Vertical Integration
New York Perspective
Charles Rothberg MD
MSSNY
S
Out of Network, Out of Luck
NYTimes 10.12.13
S Several hundred patients at the University of Pittsburgh
Medical Center …no longer allowed to see their physician
S All have insurance called Community Blue, which is offered
by a rival hospital system.
Most systems are in an ever-evolving
state of integration
S attempting to provide a full continuum of services
S user-friendly, one-stop-shopping environment
S eliminates costly intermediaries,
S promotes wellness and
S improves health outcomes.
Clinical Integration
S The integration of clinical information and healthcare
delivery services from distinct entities.
S Clinical integration refers to the coordination of care across
a continuum of services, to improve the value of the care
provided – thecamdengroup
Clinical Integration
S D-285.973 Clinical Integration
S Our AMA will work with state medical societies to develop a
white paper to educate physicians regarding clinical integration,
including: (a) defining clinical integration; (b) researching Federal
Trade Commission and Department of Justice advisories on
clinical integration; (c) monitoring the progress of clinically
integrated groups; (d) making policy and legislative
recommendations; (e) developing a program to educate physicians
about the benefits to physicians and patients, as well as the threats,
concerning creating clinically integrated physician practices. (Res.
714, A-06)
Long Island Business News,
Sept 13, 2013
S ‘Hospital mergers lower costs through managerial
efficiencies and improved care’ (or not!).
When assets are specific, durable, and intensive, and
transactions are frequent, vertical integration is likely
to be warranted John Stuckey and David White (August 1993)
Dana Blankenhorn,
The Street (8/20/12)
S The same hands collecting insurance dollars (and) delivering
the care… (provides) a financial incentive to do health
maintenance, just as owning your own car gives you an
incentive to take it to the shop for regular oil changes.
AHIP (May 17, 2013)
S How consolidation and integration plays out will determine
if (it is) providers or payers (that will) have more influence
on competition
,
Michael Dowling
President and Chief Executive
Officer of North Shore-LIJ Health System
S ‘I want to be completely vertically integrated. I want to have
control of the dollars at true risk and to have control of the
multiplicity of delivery points, which is ambulatory, longterm care, in-patient, home care, hospice, etc’.
Horizontal Integration (Pan American Health
Organization (2008)
S “the coordination of activities across operating units that are
at the same stage in the process of delivering services.”
S grouping organizations that provide a similar level of care
under one management umbrella.
S It usually involves consolidating the organizations’ resources
to increase efficiency and utilize economies of scale.
Vertical Integration (Pan American
Health Organization 2008)
S “the coordination of services among operating units that are
at different stages of the process of delivery patient services.
S Unlike horizontal integration, which integrates
organizations providing similar levels of care under one
management umbrella, vertical integration involves
grouping organizations that provide different levels of care
under one management umbrella
Horizontal Integration
S Examples of horizontal integration include the following:
S multihospital systems
S mergers
S strategic alliances with neighboring hospitals to form local
networks
Horizontal Integration
S Some systems have demonstrated horizontal success by
combining hospitals and then achieving higher
reimbursement rates from payers:
S Partners HealthCare
S UPMC
S Sutter Health
Vertical integration
S Efficiency goals
S manage global capitation
S form large patient and provider pools to diversify risk
S reduce cost of payer contracting
S Access goals
S offer a seamless continuum of care
S respond to state legislation
S Quality goals
S assume responsibility for health status of local populations
Vertical integration
S Can include acquisitions/alliances with the following:
S Physicians (primary care providers, physician-hospital
S
S
S
S
organizations, management service organizations, etc.)
Health plans
Academic medical centers
Long-term care facilities
Home care facilities
Vertical integration
S Kaiser Permanente is the most well-known example of a fully
integrated delivery system.
S Health Insurance Plan (HIP) in New York
A substantial body of research demonstrates that many staff-model
HMOs deliver high-quality and cost-effective care, yet
•
they have steadily lost market share,
•
replaced by more loosely managed networks of providers
•
Until now?
Disadvantages of Vertical Consolidation
S The bureaucratic end of a company becomes much more
S
S
S
S
difficult.
