The payer merger effect: What it means

Many physicians fear what consolidation among four of the big five national payers will mean for their practices.

Their worries are many: Will insurers drop them from increasingly narrow networks? Will their practices face new in-network competition? What leverage will they have in contract negotiations when so few insurance companies could end up controlling the marketplace? Will there be logistical hassles in getting integrated into the new networks?

The apprehension stems from two deals that are under review by the U.S. Department of Justice’s anti-trust division and that were the subject of hearings before the House and Senate Judiciary Committees in September. In one of the proposed mergers Anthem, the country’s largest Blue Cross Blue Shield affiliate, would buy Cigna for $54.2 billion. Anthem says the purchase is intended to strengthen its position in the commercial market.

The other deal, announced in July, is for Aetna to acquire Humana for $37 billion. The consolidation, aimed at enhancing Aetna’s position in the Medicare Advantage market, would create the second-largest managed care company in the United States. Shareholders from both insurers approved the deal in an October vote.

The mergers have prompted vigorous protests from the medical community. The American Medical Association and American Hospital Association have lobbied against them, arguing that they would let just a few companies control most of the healthcare insurance market. Many experts say the concerns are well-founded. The proposed mergers, they say, would add to the pressures that already make it difficult for independent primary care practices to stay afloat.

“The consolidation is happening fast and furious to the point where the independent practice is basically a thing of the past,” says Jonathan Doctor, managing partner at DeNovo Health Partners, an investment firm in Santa Monica, California. “I don’t see it coming back in any major way unless everything that’s been put together with the Affordable Care Act falls apart. It’s sort of a sad thing for the independent doctor.”

Not surprisingly, some of the insurance companies involved paint a rosier, post-merger picture.

“Independent physicians should not despair over their future, especially primary care independent physicians,” says Charles Kennedy, M.D., chief population officer for Aetna’s Healthagen division, noting that they will be in demand to deliver the preventative care and management of chronic disease being emphasized as part of the transition to value-based care. “There are emerging tools and technologies that will allow many of the strategies of population health to be done in a virtual way without physicians having to sell their practice or integrate with a larger institution. I do believe there is a path here where things get better for practicing physicians. We are continuing to make that happen,” Kennedy says.

Anthem sent a written statement to Medical Economics stating: “Our commitment to ensuring consumers have expanded access to high-quality, affordable health coverage is the foundation of the proposed transaction and will remain Anthem’s top priority. The combination of Cigna and Anthem will accelerate our efforts to expand choice and improve quality, while enabling us to build on our industry-leading foundations of provider collaboration and speed adoption of accountable, value-based payment across the delivery system.”

Narrow networks

The trend toward narrow provider networks, which picked up steam under the Affordable Care Act, is likely to accelerate further if the mergers go through, experts say. As the number of insurers shrinks, physicians who get pushed out of even one network could find their practices in jeopardy, they say. With payers looking to eliminate providers they deem to deliver higher-cost or lower-quality care-according to definitions the insurance companies themselves set-many physicians could be at risk or find themselves facing competition from other practitioners whose metrics are more appealing to the insurance companies, they say.

“Providers are threatened by narrow networks and being excluded from their access to commercial contracts,” says Bill Bithoney, MD, FAAP, chief physician executive and managing director of the Healthcare Advisory Practice at the consulting firm BDO and a member of BDO’s Center for Health Excellence and Innovation.

Recent trends suggest that the size and scope of payers’ preferred provider organizations will shrink if the mergers proceed, says Matt Jacobson, MBA, president and chief executive officer of SignatureMD, a network of concierge physicians based in Santa Monica, California. “You are going to see the haves and the have nots-people who remain in network and out of network,” he says.

It’s not just independent practices that face the risk of getting squeezed out, Bithoney says. “Academic medical centers are especially vulnerable since the high cost of trainees adds to their cost basis and causes them to ‘require’ higher rates for procedures,” he says. “Hospitals with high overhead such as these are ripe for exclusion from the narrow networks.”

Despina Walsworth, MD, ran her own independent obstetrics and gynecology practice from 2010 to 2014 and then joined a friend’s practice, where she now works with two other physicians in Dearborn and Allen Park, Michigan. Walsworth fears that the potential mergers will hurt physicians by squeezing mid-size insurance companies out of the market--and how that will affect the quality of care.

“The mid-tier payers will be at a disadvantage,” says Walsworth. “They may be more inclined to do more for a patient. But they cannot really compete with the big payers. Mid-tier players may be eliminated. It’s a very dangerous territory.”

Physicians have some measures available to protect themselves in the new environment, experts say. One is tracking quality metrics. Physicians who can meet the top criteria will be able to withstand any downward ratcheting of rates by insurance companies, Bithoney says. “If you can track your cost metrics all the better,” he adds.

Physicians who want to strengthen their competitive position can start using their electronic health records system to gather performance data now, says Julie Simer, JD, a healthcare attorney with the law firm Buchalter Nemer in Orange County, California.

“One of the powerful things they have is their own quality of the services they provide to their patient,” says Simer. “That quality really needs to be quantified. If your patients love you and you have great outcomes, you need to be collecting the data so you can show you are in the high quantile of physicians who provide services. The physician who is aware, who is doing good service and is able to quantify that is in a better position.”

Taking care to refer patients to lower-cost, high-quality specialists could also help protect independent primary care physicians, based on Bithoney’s past experience running a Medicare Advantage program. “One of the things that happened was physicians that had high costs in the Medicare Advantage program weren’t themselves generating the costs but were referring to specialists who had high costs and low quality,” Bithoney, says. “We preferred not to send patients to those primary care physicians who were incurring high costs,” he adds.

