The odd couples

By Ruth Carol, contributing writer, June 1, 2021

While the number of physicians becoming hospital employees and the number of hospitals merging into health systems continue to grow, some unlikely players are changing the consolidation landscape. Pharmacy benefits managers are merging with insurers, insurers are acquiring practices, and tech giants are providing health care services. Some dermatologists may find the terrain too difficult to navigate, while others may seize these non-traditional opportunities. 

The usual suspects

According to the Kaiser Family Foundation, the proportion of primary care physicians practicing in organizations owned by a hospital or health system grew from 28% in 2010 to 44% in 2016. Similarly, between 2016 and 2018, the consolidation of physicians into health systems increased substantially, according to a recent study in Health Affairs. In 2018, 49% of primary care physicians were affiliated with health systems, up from 38% in 2016.

Elaine C. Siegfried, MD, immediate past chair of the Academy’s Emerging Practice Models Committee, attributes this trend to the complexity of running a private practice. “The demands on physicians are so much greater than they used to be,” she said. They must comply with numerous government regulations — from HIPAA to CLIA to OSHA — plus MIPS. Then there are all the tasks associated with running a business, such as establishing and maintaining office space and equipment, hiring and retaining medical and administrative staff, payroll, and benefits. Add to that, maintaining an electronic medical record system, billing, and ensuring all the information technologies are secure. The list goes on and on.

“It takes a business manager to support a physician office, but most physicians are primarily interested in taking care of patients,” Dr. Siegfried said, adding, “The business aspect has become so complicated that many physicians opt out.”

Another driver fueling this trend is the lifestyle considerations of the younger generation of dermatologists, said Clifford Perlis, MD, chair of the Academy’s Emerging Practice Models Committee. Younger physicians tend to have a different perspective of work-life balance than physicians 30 years ago. Running a practice requires time, mental energy, and “a whole alphabet soup of acronyms you need to become facile with,” he said. Joining a hospital or health system, which assumes some of this responsibility, can help dermatologists create more of a balance between their career demands and personal life. 

“It takes a business manager to support a physician office, but most physicians are primarily interested in taking care of patients. The business aspect has become so complicated that many physicians opt out.”

Finally, consolidation fuels itself, Dr. Perlis said. In his market just outside Philadelphia, a health system gets paid more money for the same services he can deliver because the health system boasts access to dozens of dermatologists. The larger the hospital, the more physicians it has, the more insurers will pay, so the cycle of consolidation grows.

Moreover, consolidations aren’t just about physicians joining hospitals or heath systems. Kaiser reports that the number of hospitals that are part of a larger health system grew from 53% in 2005 to 66% in 2017. The Health Affairs study shows the share of hospitals affiliated with health systems increased from 70% in 2016 to 72% in 2018. In 2018, 91% of hospital beds were in system-affiliated hospitals, an increase from 88% in 2016. 

Value-based payment and alternative payment models are fueling these mergers, noted Louis Terranova, the AADA’s assistant director of practice advocacy. By joining a larger health system, hospitals — especially smaller ones — may be able to mitigate the potential downside risk of alternative payment models. Just like physicians may benefit from economies of scale, increased purchasing power, and efficiencies due to standardization by joining hospitals, hospitals merging with larger health systems may reap the same benefits, he added. 

Insurers merging with PBMs

In recent years, health insurers have started to merge with pharmacy benefit managers (PBMs), changing the consolidation landscape. In 2018, Aetna and CVS Health merged in a $69 billion deal. CVS has one of the largest PBMs through CVS Caremark and its SilverScript unit sponsors a major Medicare Part D plan. The same year, Cigna purchased Express Scripts, another giant PBM, for $52 billion. The companies suggest these mergers will result in lower costs, especially for prescription medications, and improved access for consumers. However, skeptics question whether savings from increased efficiencies will be passed along to patients or reserved primarily for shareholders. 

“Insurers are looking to control costs however they can,” Terranova said. These mergers allow insurers greater leverage to negotiate costs with pharmaceutical companies. “Payers could contract with a certain PBM or they could own one,” he added. Soon after CVS merged with Aetna, it began driving more traffic to CVS MinuteClinics by dropping or eliminating co-pays, depending on the health plan, for members who went to the drugstore chain’s clinics. The same thing is occurring with laboratory services. “Health insurers are either controlling or creating contracts with certain labs and directing members to one of their contracted providers for lab work,” Terranova said.