The upstream suppliers may not be able to match the demand
of the downstream distribution centers.
Adding additional services to a company may cause an overall
quality loss.
Costs might become higher due to the lack of competition in
the market.
Product variety is much reduced.
The Provider Marketplace
NS-LIJ
S NS-LIJ
S 16 hospitals, The Feinstein Institute (medical Research), rehab
and snf ’s, home care network, hospice network, progressive care
centers, Medical School
S 46000 employees
S Approved to issue insurance on the Obamacare Exchange
S Employs Physicians
The Provider Marketplace
CHSLI
S
CHSLI
S 6 hospitals, 3 nursing homes, hospice, palliative care and home services
S 16,000 employees
S
centralizing its leadership and coordinating its clinical services to
degrees it never has before.
S
grow the system’s Physician Hospital Organization, aco
S
the system has centralized its continuing-care operations – including
hospice, palliative care and home services
S
developing new service lines in cardiology and cardiac surgery,
orthopedic surgery, neurosurgery, cancer and bariatric surgery,
similar to lines previously introduced by North Shore-LIJ
S Recruits Voluntary Physicians
The Provider Marketplace
LIHN
S LIHN
S 10 Hospitals (including the CHSLI hospitals),
clinically integrated.
S Withstood 2002 attorney general challenge
S Launched PHO to offer integrated products
S Neglected (failed) to become an issuer of insurance
The Provider Marketplace
East End Alliance
S
East End Alliance
S Eastern Long Island Hospital
S Southhampton Hospital
S Peconic Bay Medical Center
S (Brookhaven Memorial Hospital Medical Center was urged but not
required to join the alliance and left over governance issues)
S
Demanded by Berger Commission
S To develop an integrated delivery system;
S right-size and regionalize services;
S secure emergency and acute care services at all three hospitals;
S Develop affiliation agreements with Stony Brook University.
Market Concentration
S Hospital Market Share
S over 75 percent of all United States metropolitan statistical areas
have experienced enough hospital merger activity to be considered
"highly consolidated.” (Health Affairs)
S Payer Market Share
S the largest insurer had 43 percent of the market for small group
coverage in a typical state. In nine states, the largest carrier — a
Blue Cross and Blue Shield company — has more than 50 percent.
(The Government Accountability Office)
Out of Network, Out of Luck
NYTimes 10. 12. 13
S Historically, insurance companies have had more market
power than hospital systems:
S The Affordable Care Act, by offering incentives for
coordinated care, has encouraged hospital mergers and the
buying up of physician practices
The Exchanges
S Three New Issuers of Insurance
S Oscar Health Insurance Corp
S Health Republic
S NS-LIJ Connect Care
Out of Network, Out of Luck? (NYTimes
H.B. 1621
S would require that all hospitals operating as part of an integrated
delivery network contract with "any willing insurer" that desires to
contract with it.
S would prohibit such hospitals from requiring that the insurer agree
to any contractual provisions that would restrict access to hospital
facilities (i.e., steering provisions, anti-tiering provisions, etc.).
S it would constitute a major shift in the contracting landscape for
hospitals and insurers
Concerns for Physicians
S You may notice something missing from all this: doctors.
S Vertical integration requires scale to work. Doctors don't
work at scale, and they rightly fear becoming just cogs in a
bigger machine - Dana Blankenhorn, The Street (8/20/12)
Michael Dowling, President and Chief
Executive
Officer of North Shore-LIJ Health System
S I look at the next decade as an exciting, opportunistic time.
S The one thing we have to be careful of is that government
doesn’t get into the business of micromanagement and
believe that they have to regulate everything.
S If everything becomes rules-based, you can destroy
innovation and entrepreneurship. So we have to remain
leery.•
Out of Network, Out of Luck
NYTimes 10.12.13
S ...'the worry is that integration will yield not better care but (just)
higher profits achieved through monopolistic consolidations and
self-serving business practices. The cost of care for an entire
geographic region could increase without making patients better
off.'
Concerns for Physicians
S John Stuckey and David White (August 1993)
S Vertical integration is a risky strategy—complex, expensive,
and hard to reverse.