Consolidation among healthcare providers, a significant trend in the industry for the last two years, will continue well into 2013 and beyond, but at the same time expect law enforcement arms of federal and state governments to attempt to keep providers from getting too big.

Consolidation in the form of smaller providers joining larger ones has become imperative in order to counteract growing oversight by the government as part of healthcare reform and similar initiatives. Also, the bigger a provider is, the more likely it is to get paid for the services it provides.

“Hospitals are increasingly buying doctors’ practices, then sending bills for routine services that are significantly higher than those charged by independent doctors,” the Charlotte Oberserver wrote in a recent investigation into healthcare provider consolidation. A more accurate statement, one suspects, is that doctors are selling their practices, not that hospitals are buying them.

Reimbursements by Medicare and insurers are higher to hospitals than to doctors, and the industry has shown an uncanny knack for going where the money is. As insidePatientFinance reported last month, when CMS looked to cut reimbursements to specialists to boost pay to primary care physicians, the net result was that primary care physicians got more, but so did the specialists.

The growth of healthcare regulation, which requires more and more provider resources to maintain compliance, leaves physician practices and small hospitals with no choice — they must merge or be acquired by larger systems to achieve the economies of scale necessary to survive. Consolidation not only affords protection from regulatory changes, it also means higher reimbursements. The bigger you are, the more you can charge for your services, and the more leverage you have to compel insurers to compensate you at a higher rate.

“Prices are increasing often for no other reason than the sign on the door changed,” a spokesman for a health insurance industry association told the Observer.

Law enforcement joins the fray

While healthcare reform and other legal and regulatory changes have forced providers to consolidate, the law enforcement arm of government is looking to prevent providers from getting too big. The Charlotte Observer investigation reported that North Carolina’s attorney general “is examining whether to use antitrust laws or push for new legislation to reduce health care costs.” That power is already being exercised by the U.S. Justice Department, which over the last two years has been flexing its muscle against providers.

In November the U.S. Supreme Court heard one of these cases, Federal Trade Commission v. Phoebe Putney Health System, Inc. In this case, a county hospital commission allowed its rural hospitals to merge, and the FTC ruled it would create a monopolistic situation. Counties do not have the authority to create monopolies, even if they are for the “common good,” the FTC ruled.

The FTC has been waging a legal battle against the public hospital authority in Dougherty County, Ga., which federal lawyers say was used as a front to protect an anticompetitive transaction between two private corporations that consolidated the acute-care services within a six-county area under the control of Phoebe Putney Health System, Albany, Ga. Hospital officials deny that allegation and said the purchase of Palmyra Medical Center by the hospital authority was legal under state law. Modern Healthcare has an excellent summary on this case and others here.

Impact on the revenue cycle

In 2013 and beyond, consolidation will only continue among healthcare providers. Similarly, the law enforcement arm of government will apply anti-trust laws to a select few of these mergers and acquisitions, but it won’t even slow the trend.
Expect patient finance professionals as well as anyone working in a revenue cycle capacity to take the hit. One of the advantages of consolidation is that expense can be reduced in the back-office as those functions are usually absorbed by the acquiring provider. A lot of patient finance and revenue cycle professionals will lose jobs, and with them will go the third party contracts. Healthcare collection agencies, for example, will find the next the few years turbulent as longtime relationships are disrupted in the consolidation wave.
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