Dr. Siegfried, who lives in St. Louis, where Express Scripts is based, has watched the company grow into one of the largest employers in the metropolitan area. In the beginning, Express Scripts made money by using a new, more efficient model for dispensing medications. When maximum efficiency was achieved, PBMs found other ways to enhance profitability. One was to contract directly with pharmaceutical companies that manufacture expensive biologics, she said. In exchange for ranking a biologic high on a PBM step therapy list, some pharmaceutical companies offer a rebate to the PBM. 

“There are tremendous market inefficiencies with PBMs, and the rebates have made it a byzantine system,” Dr. Perlis noted. These mergers create an opportunity for insurers to step in and maybe even cut out the middleman, he said. 

Insurers acquiring physician practices

Health insurers also are acquiring physician practices, largely primary care groups. Leading the pack is UnitedHealth Group, which has absorbed several practices into its subsidiary OptumCare in the past few years. Most recently, it is expanding its presence in Massachusetts by acquiring Atrius Health, which delivers primary care and other specialty services, including dermatology. The plan is to add 10,000 more providers in 2021 and build a large health network in the next decade. UnitedHealth Group already had its own PBM — OptumRx — and Optum has acquired a network of surgery centers and urgent care clinics in addition to physician practices. Centene, Humana, and Anthem are following suit with their own recent acquisitions. 

Health insurers, such as UnitedHealth Group, want to have a greater impact on the delivery of health care, Terranova said. Payers are looking to move away from fee-for-service as much as possible to compensating physicians for outcomes. “It is easier to rein in costs when insurers have greater control over what goes on in the physicians’ office, where the physicians refer patients, and what medications they prescribe,” Terranova said.

Insurers must get more directly involved in care delivery, not just administering for it, to remain relevant, Dr. Perlis said. In recent years, they have found themselves competing with larger health systems that have started offering their own insurance plans. In response, insurers are positioning themselves to deliver their own health care services, he said. In a diversified model, patients with UnitedHealthcare can seek care from a physician or provider employed by OptumCare, receive medications from OptumRx, and have their care gaps analyzed by OptumInsight, its data analytics arm. UnitedHealthcare has already started selling health plans that direct members to its own doctors.

Retailization of health care

This blending of insurers and providers is contributing to the “retailization of health care” — the shift in the delivery of health care services to a patient-centric model from the former physician-centric model. Dr. Perlis likens this shift to treating health care like any other consumer commodity. This model could compromise the doctor-patient relationship and replace it with a transactional relationship.

CVS Health is a market leader when it comes to retailization of health care. Its recent partnerships with UCLA Health, Cancer Treatment Centers of America, and Satellite Healthcare put CVS in the homes of patients to offer infusion therapy, chemotherapy, and dialysis, respectively. This January, in conjunction with Aloe Care, CVS Health launched Symphony, a collection of in-home and wearable devices that serve as well-being monitors and provide a 24/7 personal emergency response platform. 

In addition, CVS plans to open 1,500 HealthHubs by the end of 2021 in numerous markets where Aetna health plan members are located. These expanded MinuteClinics feature twice the number of exam rooms, larger staffs, and more services and products, such as durable medical equipment. The HealthHubs will also provide personalized service for patients with chronic diseases.  

At the end of 2017, an estimated 2,800 medical clinics occupied retail spaces across the United States, representing a 47% jump in three years, according to Accenture. Using that growth rate across the health care industry, the number could nearly double by 2022. 

Other odd couples

Data-rich companies may be leading the next consolidation trend. Tech giants such as Apple, Microsoft, Facebook, and Amazon have all partnered with Crossover Health to provide primary care and other health care services to their employees. Crossover Health currently operates 17 primary care clinics for Amazon employees with plans to roll out more in other states. These Neighborhood Health Centers offer evening and weekend hours and prescriptions as well as behavioral health services, physical therapy, and pediatrics. 

