“Payment reform will drive provider organization mergers.”
That is a bit of “conventional wisdom” regarding the current market landscape. And certainly, there is lots of evidence that more provider organization consolidations are happening — see Is $400 Million The Number?, Make M&A Work For Your Organization, and Does Size = Innovation?
But is the move to value-based reimbursement driving this consolidation? Reading the title from a new study published in Health Affairs — Little Evidence Exists To Support The Expectation That Providers Would Consolidate To Enter New Payment Models — you might conclude the answer is “no.” The analysis examined the relationship between Medicare’s accountable care organization (ACO) programs and provider consolidation.
The findings: ACOs have little to do with the consolidations we’re currently seeing in the market. The authors identified seven “alternative drivers” that are pushing this trend:
- The ability to negotiate higher rates from commercial insurers
- Increasing referrals or admissions
- Building capital to invest in new services
- Pooling malpractice risk
- Competing for physician labor
- Reconfiguring service capacity in response to technological changes that shift care settings
- Lowering costs through economies of scale
I would argue that the assumption of risk by ACOs — particularly downside risk — has been so limited that it is not a good test of whether changes in reimbursement drive provider consolidation. There are 460 ACOs participating in Medicare:
- MSSP Track 1 — 411 ACOs (50% shared savings, no shared losses)
- MSSP Track 2 — 6 ACOs (60% shared savings, 40-60% shared losses)
- MSSP Track 3 — 16 ACOs (75% shared savings, 40-75% shared losses)
- Pioneer Model — 9 ACOs (60-75% shared savings, 60-75% shared losses)
- Next Generation — 18 total ACOs (Increased Shared Risk: 80-85% shared savings, 80-85% shared losses); (Full Performance Risk: 100% shared savings, 100% shared losses)
But in the coming years, many of the ACOs who are currently participating in MSSP Track One models will either have to transition to an ACO model with downside risk or drop-out of the program. During the next couple of years, we’ll see whether this consolidation occurs or whether the ACOs choose to remain small and/or disband
Many of the authors’ “alternative drivers” of consolidation are, in fact, competencies needed for markets with more risk-based forms of contracting. The more health plans move to risk-based forms of reimbursement with provider organizations, the fewer provider organizations will be incorporated in the service delivery network. That competitive pressure for health plan contracts and for consumers is a big driver of consolidation.
For more on both Medicare and Medicaid ACOs, check out these OPEN MINDS Market Intelligence Reports – The 2016 OPEN MINDS Medicare ACO Update: A Three-Year Trends Report, The 2016 OPEN MINDS Medicaid ACO Trend Update, and What Are Medicaid ACOs? How Do They Differ From Medicare ACOs?: An OPEN MINDS Market Intelligence Report.
Or, join me on August 16 at the Hilton Long Beach Hotel, Long Beach, California for The 2017 OPEN MINDS Management Best Practices Institute session, “Mergers & Acquisitions: Best Practices From Concept To Go Live.” And for more on forming the relationships needed with both ACOs and health systems in a time of value-based reimbursements, join me on March 28 at 1 p.m. Eastern for the exclusive Web briefing for OPEN MINDS Elite members, Rethinking Community-Based Services: Emerging Opportunities With Health Plans & ACOs. Not a member? Learn about the benefits of becoming an eite-level OPEN MINDS subscriber.