News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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News, Analysis, Trends, Management Innovations for
Clinical Laboratories and Pathology Groups

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Healthcare Mergers, Physician Consolidation, and Increased Healthcare Utilization Expected to Increase Medical Cost by 6% in 2019

PwC report indicates deal-making may generate long-term savings, but adds to higher medical costs as hospital systems dominate markets and drive up prices

Consolidation of big hospital health networks combined with a loss of independent doctor practices has changed the healthcare landscape in recent years, and clinical laboratories and anatomic pathology groups have been directly impacted. Now, those trends, along with increased access to care, are expected to push employer medical cost up by as much as 6% in 2019.

That’s according to the PricewaterhouseCoopers (PwC) Health Research Institute (HRI) “Behind the Numbers” annual analysis of the employer-based market.

The continued deal-making is bad news for medical laboratories, since super-sized hospital systems typically trim the budgets of laboratory and other services to improve operating efficiencies.

At the same time, more doctors are practicing as employees of hospitals, health networks, and medical groups. This physician consolidation presents challenges for independent clinical laboratories, which often lose test orders to in-house hospital labs when physicians no longer practice independently.

Consumer Demand for Access to Healthcare Will Drive Costs Higher

Consolidation-related pressures are not the only forces pushing medical costs higher. HRI expects a third factor to inflate medical costs in 2019­—consumer pressure for more ways to access care.

The growth of care options such as: retail clinics, telemedicine, urgent care, and on-site employer health clinics may bring prices down over time, however increased utilization often raises employers’ healthcare costs in the short-term as workers take advantage of easier ways to access care, the report states.

Less Flu and High-Performing Health Networks Expected to Lower Costs

Conversely, HRI believes a milder flu season in 2018-2019 may help keep spending increases in check. Additionally, the growing number of healthcare advocates in the workplace who educate employees on the use of their healthcare benefits, plus the creation of high-performing health networks—both of which emphasize high-quality care alongside cost savings—should serve to deflate healthcare spending.

In an interview with FierceHealthcare, Barbara Gniewek, a Health Services Principal at PwC, compared attempts to control healthcare spending to a balloon. “Every time you squeeze one area” another issue crops up, she said.

Employer healthcare costs have risen 5.5% to 7% annually for each of the past five years. HRI contends downward pressure on healthcare prices overall—not just drug prices­—may be the only remaining way for employers and health plans to keep healthcare spending from outpacing inflation.

“Efforts by employers to cut utilization have mostly run their course,” the report states. “Employers and consumers are plagued by high prices that continue to grow because of new, expensive medical services and drugs, and other factors, such as consolidation.”

While the 2019 spending number pales in comparison to the annual double-digit growth in healthcare spending two decades ago, Gniewek told RevCycleIntelligence the inflation news should not be viewed as positive.

“While some people are relieved that it’s not the high rates of 15 or 20 years ago, costs going up at that rate still [are] unsustainable,” Barbara Gniewek, Health Services Principal at PwC, told RevCycleIntelligence. “We still haven’t figured out how to control healthcare costs and we still don’t have the type of healthcare that we need.” (Photo copyright: PricewaterhouseCoopers.)

Giant Wave of Consolidation

In theory, healthcare consolidation should create economies of scale that result in efficiencies that drive costs lower. However, reality can be much different, since short-term prices often rise when one health system suddenly dominates a market.

“We need to start getting to the point where we pull out the excess redundancies in the system and be able to monetize that in terms of savings,” Gniewek told RevCycleIntelligence. “We just haven’t seen that happen yet. It’s been more, ‘I own the market, so I can drive up the prices.’ As the government and employers demand better price control and want to do some direct contracting or high-performing networks, then eventually consolidations will be more efficient.”

Knowledge@Wharton, an online business analysis journal from the Wharton School of the University of Pennsylvania, notes one of the consequences of the Affordable Care Act was the “giant wave of consolidation” it sparked.

“It’s both ‘horizontal’ and ‘vertical,’ meaning hospitals aren’t just buying other hospitals, they’re picking up physician practices, rehabilitation facilities, and other ancillary healthcare providers,” a Knowledge@Wharton article on hospital consolidation stated.

Of the 115 health-system and hospital mergers announced in 2017, 10 were mega-deals involving sellers with net annual revenues of at least $1 billion, PwC noted in its annual report. The largest is a $28.4 billion merger between San Francisco-based Dignity Health and Catholic Health Initiatives of Englewood, Colo., which is expected to close in the coming year, according to a press release.

And a July 2018 report from the National Council on Compensation Insurance (NCCI) notes that though hospital mergers can lead to operating cost reductions for acquired hospitals of 15% to 30%, those reductions usually do not translate into price decreases.

“Research to date shows that hospital mergers increase the average price of hospital services by 6% to 18%. For Medicare, hospital concentration increases costs by increasing the quantity of care, rather than the price of care,” NCCI stated.

Clinical Laboratories May Be Part of Cost Reductions

The impact of physician employment was underscored in the March 2018 update to the Physician Advocacy Institute’s “Physician Practice Acquisition Study: National and Regional Changes in Physician Employment 2012-2016.” Over a four-year period from July 2012 to July 2016, the percentage of hospital-employed physicians increased by more than 63%.

