Will Vertical Integration Kill the Primary Care Practice?

Once the federales blocked the health insurance company mega-mergers, it was only a matter of time before alternative approaches to rearranging the three-dimensional chessboard of the healthcare-industrial complex would emerge. The approach du jour is the vertical merger.

Horizontal combinations trigger the familiar antitrust reviews of market share and the orthodoxy of antitrust enforcement dictates that two insurers, selling the same product or service into the same market or markets, cannot merge if they will reduce competition as a result. The very idea of collapsing four of the five dominant national health care insurance companies into two was therefore a nonstarter. But vertical mergers, pitched as creating new synergies across subsectors of the healthcare economy up and down the “food chain” — that’s a whole ‘nother story. Antitrust enforcement simply does not have at its disposal as highly-evolved a theoretical and practical framework for analyzing (and potentially blocking) vertical mergers as it does for horizontal mergers.

Given the urge to merge, just one year after deep-sixing the Cigna-Anthem and Aetna-Humana insurance mergers the federales are now faced with the CVS-Aetna deal, the Cigna-Express Scripts deal, the Walmart-Humana deal (on the heels of the Humana-Kindred deal) and more. A longtime insider (ex-FTC and DOJ, now private sector antitrust lawyer David Balto) notes that when multiple deals in a single industry are in process at the same time, “the Justice Department goes on high alert.” Perhaps this is the moment for new thinking about vertical mergers to emerge. (Not all vertical mergers are created equal: The Cigna-Express Scripts might be seen as creating a viable competitor for other insurance-PBM behemoths.)

The ultimate payors of most healthcare services in these United States — employers, now exemplified by the JPMorganChase-BerkshireHathaway-Amazon combination that is going to, gee, do something about employee healthcare costs (for their own employees, anyway), without antagonizing JPMorganChase’s institutional healthcare clients (pretty neat trick, if they can pull it off; I’ll get the popcorn) — generally want better quality care at lower prices. The pitch from the proponents of the latest crop of proposed mergers is: Yes, that’s exactly what we’ll have on offer. Health insurance, pharmacy and urgent care all under one roof. The Humana-Kindred deal, the existing United Health Care conglomerate with insurer and provider services, and other providers under the payor umbrella, are further exemplars of this approach — becoming “payviders,” to cite the neologism favored by one of my recent podcast guests.

Meanwhile, many traditional primary care providers are running scared. In a Sunday NY Times piece on the phenomenon of urgent care clinics supplanting PCP visits in an on-demand world, some describe leaving traditional primary care for “concierge” practices and the like while others set up their own urgent care centers as a bulwark against retail clinic competition. There are, of course, other approaches available, such as direct primary care. The payors are explicitly embracing alternatives to traditional primary care, like urgent care clinics, as benefits of the proposed deals. As the Times piece notes, however, adding retail clinics tends to increase — not reduce — the overall costs of care.

A recent study showed that the key differentiator between US healthcare and other systems that we sometimes look to for inspiration isn’t really overtreating, it’s overcharging. The key issue in the US isn’t the oversupply of physicians, test, procedures — it’s  the cost of care, the cost of pharmaceuticals, the cost of all healthcare goods and services. When a  payor has providers and suppliers under one roof in a vertically-integrated enterprise, spending money internally will naturally be seen as preferable to spending money externally. This will have implications for patient choice of provider, and possibly for total cost of care as well.

Health insurance companies are right to think that there is some magic that can happen when the relationships between payors and providers are rationalized. However, it is far from clear that what is good for the conglomerate is good for the patient.

In addition to thinking about DPC, we should also be thinking about reimagining the structure of group health insurance benefit programs (see: Health Rosetta). We also need to be thinking about the payment methodologies we use for different health care providers. Not long after the passage of the ACA, before it was clear how the ACO provisions of the law would be implemented — and whether they would ultimately deliver on the promise of lower cost and higher quality (it’s not at all clear that they have done so in a meaningful way) — and before value-based payment had the lock on the popular imagination it now has, one health policy wonk put forth the notion that different kinds of health care providers need to be paid in different kinds of ways — not everyone should be capitated, or paid fee-for-service, of be paid for bundles. Jeff Goldsmith wrote about his ideas in an all-ACO issue of Health Affairs over seven years ago:

In brief, Goldsmith recommends risk-adjusted capitation payments for primary care, fee-for-service payments for emergency care and diagnostic physician visits, and bundled severity-adjusted payments for episodes of specialty care.  Primary care would be provided through a patient-centered medical home model, which would likely have a collateral effect of reducing the total volume of emergency care and diagnostic physician visits.  Specialty care would be provided through “specialty care marts,” ideally more than one per specialty per market to maintain a little healthy competition.

It’s another vision of delivery system and payment system reinvention.

We are certainly in need of reinvention, as US life expectancy continues to fall and healthcare costs continue to rise. Change is coming, and the question of the moment is this: What do we use as a lodestar to guide all market participants? Will DOJ will permit the direction of that change to be put in the hands of the current crop of large for-profit organizations promoting significant vertical integration of the healthcare market in this country?

Is there some grand unification theory or set of theories concerning the healthcare market that can contextualize and rationalize a million different issues about providers, payment, patient access to records, care coordination, social determinants of health and so much more? How do we integrate lessons from the past and present? All-payor ratesetting in Maryland, we recently learned, turned out to be not everything it was cracked up to be (I came of age as a health care lawyer and regulator in the former People’s Republic of Massachusetts under similar all-payor ratesetting rules). ACOs (at least through the most recent “generation” to be studied) have turned out to not be everything they were cracked up to be. PCMH may not be the perfect model, but it, too, is a model that should be looked at carefully in the effort to design a better way forward. (The list goes on, almost ad infinitum.)

This is a significant inflection point for the healthcare system. Will vertical integration be approved with no limits? Or is it possible, within the framework of review available to DOJ and other regulators, to create guardrails that may enable the benefits of the proposed transactions while limiting their potential negative consequences?

Given the crazy, mixed-up world of healthcare, it is not at all clear that a free-market approach to these transactions is the right way to think about them.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting