The past several years have seen significant consolidation in the healthcare industry. The cost of healthcare in the United States is currently estimated to be 18% of the gross domestic product (GDP), and the costs are projected to increase disproportionately to the GDP during the next decade.1 Healthcare reform has accelerated consolidation and will likely continue to drive consolidation in many markets across the country.
Although some believe that the key to improving quality and reducing costs is an integrated healthcare system that can drive efficiency, there are many examples that have not borne this out. Consolidation in healthcare has a tremendous potential to improve patient care, but studies have demonstrated that it can also significantly increase the cost of care in concentrated markets.2 In many markets across the country, hospitals have been buying physician practices to create such integrated systems, which has resulted in nearly 60% of US physicians being employed by hospitals in 2013.3 These systems frequently allow better sharing of information, with the hope that there can be better coordination of care.
The risk of consolidation, however, is that hospitals can now charge higher prices for the same services that were provided in the community. More important, some monopolies in very concentrated markets have resulted in dramatic price increases in such markets, as has been reported by large insurance companies.4 In the past 5 years, the US Department of Justice and the Federal Trade Commission have challenged and sought enforcement actions in communities where healthcare monopolies have either engaged in anticompetitive conduct or where proposed mergers were thought to be anticompetitive and could have negatively impacted consumers and competitors.
Nearly 10 years ago, Gaynor and Town published their assessment of the impact of consolidation in highly concentrated hospital markets, which they have recently updated.2 They concluded that hospital consolidation in highly concentrated markets generally results in higher prices, but not always in higher quality and innovation. In addition, they showed that physician–hospital consolidation has not led to improved quality or reduced costs. Their review of several studies showed that when consolidation was for the purpose of enhanced bargaining power with payers and did not lead to integration, overall performance did not improve.2
It is clear that the primary driver of costs in healthcare is price rather than utilization. Despite the growing concern and focus on utilization of healthcare at the end of life, especially in patients with cancer, it is the overall unit cost of care that results in the high overall costs of healthcare that are seen in this country and has had a significantly greater impact on the overall cost of healthcare rather than on utilization.
During the past several years, the United States has also experienced consolidation in the community cancer care delivery system. Although the reasons for this consolidation are in some cases similar to those seen in the general physician practices, several unique factors have driven oncologists to consolidate into larger groups or to join hospitals. These factors include reduced reimbursement for chemotherapy and supportive care agents in the community setting and an increase in practice-related costs.
Hospital systems can at times provide enhanced revenue from 340B pricing on chemotherapy drugs and can participate in additional revenue streams, such as radiation therapy and other ancillary services. Greater bargaining power, increased compensation, the ability to participate in clinical research, and the potential for enhanced stability in uncertain times can offset the independence and autonomy of the traditional practice setting.
A recently updated report from the Community Oncology Alliance shows that in the past 15 months, there was a 20% increase in oncology clinics that had closed compared with their previous study and a 20% increase in practices that made an agreement with a hospital to be purchased.5 In addition, 288 clinic sites had closed, 407 practices were struggling financially, and 469 practices had entered into contractual relationships or had been acquired by a hospital during the past 6 years.5
The Community Oncology Alliance in collaboration with the US Oncology Network and ION Solutions commissioned a study by the Moran Company confirming the shift in the site of service from the physician office setting to the hospital setting.6 This analysis showed that the share of fee-for-service (FFS) chemotherapy administration procedures increased from 13.5% in 2005 to 33% to 2011. However, Medicare FFS payments in the hospital outpatient department for chemotherapy administration tripled during the same period.6 Previous studies by Milliman and Avalere have shown increased costs in commercial populations when chemotherapy is administered in the hospital outpatient department compared with a physician office setting.7,8
These findings are of concern, given that they suggest a trend of increasing cost and that quality and innovation will be reduced as cancer care moves back into the hospital. Despite discussions about reforming the payment system for medical oncology, hospitals in very concentrated markets are under little pressure to explore innovative approaches to payment methods. Payers who negotiate with large hospital systems often do not focus on the cost of cancer treatment, because of its limited contribution to the overall cost of hospital care in communities where a hospital has a dominant market position.
The payer community will be increasingly challenged to address these issues as a growing component of cancer care is being delivered in the hospital setting. Private and public payers, including state and federal entities, need to continue to explore payment approaches that reward quality and value, while more effectively supporting and rewarding community practice models that provide cost-effective care.
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