In a separate move, Amazon announced in March that it will expand its telehealth pilot program known as Amazon Care for its employees in Washington state. Amazon plans to roll out these services to more employees and other companies nationwide this summer. 

Companies, such as Google and Facebook, that have vast amounts of data could use, sell, and monetize their data to become huge players in the health care delivery space, Dr. Perlis said. Imagine if these companies started to sell their data to pharmaceutical companies that could use the data to determine who is buying which medications and how often they refill them. Electronic health record companies, which continue to consolidate, are the keepers of a massive amount of data as well. Speaking of data-rich companies, Amazon currently has 126 million loyal Prime members.

In March, UnitedHealth Group announced its intent to acquire data analytics company Change Healthcare for $13 billion and is expected to close the deal in the second half of 2021 — a move that would boost OptumInsight’s capabilities. At the request of the American Hospital Association (AHA), the Department of Justice is reviewing the deal, which the AHA argues could reduce competition for the sale of health care information technology services to hospitals and other health care providers. The proposed acquisition would also result in a massive consolidation of competitively sensitive health care data, moving it from a neutral party — Change Healthcare — to a subsidiary of one of the nation’s largest health insurance companies. The combining of these data sets could distort decisions regarding patient care and claims processing and denials, benefiting UnitedHealthcare at the expense of hospitals, the AHA asserts. As Dr. Perlis noted, “The companies with the most data will have the most power.” 

Impact on dermatologists

These consolidation trends, which have been accelerated by the COVID-19 pandemic, could adversely affect dermatologists and their patients. Until payment systems shift from fee-for-service to value-based care, dermatologists will be on the outside looking in, Dr. Siegfried said.

Dermatologists are not being courted by hospitals because they rarely use a hospital’s emergency or operating rooms, or don’t admit patients — the highest revenue-generating activities for hospital systems, Dr. Siegfried pointed out. One advantage of becoming an employee of a hospital or health system is having the full complement of specialists to help treat complex patients, but unlike other specialists, many dermatologists don’t routinely need that type of support, Dr. Siegfried added. Similarly, it’s unlikely that larger systems will contract with individual dermatologists, she said. These scenarios will likely make it harder for solo practices to compete and get referrals and could even drive solo and small groups out of business, she stated. 

For dermatologists affiliated with a hospital that is taken over by a larger health system, consolidation will create more paperwork and pressure to meet quality and/or billing benchmarks, Dr. Siegfried said. “These big organizations view physicians as too expensive, so they hire mid-level providers and require physicians to supervise them,” she said. That creates more paperwork for the physician, who is basically signing off on patient care without seeing or treating the patients. Some colleagues who have been put in this position are growing increasingly dissatisfied and uncomfortable with the additional responsibility, Dr. Siegfried said. 

“These big organizations view physicians as too expensive, so they hire midlevel providers and require physicians to supervise them.”

Benchmarks, Dr. Perlis added, are “a euphemism for how much money you generate.” In the end, it’s the patients who may lose because they can tend to have a negative experience with larger groups, he said. While they must make appointments through a call center and deal with complicated billing hierarchies, they end up having decreased access to care and may lack personalized attention by physicians who know them, Dr. Perlis added.

The solo and small dermatology practices that survive will need to be innovative and demonstrate high-quality care at competitive pricing, Terranova said. The Academy has developed a number of resources to help support small private practice in this environment. Access them here.

Some consumer-friendly strategies dermatologists can adopt include extending hours (e.g., opening early or staying late on certain days, or offering weekend hours once or twice a month); blocking out time in the schedule for same-day appointments; using telemedicine for appropriate patients; posting prices for routine services; and implementing a patient portal that allows patients to schedule appointments, among other tasks. 

Some dermatologists are opening pharmacies run through a PBM and selling direct to consumers, Dr. Perlis said. Others have started online pharmacies that provide compounded or generic medications at very affordable prices. 

Another option is to offer concierge services for a subset of patients, Dr. Siegfried added. In 10 years, Dr. Perlis predicts there will be many more concierge dermatology practices. As Terranova put it, “The landscape is changing, and it won’t be business as usual.”

Additional DermWorld Resources