Impact of Consolidation on the Value of Care Delivery

Bruce A. Feinberg, DO: One of the potential biggest influences in this value-based care scenario will be the consolidation that’s taking place in the industry. There seem to be a lot of opinions on both sides—the consolidation will drive increased value, and there clearly is some early evidence that consolidation is decreasing value by increasing cost.

So, Ted, I know you waxed in on this poetically quite a bit—that the consolidation, at least in some aspects of the healthcare economy, is increasing cost. It’s not creating more value. So let’s start it off there and we’ll see if we can get a counter opinion.

Ted Okon, MBA: I think there’s a couple of different ways of looking at it, and I’ll defer to Mike to talk about consolidation on the payer side. But, if I look at consolidation on the healthcare side, and especially in oncology, there’s no doubt it’s costing more. If we look at studies by Moran, Milliman, Avalere, and go right down the list (most recently Milliman), it shows the higher cost to both the commercial side as well as Medicare when oncology care consolidates into large hospital systems—especially with 340B.

Why does it consolidate into those big systems? Because if you get 100% margin on drugs, it’s the gift that keeps on giving. It is literally the pot of gold at the end of the rainbow. And the problem is that when it consolidates, it’s not only the private payer that’s paying more. It’s actually the intermediary in a lot of cases for the primary payer, and the employer, and it’s Medicare; so it’s the taxpayers—but it’s patients directly. So you see more calls coming in and your phones ringing off the hook because patients are struggling.

It’s remarkable to me [what happens] when an oncology practice is acquired by a hospital, [when] the patient who is in active treatment comes in for their second cycle and the practice is acquired [and] they go in for their third cycle. Now, they’re seeing the same oncologist. The same oncology nurse is giving the drug. The same name is over the door and it’s the same building. They get their bill, their EOB (explanation of benefits) and they say, “What? This cost me 50%, 75% more because there are all these other charges and I have no idea because it’s now under the hospital’s billing system.”

I think we have an inherent problem. A lot of people say, “There’s more coordination of care, and it’s better care, and it’s higher outcomes; therefore it’s justified.” But I think the problem, right now, is it’s clear that—and by the way, Bruce, this is not just in oncology. There has been study after study after study—the consolidation is basically costing the payers and the individuals as well as the taxpayers more.

Bruce A. Feinberg, DO: So you would think that there is this methodology where hospital systems want to consolidate, which gives them greater leverage in their ability to control price with, particularly, the payers. They can’t do it as much with the government. Now, payers would want to consolidate because they could have more leverage and control with what they’re going to pay for—let’s say in pharmaceuticals.

So, Ira, it would seem to me that in a way, that behooves society in the long-term because we’ve got an ASP (average sales price) calculation. And if you can, as a payer, drive down costs, then that drives down ASP, which is going to benefit society in the aggregate. Now Medicare, which can’t negotiate directly, benefits from your negotiation. Do I have that wrong?

Ira Klein, MD, MBA, FACP: No, but yes.

James Gilroy: Well, that presumes you can negotiate around an ASP-based reimbursement.

Bruce A. Feinberg, DO: Yeah, it’s more complicated than that.

Ted Okon, MBA: It’s because you’ve got 50% of the hospitals that are 340B. Look at ASP, and ASP + 6 going down to ASP + whatever, or even ASP going down. If you take a smaller practice and they had a higher ASP off the market, it basically goes down. What is that compared to a hospital that has, literally, 100% margins on their drugs? It’s a blip. They don’t care about that. You have to realize this with 340B.

And, by the way, I’m not demonizing it, because on the federal grantee side for the community health clinics, if you take 340B away, they close. They are dependent on it, so it has to stay. But on the hospital side, I heard of a [340B] hospital [whose administrator] walked into a practice, and physicians made the administrator leave the room. The hospital [administrator] asked the physicians, “How much will it take to get you to come over?” This is what’s happening because this is big business.

So I think we have to realize that consolidation is really having some big unintended consequences. It’s not dependent on ASP fluctuating a little bit or the government wanting to cut it from 64.3 to 2.5 to 0.8—6% in this new experiment. You’re talking about a huge cushion on these drugs. What’s ironic about it, if you think about when you were practicing, Mike, this is just like AWP (average wholesale price). But, we’ve injected steroids into AWP. That’s what the problem is—we’ve gone back to that system on the hospital side.