Entering the home stretch on 2017, the stage is set for some classic duels next year: they’re about money and control and they’re playing out already across the industry. Here’s the five combat zones to watch:
Hospitals vs. insurers: This is the quintessential struggle between two conflicting roles in our system. Hospitals see themselves as the protector for a community’s delivery system, bearing risks for clinical programs, technologies and facilities that require capital to remain competitive. Insurers see themselves as the referee for health costs, calling balls and strikes on the necessity and cost-effectiveness of improvements providers deem essential. Each sees the other as complicit in healthcare waste and guard jealously their leverage: hospitals enjoy community support and physician relationships and insurers controls premiums. Around the country, the combat zones involve stand-offs involving reimbursement negotiations and narrow networks (i.e. Mission Health (Asheville NC) and Blue Cross of NC), coverage determinations by insurers that impair hospitals (i.e. Anthem’s decision to deny coverage for unnecessary emergency room use) and others.
Integrated Systems of Health vs. the Federal Government: The federal government’s scrutiny of the ATT-Time Warner combination is being touted as a case study in vertical integration. And before the end of the year, CVS’ takeover of Aetna is anticipated—horizontal integration. The sectarian borders in key sectors of healthcare are already blurred: more than 100 health systems now operate insurance plans and 33% of physicians are employed in hospitals, so the stage is set for challenges by regional systems of health to federal constraints on the scale and scope of services offered. Since 2014, hospital consolidation has resulted in more than 700 deals as hospitals seek to gain leverage in payer contracts and reduce their operating costs. The historic methodology used to protect competition among hospitals is based on a community model: CMS says there are 457 discreet hospital referral regions and regulators are keen to protect against too much consolidation among hospitals. But hospitals trade with sectors that are much more consolidated with operations spanning states and entire regions i.e. the five biggest private insurers control 44% of the insurance market, and the 36 Blue Cross plans control 106 million members through their statewide operations. The issue is scale and scope; the combat zone is the court system, where hospital consolidation (horizontal integration) will be challenged and where vertical integration will be closely watched. And beyond the scale advantages enjoyed by insurers, the potential role that mega-players like Amazon might play looms large as hospitals shift from their acute chassis to fully integrated, regional systems of health.
States vs. drug manufacturers, distributors and pharmacy benefits managers: Prompted in part by increased attention to the opioid epidemic that’s costing $95 billion annually and is responsible for 64,000 deaths last year and by double-digit price increases for branded drugs that hurt their Medicaid budgets, states are cracking down on drug manufacturers and distributors. Attorneys general in 41 states are parties to a suit brought last month to address the opioid epidemic and many are seeking to protect their states price gouging. At least 176 bills on pharmaceutical pricing and payment have been introduced this year in 36 states, according to the National Conference of State Legislatures. Maryland’s law (House Bill 631), which imposes fines for “unconscionable increases” which took effect October 1, is the most aggressive but there’s no doubt state and local governments have zeroed in on the industry. The combat zone will be state legislatures, where the pharma industry—including manufacturers, distributors and pharmacy benefits managers—will be scrutinized. The industry will counter that its medications save lives, its innovation key to the safety and quality of the American healthcare system, and its aggregate spend—about 10% of total U.S. health spending—is unchanged for a decade. And they will spend millions on lobbying to thwart efforts by states that limit their ability to price their products as they deem necessary.
Nurses vs. hospitals: According to the Bureau of Labor Statistics’ Employment Projections 2014-2024, the Registered Nursing (RN) workforce is expected to grow from 2.7 million in 2014 to 3.2 million in 2024, an increase of 439,300 or 16%. The Bureau also projects the need for 649,100 replacement nurses as many retire or cutback bringing the total number of job openings for nurses to 1.09 million by 2024. Per the American Association of Colleges of Nursing, the demand for nursing will not be met by nurse education due to lack of faculty and stress associated with the job that’s driving many experienced nurses to retire. Hospitals are the front line for the growing tension building with nurses: studies showing correlation between nurse staffing levels and patient outcomes are forcing hospital operators to test ways to do more with less. Per Standard and Poor’s (August 24, 2017), margins in hospitals are eroding: labor costs, especially costs for nursing and mid-level skilled positions, play a key role. The Congressional Budget Office estimates up to 60% hospitals will have a negative operating margin by 2025, so financial pressures will continue to be a wedge issue separating hospitals and nurses. Not surprisingly, nurses are unhappy. Though 445 hospitals have achieved magnet status (8.8% of total) implementing evidence-based nursing care in their policies and procedures, the majority haven’t. The combat zone is local: in every community, nurses think hospitals are preferential in addressing the needs and wants of physicians while subordinating work-place healthiness for nursing. They believe quality of care is being compromised by inadequate nurse staffing and they’re speaking out.
Physicians vs. outside control: The nation’s 861,000 physicians in active practice represent a profession that’s the centerpiece of our entire healthcare system. It controls the supply of clinicians and defines the scope of practice allowed for its members other health professions using state licensing, credentialing, and medical education to control what every profession is allowed to do. It disciplines its own vis a vis credentialing and peer review processes. It commands respect and trust: per Gallup’s occupational trust surveys, it ranks just behind nursing and on par with pharmacists. And financially, it’s rewarding: median income for physicians across all specialties ranges from 3.5 to 8 times the median household income of the U.S. population. But physicians aren’t happy. A 2016 survey of 17,000 physicians conducted by Merritt Hawkins on behalf of The Physicians Foundation revealed that about half of all doctors were feeling burned out and fed up with the healthcare industry, largely due to administrative hassles involving paperwork, mandatory reporting and scrutiny by outside parties. Per the Physician Sunshine Act, information about physician Medicare billings is now widely accessible, and health researchers are keen to expose physician inattention to clinical best practices. So, discontent among physicians is increasing, including those employed in hospitals. As reimbursement shrinks, reporting requirements increase, and report cards about physician performance are more widely accessible, the combat zone will be organized medicine’s determination to be left alone.
Complicating each of these disputes is a regulatory environment for healthcare that’s constantly changing, an austere fiscal environment in states that fund half of Medicaid and oversee provider licensing and private insurance, investors and lenders that are becoming cautious and the noise surrounding Campaign 2018 wherein contrasting views about the future of the healthcare system will be prominent. Regrettably, these combats will not answer the bigger questions facing our industry: Is healthcare in the U.S. a fundamental right or personal choice? Is our healthcare system a federal program or better run by states? Do we need to ration care, and if so, how and so on? Combat zones, by definition, focus on short-term issue resolution but sometimes lead to all-out war where the need for fundamental change is recognized. That might be where we’re headed.
In our country, powerful forces are competing for control and power over our $3.2 trillion system. When a sector’s role is threatened or regulatory policies shift favor to one over another, battle lines are drawn and combat zones result. Next year, we’ll have at least five to watch.
P.S. Over the weekend, I found myself comparing lists of Top Hospitals: IBM Watson Health’s 50 Top Cardiovascular Hospitals (formerly Truven Health 50), 2018 released November 6, 2017 (Modern Healthcare) compared to US News and World Report 2017 Best Hospitals for Cardiology and Heart Surgery (which lists 48 organizations). Both use credible methodologies to rate hospitals involving quality and safety measures, yet only 3 names appear on both lists: Duke, Mayo and Mt. Sinai (NY). Go figure!