If the factors fueling today’s increases in healthcare spending—consolidation and convenience—continue pushing costs higher, clinical laboratories and anatomic pathology groups will most likely be impacted as employers, insurers, and consumers look for ways to cut medical costs.

In this environment, medical laboratories must continually work to deliver more value to providers, patients, and healthcare networks.

—Andrea Downing Peck

Related Information:

Medical Cost Trend: Behind the Numbers 2019

Report: Consolidation, Convenience Care Major Drivers Behind Increased Healthcare Costs in 2019

The Impact of Hospital Consolidation on Medical Costs

Dignity Health and Catholic Health Initiatives to Combine to Form New Catholic Health System Focused on Creating Healthier Communities

Updated Physician Practice Acquisition Study: National and Regional Changes in Physician Employment 2012-2016

Healthcare Mergers, Increased Access to Boost Medical Costs 6%



Insurer-Organized HIE in California Struggles to Get Participation from State’s Hospitals, Physicians, and Clinical Pathology Laboratories

California insurers are building a massive health information exchange (HIE), but so far only one healthcare system is interested in participating

Healthcare Big Data is big business. But it requires large databases with complete records of many patients, including their medical laboratory test results. That’s why two big California insurers would like to build such a data warehouse, however, hospitals and physicians are wary of feeding their patient data into an insurer-organized HIE. Why? Because he who holds data, holds power.

Thus, doctors in California don’t want to give that power to health insurers. Meanwhile, hospitals and health systems in the Golden State that operate accountable care organizations (ACOs) want to protect their own ability to serve patients.

The HIE that is struggling to collect the patient data it needs to be successful is the California Integrated Data Exchange (Cal INDEX). Founded in 2014, it is an independent not-for-profit organization that was created by Anthem Blue Cross and Blue Shield of California—the second and third largest insurers in the state. According to their statement, the two organizations intended to build a statewide health information exchange (HIE) based on electronic patient records that include clinical data from healthcare providers and health insurers.

By the end of 2014, Cal INDEX expected to be “providing physicians and nurses with secure, online access to approximately nine million health information records—or nearly one-fourth of the state’s population,” the statement declared. (more…)

Many Hospitals and Health Systems Report Flat or Falling Rates of Inpatient Admissions, a Trend that Causes Hospital Laboratory Budgets to Shrink

Weaker finances at the nation’s hospitals causes administrators to further shrink the budgets for clinical laboratory and anatomic pathology services

Hospital admissions across the country continue to be flat or in decline over recent years. The result is less revenue for many hospitals. As a result, administrators continue to shrink the budgets of hospital service lines—including clinical laboratory services. For pathologists and clinical laboratory leaders, this poses the challenge of setting innovative strategies that take into account the changes in payment and delivery models.

Hospital Inpatient Admissions Have Been Declining over Recent Years

Modern Healthcare (MH) recently published a story on the declining inpatient admissions trend. The story, written by Rachel Landen, focused on admission rates at thirteen large hospital systems for the third quarter of 2014. These included: (more…)

Class Action Lawsuit Filed in California Names Quest Diagnostics Incorporated as Defendant and Alleges Violation of Antitrust Laws involving Medical Lab Testing

Quest has not yet commented on the lawsuit, which was filed by three individuals who had clinical laboratory tests performed by the nation’s largest public lab company

In California last Thursday, three California residents filed a class action lawsuit charging Quest Diagnostics Incorporated (NYSE: DGX) with acquiring competitor medical labs, paying kickbacks to physicians, and developing exclusionary agreements with health insurers to monopolize the market for clinical laboratory testing in Northern California.

Filed in U.S. District Court for the Northern District of California, the complaint cites violations of the federal Sherman Act and the California Unfair Competition Law, Unfair Practices Act, and the Cartwright Act on behalf of California residents Christi Cruz of San Jose, Colleen Eastman of Hollister, and Carmen Mendez of, Milpitas. All three plaintiffs have used Quest laboratories and paid Quest Diagnostics Incorporated of Madison, New Jersey, for those testing services, the complaint says.

Lawsuit About Clinical Lab Testing Services Filed in Federal Court

The complaint was filed in the court’s San Francisco Division. In the court papers, lawyers for the three plaintiffs explain that injury to competition is manifest in three ways: above-competitive prices, inferior quality of testing, and reduction in choice among providers of routine diagnostic testing. “There is ample evidence that Quest has controlled prices in the relevant market in Northern California since at least 2011,” the complaint explains. (more…)

To Handle Increased Bad Debt by Patients in High-Deductible Health Plans, Hospitals Are Offering Loan Programs

Even clinical laboratories and pathology groups are reporting increased patient bad debt because more patients have high annual deductibles, often $5,000 or more

Hospital executives are anticipating a deluge of new patient debt associated with a dramatic increase in high-deductible health plans. Some hospital systems have even launched loan programs to help patients pay for their share of the cost for care provided and to stem the rising tide of uncollectible patient debt.

Patient Bad Debt Trend Should Be Watched by Clinical Lab Managers

It is important for clinical laboratory managers and pathologists to understand that these actions by hospitals to address bad debt is a reminder that medical laboratories will have a similar problem of collecting monies due to them from patients who have high deductibles and will need to pay 100% of the cost of their lab testing. (more…)