Top 5 industry challenges of 2016
Challenge #5: Responding to industry consolidation
In 2015, the pace of consolidation within health plans and provider organizations picked up, leaving many of you wondering how this will affect you and what you should do about it. Overall, respondents to the survey were split regarding how consolidation will affect healthcare costs. A slight majority (54%) said it will lead to higher overall healthcare costs, 33% said it will lead to lower costs, and 13% said it will not impact costs.
The mixed response doesn't surprise Connolly, who says there's "intense debate" over this issue. Still, she says, "I don't think that anyone would suggest that any healthcare costs in our country are going down in the future, that's just not a trajectory that we have seen or that we expect to see, but it is possible that some companies might get efficiencies and some companies might be able to deliver that better value for the dollar ..."
Michael Nugent, managing director in the healthcare practice at Navigant Consulting, Inc., and leader of the firm's managed care pricing team, agrees that consolidation could lead to improved efficiencies and streamlining across the industry. Therefore, he says, it could reduce healthcare costs. For instance, consolidation may make it easier for payers to work with providers and the federal government to standardize operations related to claims administration and claims payment. "Currently, there are so many different ways of being paid, there are so many different ways of administering claims, there are so many systems out there, that further consolidation could arguably result in a quicker path to standardization," says Nugent. "... If consolidation can be accompanied by standardization, then costs could very well decrease, administrative costs could decrease." In addition, if payers that consolidate pursue value-based reimbursement, that could make it more compelling and necessary for providers to pursue cost reduction efforts, standardize care, reduce avoidable utilization, and so on, says Nugent.
So what should managed care organizations do about increasing consolidation? For those participating in it, Nugent advises looking closely at how they propose to reduce waste and standardize operations. Connolly says it's also critical to focus on the "nuts and bolts" of running the business and combining departments such as administrative areas and IT. "Those may not be very sexy topics but they can really improve the success or slow it down," she says.
For those organizations who are not consolidating, Nugent advises conducting a "competitive gap assessment" to compare how they stack up against these newly combined organizations from a marketing perspective, a price-point perspective, a product offering, and a network offering perspective.
Keep in mind that regulation could affect the outcome of potential mega-mergers, says Connolly. "There's just so much of it across the entire healthcare sector that you're going to have intense scrutiny by regulators through all of 2016 and this administration, in terms of consolidation in other industries, has been somewhat skeptical," says Connolly. "The healthcare industry needs to be prepared for that and will need to have very strong cases to present to the regulators."
Aubrey Westgate is executive editor of Managed Healthcare Executive.