Some physicians are trying to improve their ability to gather the data needed to demonstrate the value they provide by banding together in clinically integrated networks, where they work together to improve patient care and streamline costs. Mark Mertz, MHA, FACMPE, vice president of the Camden Group, a healthcare management and consulting firm in El Segundo, California, has seen this trend picking up.

“The networks can bring together or develop tools that help the physicians by giving them better access to data about their patients so they can proactively reach out to them and get the patients in for the care they need--as opposed to waiting for that person to get sick and come in,” says Mertz.

Less negotiating power

Another change that the mergers may portend, experts say, is reduced negotiating leverage for small, independent practices. Many independent physicians feel they already have little pull with insurance companies and fear the situation will only get worse. That is driving some to hospital employment while others move to concierge models, where they are not wholly dependent on insurance reimbursements.

“The consolidation of the insurance industry amounts to pretty much a monopoly,” says Frank Ditz, MD, owner of a family practice that provides care to about a thousand patients in Rockledge, Florida, and is part of the Signature MD concierge network. “There’s no clout, no bargaining power. You take it or leave it. If you survive this year, they’ll cut you again next year. It’s to drive everyone into bigger and bigger groups that can be taken over by the government. It’s a single-payer system coming in.”

Clinically integrated networks also have the benefit of being able to negotiate reimbursements collectively with payers-which could make such groups appealing if the insurance company mergers are approved. “If a physician or group can demonstrate they are a higher-quality physician, they become important to the plan,” says Mertz.

But even solo physicians who are not part of a clinically integrated network can take steps to negotiate better arrangements with insurance firms. Physicians should review their current contracts, Simer says, because after a merger the resulting company often adopts the contract that reimburses physicians the least, says Simer.

“[Physicians] should be looking at any amendments they see in their contracts immediately after these consolidations,” says Simer. “Quite often, they might find there is an amendment they have a very short time to object to. They need to really be on the lookout for changes that are going to come down if they get approved.”

Ralph Nobo, Jr., MD, an OB/GYN in Bartow, Florida, a board member of the Physicians Foundation, and president of the Florida Medical Association, says that meeting in person with insurance company representatives to negotiate reimbursement rates has enabled him to arrive at better contracts-even though the payers are often reluctant to meet.

“I’ve said, ‘I’d like to keep my doors open,’” he says. “I’ve asked them to look at what they’re paying larger practices. Once I do the face-to-face, I have found it has worked.”

Logistical hassles

Another concern is how smoothly the newly merged companies will be able to integrate physicians into their networks. Physicians may find that navigating the merged payers’ reimbursement methodology brings new challenges, especially if they move to a capitation or bundled payment approach. “These practices are not equipped to manage that or reimbursement changes,” he says.

Infrastructure lacking

The biggest challenge, Doctor says, is the lack of infrastructure, such as systems, resources, and processes available to physicians to manage their practice patterns against the economic criteria they are forced to operate within. Ultimately, this could force the vast majority of independent community providers out of private practice and into an employment model or early retirement, he says.

Some physicians may find they can reduce overhead by partnering with other physicians or outsourcing billing, he says. Others shore up their bottom line by adding services. “There are some physicians who are more entrepreneurial and look at ways of increasing their revenue base by offering other services. They can sometimes find ancillary services and maybe get reimbursed at a higher level.”

Mergers can also make it tougher for physicians to resolve disputes over reimbursement quickly, notes Simer. Insurance companies often will drag their feet. “They may be waiting to see what happens with the merger before they take action,” she says. That could be bad news for physicians who are kept waiting. “They could see some delay in getting things resolved,” she says.

It can also become more difficult to join preferred provider networks. Kathy Moghadas, RN, an advisor with Associated Healthcare Providers in Winter Springs, Florida, is seeing this happen. She worked recently with two physicians who left group practices and tried to go out on their own, only to be told by insurers that their networks were closed.

One of the physicians bought an existing urgent care practice. “Nothing changed other than the ownership,” Moghadas says. “We’ve had to go through multiple entity changes. We had to essentially assume the stock of the former doctor-which is totally against the practice any competent healthcare CPA will recommend. It’s the only way we could get into a closed network.”

Obtaining credentials for joining a network can take six to nine months, which can affect a practice’s cash flow drastically, Moghadas has found. “Imagine trying to run a business like that, where you’re depending on that income,” she says. Given the operational challenges mergers can bring for physicians, it could become harder to buy and sell practices, she adds.

Moghadas advises proceeding cautiously on such transactions. “Do not buy a practice without first getting a clear picture of the distribution of their major payers,” she says. “Once you know, reach out to the payers and find out what their current policies are regarding the networks. Are they open? Are they closed? Don’t leave an existing practice without knowing what is at stake. Not everybody can go out and automatically start a new practice. Today’s environment is based on the payer.”

Douglas Pitman runs a part-time concierge practice for about 150 patients in Columbia Falls, Montana. He doesn’t even bother submitting claims to Medicare, because reimbursement have gotten are so low.

“To a certain extent, I’m very independent of insurance companies and their consolidations and manipulations, as well as I am pretty independent from hospital consolidations and manipulations and sucking up all of the independent physicians into their corral,” he says. “That’s the bottom line in concierge medicine. You’re establishing independence from payments from insurance companies.”