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Health Law Accelerates Industry Changes

Mar 26, 2012

This story was produced in collaboration with 

After 34 years in private practice, Indianapolis orthopedic surgeon Philip Ireland last summer gave up his independence. He became an employee of Indiana University Health, which has been gobbling up hospitals and physician practices around the state to give it greater leverage with health insurers, boost referrals and improve care.

Dr. Philip Ireland sold his medical practice to Indiana University Health after 34 years in private practice (Photo by AJ Mast/AP Images for KHN).

Ireland says he no longer worries about the costs of running his own practice and believes his patients are getting better care. For example, days before he performs a knee or hip replacement, he now meets with a team of nurses, therapists, social workers and other support staff to tailor a plan to each patient.

Ireland's home state of Indiana is one of 26 arguing this week before the Supreme Court to overturn the two-year-old health care law. Nevertheless, its healthcare market has been undergoing rapid transformation in part as a result of the law. And most of those changes will continue regardless of how the Court rules in June, or who wins the White House in November. The shifts did not originate with the law, but they have accelerated greatly since its passage because the federal government is changing how it pays doctors and hospitals, from a system that rewards volume to one that rewards quality.

More consumers in Indianapolis, for instance, are getting their care from doctors employed by large health care organizations, who are collecting and sharing their medical records electronically and beginning to be rewarded for keeping patients healthier and holding down costs – largely by keeping them out of the hospital.

While Ireland said he didn't sell his practice because of the law, it made him glad he did. "The integration of hospitals and doctors is the wave of the future, and I'm glad to be on the tip of the wave rather than behind it," he said.

"The pace of change in health care in the past two years collectively outpaces what you've seen in the past decade," said Michael Biggs, senior managing director of FTI Healthcare, a large health care consulting firm. "The provider industry is realizing the model of health care will change despite what happens in Washington."

Increased Hospital Mergers, Sales

Last year, there were 86 hospitals mergers, up from 75 in 2010 and 51 in 2009, according to Irving Levin Associates of Norwalk, Conn. The pace of doctors selling their practices to hospitals or larger doctor groups is also up. Last year, about 100 physician groups were sold, mostly to hospitals, up from 63 in 2010, according to Levin Associates.

Those organizations are expected to get even bigger as they seek greater efficiencies and pursue creation of accountable care organizations to take advantage of new payment systems under the law that reward quality and coordination, rather than volume of services, according to a report earlier this month by Moody's Investors Service.

It is way too early to predict whether these changes are leading to better, more efficient care on the model of the Mayo Clinic in Minnesota or Geisinger Health System in Pennsylvania, as advocates of the law had envisioned, or whether they will simply create healthcare behemoths that have the market leverage to increase prices at will.

"It could mean caregivers get more leverage over payers, which can lead to higher prices," says Alan Sager, professor at Boston University School of Public Health.

That has often been the consequence of consolidation waves in the past. A 2006 study by the Robert Wood Johnson Foundation concluded that consolidations that occurred between 1990 and 2003 among hospitals that were geographically close to one another consistently led to price increases of 40 percent or more.

Daniel Evans, CEO of Indiana University Health, says his organization is focused on building the coordination that will be needed to succeed with the law's new payment models. IU doubled the number of physicians on its payroll since the law's passage in 2010, and has implemented new evidence-based protocols to boost quality and efficiency.

"We want to have one standard of care in place so a patient with heart failure in northern Indiana will get treated same way as someone in southern Indiana," he said. "You cannot provide coordinated care dealing with hundreds of self-employed doctors."

Responding to concerns about the health system's increased market clout, he notes that four large hospital systems still compete in Indianapolis, and that IU Health's revenues are small compared to those of big insurers such as UnitedHealthcare and Cigna.

Health Plans Shift Focus

It is not just hospitals and doctors that are changing under the law, but also health plans, which are branching into new businesses as enrollment slows in their primary, and most profitable, market of providing employer-based health coverage.

Health insurers are increasingly shifting their focus to managing the care of the poor and the elderly through contracts with Medicaid and Medicare, buying physician groups and urgent care clinics and offering consulting services to doctors and hospitals.

Indianapolis-based WellPoint, one of the nation's largest insurers with more than 34 million members, for instance, is one of several private plans that administer benefits under Indiana's Medicaid program. Nationwide, the insurer has more than 2 million Medicaid members and about 1.4 million beneficiaries enrolled in Medicare Advantage plans, the fast-growing private health insurance plans offered as an alternative to traditional Medicare.

Last year, Wellpoint spent $800 million to buy Los Angeles-based CareMore, a Medicare health plan that owns 26 medical clinics, and is expanding its Medicare Advantage programs in 11 states, including Georgia, Missouri and Virginia.   

Earlier this year, WellPoint  announced it would boost pay to primary care physicians by 10 percent, offering more pay to physicians who keep patients healthier and out of the hospital. Doctors can qualify for the bonuses by meeting certain quality targets, as well as by lowering costs.

WellPoint has also begun offering doctors an opportunity to share in some savings when better patient care leads to lower costs, in much the same way the law sets out to incentivize doctors who treat Medicare beneficiaries.

"The Affordable Care Act has accelerated a lot of these initiatives," said Dr. Sam Nussbaum, WellPoint's chief medical officer, pointing to its support of the notion of better-coordinated care through creation of accountable care organizations for Medicare beneficiaries, as well as of so-called "patient centered medical homes" which pay physicians more to manage care.

Sharing Records

The law is also pushing health providers to share medical records so doctors are better prepared to treat patients wherever they show up. To do this, the legislation funded the creation of new local and state-run health information exchanges to share patients’ medical information among different systems.

The promise of such a system is seen in Indianapolis, where several hospitals started their own exchange a decade ago partly to deal with addicts seeking pain-killing drugs, said Dr. Harry Laws, chief medical information officer at Community Health Network, an Indianapolis hospital system. Today, the exchange has expanded well beyond that goal and the city's limits to include data on 10 million patients that is shared with 80 hospitals and 19,000 doctors. The system enables health care providers to instantly access a patient's medical history whether they are in emergency rooms or at their family doctor.

"It helps speed the care and we can provide better care," said J.T. Finnell, an emergency physician at Wishard Health Services, the public health system in Indianapolis. He said the information also reduces unnecessary tests and makes sure patients get the right medications.

Regardless of what happens in Washington, Ireland, the orthopedic surgeon who sold his practice to IU Health, notes the health care market will continue to change because of the overriding need to rein in costs.

"I think if the health care law were repealed tomorrow, it would not change the direction of what is happening in the marketplace," he said.

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