Government to Healthcare: Cooperate and Collaborate

August 4, 2016 Drew Ivan, Director of Business Technology

No single entity designed the U.S. healthcare system; it evolved over time in response to market forces, government programs, and competing interests of large industry stakeholders. The result? A complicated and wasteful system, long overdue for significant reform. In an effort to change the playing field, the government has wielded the blunt instrument of funding and reimbursement. The Affordable Care Act, Meaningful Use, and other federal programs have successfully disrupted the status quo, particularly for healthcare providers and payers. MACRA aims to continue this disruption in the future.

Many industries respond to a shift in the playing field with increased mergers and acquisitions. Combining the resources of two organizations—whether they are competitors or complementary—allows the new organization to have access to more resources, take advantage of economies of scale, and reach more customers. Predictably enough, healthcare has experienced a high level of M&A across the board for the last few years. In fact, mergers are up six percent compared to last year.

In recent months, we have seen mergers blocked and permitted. Two deals currently taking center stage are the mega-mergers in the insurance industry: Aetna/Humana and Anthem/Cigna.

Last month, seven senators wrote a letter to the Department of Justice urging them to block these deals. (It’s interesting to read this letter for an overview of how the insurance industry, particularly the Blues, operate.) Four weeks later, the Department of Justice announced it would file lawsuits to block these mergers, stating that they would result in reduced competition.

One of the consensus predictions for 2016 was that some mergers may be blocked, and we are seeing that happen with deals involving large companies in a given region.

The goal of healthcare reform is to turn competitors into collaborators by encouraging continuity of patient care, even across provider and payer boundaries. For example, the Office of the National Coordinator is emphatically calling out data hoarders.

The message from the Department of Health and Human Services is to put patient care first and competition second, but the Department of Justice is signaling that competition remains important to prevent catastrophic price increases. Providers and payers are wondering exactly where to draw the line.

Granted, there are plenty of ways to cooperate across organizations. Merging with or acquiring competitors is only one way to accomplish that. It’s the most straightforward approach, but as we are seeing, the federal government isn’t going to allow it in cases where the market impact could be detrimental for the greater good.

Changing the payment structure from fee-for-service to value-based reimbursement is going to be a long and difficult process. And—at least the way it’s written now—one of MACRA’s side effects will be to put pressure on small organizations, forcing them to merge with larger competitors or go out of business.

In the end, the winners will be the organizations and partnerships that figure out ways to capitalize on new models of reimbursement without resorting to monolithic hegemonies.

(This article first appeared in a slightly different form on LinkedIn.com.)

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