Vertical Integration

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Vertical IntegrationNew York Perspective

Charles Rothberg MDMSSNY

Out of Network, Out of Luck

NYTimes 10.12.13

Several hundred patients at the University of Pittsburgh Medical Center …no longer allowed to see their physician

All have insurance called Community Blue, which is offered by a rival hospital system.

Most systems are in an ever-evolving state of integration

attempting to provide a full continuum of services user-friendly, one-stop-shopping environment eliminates costly intermediaries, promotes wellness and improves health outcomes.

Clinical Integration

The integration of clinical information and healthcare delivery services from distinct entities.

Clinical integration refers to the coordination of care across a continuum of services, to improve the value of the care provided – thecamdengroup

Clinical Integration

D-285.973 Clinical Integration 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

‘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)

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)

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

‘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, long-term care, in-patient, home care, hospice, etc’.

Horizontal Integration (Pan American Health Organization (2008)

“the coordination of activities across operating units that are at the same stage in the process of delivering services.”

grouping organizations that provide a similar level of care under one management umbrella.

It usually involves consolidating the organizations’ resources to increase efficiency and utilize economies of scale.

Vertical Integration (Pan American Health Organization

2008)

“the coordination of services among operating units that are at different stages of the process of delivery patient services.

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

Examples of horizontal integration include the following: multihospital systems mergers strategic alliances with neighboring hospitals to form

local networks

Horizontal Integration

Some systems have demonstrated horizontal success by combining hospitals and then achieving higher reimbursement rates from payers: Partners HealthCare  UPMC  Sutter Health

Vertical integration

Efficiency goals  manage global capitation  form large patient and provider pools to diversify risk reduce cost of payer contracting 

Access goals  offer a seamless continuum of care respond to state legislation 

Quality goals assume responsibility for health status of local populations

Vertical integration

Can include acquisitions/alliances with the following: Physicians (primary care providers, physician-

hospital organizations, management service organizations, etc.) 

Health plans Academic medical centers  Long-term care facilities Home care facilities

Vertical integration

Kaiser Permanente is the most well-known example of a fully integrated delivery system.

Health Insurance Plan (HIP) in New YorkA 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

The bureaucratic end of a company becomes much more 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 MarketplaceNS-LIJ

NS-LIJ 16 hospitals, The Feinstein Institute (medical

Research), rehab and snf’s, home care network, hospice network, progressive care centers, Medical School

46000 employees Approved to issue insurance on the Obamacare

Exchange Employs Physicians

The Provider MarketplaceCHSLI

CHSLI 6 hospitals, 3 nursing homes, hospice, palliative care and

home services 16,000 employees centralizing its leadership and coordinating its clinical

services to degrees it never has before. grow the system’s Physician Hospital Organization, aco the system has centralized its continuing-care operations

– including hospice, palliative care and home services 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

Recruits Voluntary Physicians

The Provider MarketplaceLIHN

LIHN 10 Hospitals (including the CHSLI hospitals),

clinically integrated. Withstood 2002 attorney general challenge Launched PHO to offer integrated products Neglected (failed) to become an issuer of

insurance

The Provider MarketplaceEast End Alliance

East End Alliance Eastern Long Island Hospital Southhampton Hospital Peconic Bay Medical Center (Brookhaven Memorial Hospital Medical Center was urged

but not required to join the alliance and left over governance issues)

Demanded by Berger Commission To develop an integrated delivery system; right-size and regionalize services; secure emergency and acute care services at all three

hospitals; Develop affiliation agreements with Stony Brook University.

Market Concentration

Hospital Market Share over 75 percent of all United States metropolitan statistical

areas have experienced enough hospital merger activity to be considered "highly consolidated.” (Health Affairs)

Payer Market Share 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

Historically, insurance companies have had more market power than hospital systems:

The Affordable Care Act, by offering incentives for coordinated care, has encouraged hospital mergers and the buying up of physician practices

The Exchanges

Three New Issuers of Insurance Oscar Health Insurance Corp Health Republic NS-LIJ Connect Care

Out of Network, Out of Luck? (NYTimes

H.B. 1621

would require that all hospitals operating as part of an integrated delivery network contract with "any willing insurer" that desires to contract with it.

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.).

it would constitute a major shift in the contracting landscape for hospitals and insurers

Concerns for Physicians

You may notice something missing from all this: doctors.

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

I look at the next decade as an exciting, opportunistic time.

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.

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

...'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

John Stuckey and David White (August 1993) Vertical integration is a risky strategy—complex,

expensive, and hard to reverse.