- In the face of increased hospital consolidation, HHS should better support independent practices and develop policies that allow solo providers to compete with hospitals and health systems, the Physicians Advocacy Institute (PAI) recently argued.
The non-profit industry group’s response to the HHS Request for Information on promoting healthcare choice and competition explained that current economic trends are harming independent physician practices.
One of those economic trends is horizontal integration in healthcare. 2017 saw the highest number of hospital merger transactions in recent history with 115 announced deals, a new Kaufman Hall analysis showed.
The industry also witnessed the greatest number of mega hospital merger deals in 2017, with 11 transactions involving sellers with net revenues of $1 billion or greater.
While hospitals and health systems are engaging in horizontal integration to achieve economies of scale and revenue growth, physician practices are being left behind. Hospitals and health systems that dominate a market due to their new size can negotiate higher rates with payers in the local market, causing physician practices to face lower reimbursement rates because they do not have the same market power.
Vertical integration in healthcare is also negatively impacting independent practices, the industry group continued. The economic trend involves hospitals and health systems acquiring physician practices, outpatient facilities, and clinics to provide coordinated care across the care continuum.
Hospital acquisitions of physician practices rose 86 percent between 2012 and 2015, and physician employment by hospitals increased over 50 percent, a 2016 PAI and Avalere Health study revealed.
PAI questioned if vertical integration lowers healthcare costs. Recent research found that vertical integration resulted in higher hospital prices and greater spending for privately insured patients.
A recent PAI and Avalere Health analysis also uncovered that Medicare spending on four services was $2.7 billion more over three years when the patient sought services in a hospital-owned setting. Beneficiaries also spent $411 million more in cost-sharing payments.
Despite the cost concerns of horizontal and vertical integration, hospital mergers and acquisitions are still on the rise. PAI explained that value-based reimbursement may be pushing both economic trends.
Value-based reimbursement spurs hospital and health systems to engage in horizontal and vertical integration. Alternative payment models (APMs), especially arrangements with downside financial risk, hold providers financially accountable for care across the continuum.
Provider organizations also seek economies of scale through consolidation to offset reduced claim reimbursement rates.
Physician practices may also be seeking to merge with a larger healthcare organization to access the resources necessary for value-based reimbursement success, such as advanced data analytics tools, patient tracking systems, and financial backing to assume financial risk.
But hospital consolidation and acquisitions in the name of value-based care do not counteract the fact that the economic trends are reducing healthcare competition and potentially increasing costs.
To boost healthcare competition while transitioning to value-based reimbursement, PAI advised HHS to develop policies that support independent practices.
Site-neutral payments that reimburse physician- and hospital-owned facilities the same rate for the same service are key to supporting independent practices, PAI stated.
HHS should also consider differences between practice size when creating new policies. For example, PAI supports the virtual group option in the Quality Payment Program that allows practices to join together to leverage their resources and report to the Medicare value-based reimbursement program as a group.
The federal department should create similar policies that allow smaller practices to participate in value-based reimbursement models alongside larger practices or health systems.
Additionally, HHS should modernize a number of regulations to better support independent practices, PAI contended. Antiquated regulations and programs that govern the relationships of physician practices through physician-owned hospital restrictions, certificate of need requirements, APM requirements, and antitrust guidance should be updated to encourage competition.
Current regulations severely restrict the creation and expansion of physician-owned hospitals. Policymakers designed the restrictions to alleviate self-referral and overutilization concerns.
However, the regulations have prevented providers from creating physician-led delivery systems that can compete with hospital-led systems.
HHS should lift physician-owned hospital restrictions because the organizations deliver high-value care, PAI contended. Physician-owned hospitals delivered care at the same quality level or higher than non-physician-owned hospitals at a lower cost to Medicare, a 2015 Avalon Health Economics analysis uncovered.
Researchers concluded that physician-owned hospitals could actually save about $10 billion over ten years.
HHS also should revisit state certificate of need programs. State laws pertaining to certificate of need limit which organizations can operate imaging and surgical equipment.
The state programs aim to decrease overutilization of imaging and surgical services. But PAI argued that the limitations impede healthcare competition. Physician practices also do not have the capital to challenge certificate of need laws or rulings.
PAI explained that “the current health care environment has evolved, and it is necessary to revisit these to ensure that they are still appropriate, such as in particular areas of care, given the needs of patients and system today and the desire to foster clinical integration.”
In addition, the industry group recommended that HHS should tailor APM requirements for physician practices to reduce participation barriers.
“An obstacle to successful participation in an APM is the ability for practices to meet the threshold participation requirements, which include, for example, meeting minimum patient alignment/attribution thresholds and taking on a minimum level of risk,” PAI explained. “Based on feedback PAI has heard from physicians, these minimum participation thresholds are often set too high for many practices, especially those in individual and small practices, preventing them from being able to competitively participate in APMs and contribute to reducing costs while improving the quality of care for patients.”
To overcome APM adoption challenges, HHS should offer “on-ramp” tracks for physician practices, the industry group suggested.
CMS recently developed an “on-ramp” track in its Medicare Shared Savings Program. The accountable care organization (ACO) program now includes Track 1+, which contains enough financial risk to qualify as an Advanced APM, but lower risk levels than Tracks 2 and 3.
Finally, PAI advised HHS to work with the Department of Justice (DoJ) and Federal Trade Commission (FTC) to extend the application of antitrust guidance.
The industry group pointed to a DoJ and FTC document that details a rule of reason analysis that determines if an ACO is likely to have anticompetitive effects, and if so, whether its efficiencies counteract the effects.
However, the official policy statement has been limited in application by the DoJ and FTC. Extending its application and the application of similar antitrust policies would promote physician participation in value-based reimbursement, PAI argued.
HHS should also work with other federal agencies to create similar guidance that applies to other APMs.
“It is important to take these actions so that physicians and practices can retain their independence while more readily operating under APMs and value-based payments on a joint-contracting basis, recognizing the pro-competitive benefits of these arrangements, and the encouragement of their creation across the public and private sectors,” PAI wrote.
Increasing healthcare competition and addressing outdated regulations is key to supporting independent physician practices, the industry group explained to HHS.
“We reaffirm our belief that opportunities exist to improve the health system by enacting policies and modernizing antiquated regulations, which serve to foster innovative approaches to physician collaboration that will bring the benefits of competition to patients,” PAI concluded.