

The latest forms of vertical consolidation are called CINs (clinically integrated networks). This gets complicated.

CINs include physicians and their groups, Pharmacy Benefit Managers, and Health Insurance Companies, all working under one multilevel healthcare contractual agreement. Yes, read this again.

This is occurring on the heels of horizontal consolidation of health insurance companies, many of which own a sizable percentage of ‘market share’ in many areas of the country.  

Complicating matters further is that private equity now owns a growing stake in American healthcare to the tune of $120 billion in 2019 from $41.5 billion in 2010. These private equity acquisitions operate without regulatory oversight and are not reportable to antitrust or financial regulatory authorities under current law.

What does private equity have to do with health anyway?

The Promise

We are told by the consolidators and integrators that with these changes, the organizations will be better able to provide higher-quality care for lower prices. They say they can do this by spreading financial risk, increasing efficiency through lowering administrative costs, having more leverage in price negotiation with payors, and directing more traffic to their hospitals and businesses so they will be better positioned to improve their ability to coordinate care across multiple settings and manage population health.

However, in the business world, it is accepted that CONSOLIDATION in any industry runs the risk of reducing competition, leading to higher prices, reduced incentive to innovate, risks reduced quality, and thus value for consumers.

It turns out that healthcare, now an industry, is no different than any other.

The Reality

The reality is (and this is why research is important) that consolidations have failed to live up to their promises. It has been proven that consolidation reduces healthcare access and increases costs to us at every level (from insurance premiums to out-of-pocket expenses) without any demonstrable improvement in quality.

Vertical integration of physician practices leads to shifting care from lower to higher-cost treatment settings. For instance, having cataract surgery in a hospital outpatient department costs ~$6200 compared to $1500 in an ambulatory surgery setting. Increased costs lead to higher insurance premiums for everyone because risk-sharing is standard operating procedure in the integration game. Research on shifting testing from freestanding testing centers to hospital-based facilities for 10 common lab and imaging services led to a $73 million increase in Medicare spending.

Here’s how it works for me:

 Providence owns and runs the clinic where I see my primary care doctor, who is employed by them. When needed, I am sent down the hall to Providence’s imaging facility and not to the private facility on Ensign Road that I like and have gone to for years. (I wonder, how do their prices compare?). Similarly, I am sent down another hall to LabCorp with whom Providence no doubt has a non-transparent contractual agreement that we pawns are not privy to. How is the service and responsiveness of Labcorp? Underwhelming on both accounts.

WHY is this happening and why does it matter to us?

Let’s call a spade a spade. This is happening for PROFIT. This includes our local organizations, Providence and MultiCare, which legally qualify as ‘not-for-profit.’ Consolidation, both horizontal and vertical, for all the big players in the healthcare system (hospitals, pharmacies, and insurance companies) facilitates broader control (that is, ownership with contractual benefits). These contracts pave the path for owning and potentially profiting from every level of the healthcare system from primary care to hospitalization to nursing homes, pharmacy benefits, and insurance companies.

Doctors consulting with each other

What do health CARE and QUALITY have to do with it?

As for quality, research shows either no improvement or a decline in quality of care. For instance, after consolidation, rural hospitals experienced reduced access to imaging, obstetric, and primary care services. Patients have reported a decline in their care experience, and there have been no improvements in quality (measured by hospital readmissions, mortality/death rates, and processes of care).

CONSOLIDATION and VERTICAL INTEGRATION are not CLINICAL INTEGRATION and have not resulted in the voiced promises for process improvement and quality. Why not?

“Competition creates incentives to have both lower prices and higher quality; consolidation removes the quality-improvement incentive and thus, leads to worse outcomes,” Cheryl L. Damberg referenced above.

Our Hope for Change Lies in Legislation

The freight train of consolidation is long out of the station with few brakes impairing its speed. One light is that in 2015, Federal Regulators blocked the merger of health insurance companies Anthem with Cigna and Aetna with Human.

Our state legislators are also working on the state level, to manage what is out of control.

Two bills made it through the latest session just ended and await the governor’s signature. Both relate to managing the effects of the rising costs of healthcare due to the forces I have described in this column.

SB 5986  WA SB5986 | 2023-2024 | Regular Session | LegiScan

Prevents surprise ambulance billing for out-of-network services. This bill aligns state law with federal balanced billing prohibitions to provide greater financial protection for consumers needing ambulance services.

HB 1508 WA HB1508 | 2023-2024 | Regular Session | LegiScan

Relates to improving consumer affordability through research, data collection, and the authority of the Healthcare Cost Transparency Board (under the auspices of the Department of Health).

This house bill was introduced by two of our local representatives, Beth Doglio and Jessica Bateman. They and all our state representatives have the power to change the course of healthcare through legislation. VOTE. It matters.

As for any problem we face in life, understanding precedes action.

I hope this column helps with understanding. I believe knowledge is an antidote to our collective feelings of depression and powerlessness over our healthcare. Learn as much as you can, vote, and speak up. Comment on my column because the leaders of our local healthcare systems are reading. Become intelligent consumers of healthcare. Stay aware that business forces have made every aspect of healthcare an opportunity for profit beyond caring for you. Make informed choices about where you get care, tests, and the insurance you buy. None of these suggestions are easy in these times. Just do the best you can and stay aware.

It will take years to change the trajectory of healthcare. But we can start here and there is no better time than now.

Stay tuned for a wrap-up on this year’s healthcare legislation and actions and above all, be well.

Debra L. Glasser, M.D., is a retired internal medicine physician in Olympia. Got a question for her? Write drdebra@theJOLTnews.com