Healthcare Mergers: An Emerging Crisis

Advocates of the president’s health care reform package have expressed alarm over a wave of mergers spurred by the new law.

Johns Hopkins Medicine, for instance, is snapping up hospitals in the Washington, D.C.-area, a move it describes as “driven largely by health care reform, which demands an integrated regional network.”

Johns Hopkins is not alone. Many established actors in the health care industry – including insurers, brokers and providers – are searching for ways to increase their market clout.

That’s bad news for ordinary patients, who will be forced to pay ever more for their care as the level of competition in the health care marketplace dwindles.

It’s easy to see why competition drives down costs. When insurers or health care providers have to battle one another to attract customers, they must differentiate themselves by charging lower prices or providing better service.

But if an insurer dominates a marketplace, it can raise prices and lower service standards with impunity.

Many insurers and providers are already taking steps to limit competition. Consider ‘most favored nation’ (MFN) clauses, which insurers use to prohibit hospitals or doctors from charging competitors less. Insurers claim that these discounts are necessary to help them secure the best possible deal.

Unfortunately, it’s the “best possible deal” for the insurer — not ordinary patients. The ‘low’ prices included in these MFN clauses are often based on artificially high price quotes from the provider. In some cases, insurers have actually agreed to increase what they’ll pay so long as other insurers are forced to pay even more.

Patients, of course, lose. The favored insurer passes along artificial cost increases directly to their customers, while disadvantaged competitors have to charge even higher premiums to continue offering access to offending providers. Many insurers simply exit a market once a rival negotiates an MFN.

Such an exit can be disastrous. According to an American Medical Association study, two or fewer health insurers control more than 70 percent of the market in 24 states. And if a competitor is foolhardy enough to try to work around an MFN, then the dominant insurer can simply force its rival out of the market.

A case in point is TheraMatrix, a small Michigan company. In 2005, TheraMatrix contracted with Ford Motor Co. to provide physical therapy services to its employees. TheraMatrix cut Ford’s costs by nearly half – saving the company millions of dollars. Last year, Ford expanded the program to cover 390,000 employees and retirees nationwide.

Everyone was happy – except Blue Cross Blue Shield of Michigan (BCBSM), which handled the administrative side of Ford’s insurance plan.

As TheraMatrix added other automakers to its customer base, BCBSM dropped the company from its medical provider network, which covers most Michiganians. BCBSM also threatened to revoke its other customers’ hospital discounts if they carved out their physical therapy benefits and contracted with TheraMatrix to provide them.

Blue Cross wrote that TheraMatrix’s operations were “competitive and damaging not only to BCBSM’s financial interests, but also to its business relationships.”

In other words, BCBSM would not allow its customers to shop around for better deals. And it would try to bully TheraMatrix out of business.

Such anti-competitive behavior harms employers and patients alike. Further consolidation of insurers and providers could make things worse.

Over the last 10 years, employer-provided health insurance premiums have more than doubled. Premiums for the most popular employer-provided plans are projected to increase by another 10 percent next year.

If businesses are to stop runaway medical costs, they’ll have to take control of their benefits. They can do so with the help of a new business strategy: ‘Healthcare Performance Management’ (HPM).

HPM uses powerful software to show companies where their health plan dollars are going, and where opportunities for savings exist.

For instance, HPM analysis of employee medical and prescription claims data might show that a company is spending too much on brand-name prescription drugs and that alternatives like generics could help it save millions.

Unsurprisingly, insurers don’t want to share this data with businesses. After all, if a company can’t pinpoint exactly how it’s spending its health dollars, it will be less likely to question premium hikes. Nor will it be able to find efficiencies, as Ford did, by cutting the insurer middleman out of the equation.

In many parts of the country, big health insurers have enjoyed virtual monopolies. Unburdened by real competition, they’ve abused their powers while businesses and their employees footed the bill.

HPM empowers businesses to inject competition into the healthcare marketplace and fight back against decades of cost increases. Employers should take advantage.

Additional Information

In addition to the invaluable insights George shares in this StrategyDriven Editorial Perspective article are the resources accessible from his website, www.HPMInstitute.org.   George can be reached at [email protected].

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About the Author

George Pantos is Executive Director of the Healthcare Performance Management Institute, a research and education organization dedicated to promoting the use of business technology and management principles that deliver better and more cost-effective healthcare benefits for employers who provide health insurance coverage for employees and their dependents. To read George’s full biography, click here.

Leadership Inspirations – Issuing Orders

“It doesn’t take much talent to issue orders. It does take continued discipline to study the variety of people you are leading in order to understand what it take to motivate them – and to inspire them to do their very best to make the company and themselves a success.”

J. Fred Bucy
Director, Intrusion, Inc. and
Former President and CEO of Texas Instruments

StrategyDriven Leadership Conversation Episode 5a – Relational Leadership: The Building Blocks of Trust, part 1 of 2

StrategyDriven Leadership Conversations focus on the values and behaviors characteristic of highly effective leaders. Complimenting the StrategyDriven Management & Leadership articles, these conversations examine the real world challenges managers face every day that are not easily solved with a new or redesigned process and instead demand the application of soft leadership skills to achieve a positive outcome.

Episode 5a – Relational Leadership: The Building Blocks of Trust, part 1 of 2 explores how to establish and maintain trust between an organization’s executives, managers, and employees – the foundation without which no organization can be truly successful.

Additional Information

Complimenting the outstanding insights Frank shares in this edition of the StrategyDriven Leadership Conversation podcast are those he shared in a three-part series on Employee Retention:

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About the Author

Frank McIntosh is author of The Relational Leader (Course Technology PTR, Cengage Learning 2010). During his 36 year career, Frank has worked with many of the most recognized companies and executives in the world. He has provided consulting services for peers across the country and helped initiate Junior Achievement programs in Ireland, the Ivory Coast, Oman, the United Arab Emirates, Bahrain, and Uzbekistan. Frank was inducted into the Delaware Business Leaders Hall of Fame in October 2008, one of 38 individuals so honored and the first not-for-profit executive to receive this distinction in Delaware’s 300 year business history. To read Frank’s complete biography, click here.

For more information regarding this subject, visit Frank McIntosh at his website www.FJMcIntosh.com.

The Future of Business Is Social: Seven Principles That Lead to Social Success and the Companies Already Getting Them Right

More and more, companies are realizing the revenue-driving value of connecting socially and collaboratively with their customers. Social Nation sets forth the foundations for this new way of doing business.

Let’s face it: The business world is changing. Rapidly. While the object of the game is still to drive revenue, the methods have changed. Instead of a monolithic one-way interaction, business is now being conducted through constant and meaningful two-way conversations between organizations and constituents – at every stage of organizational development. And it’s a good thing, too.


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About the Author

Barry Libert is the author of Social Nation: How to Harness the Power of Social Media to Attract Customers, Motivate Employees, and Grow Your Business. He is Chairman and CEO of Mzinga®, the leading provider of social software, services, and analytics that improve business performance. Barry has published five books on the value of social and information networks. He is a regularly featured keynote speaker at industry associations and for leading companies on the power of social media. He has been published in Newsweek, Smart Money, Barron’s, The Wall Street Journal, and The New York Times, and he has appeared on CNN, CNBC, and NPR. Barry currently serves on the Board of Directors at Innocentive and The SEI Center for Advanced Studies in Management at The Wharton School of the University of Pennsylvania. To learn more about Barry, click here.

New Tool Release – Value of Employee Productivity

StrategyDriven contributors are pleased to announce the release of Diversity and Inclusion – Value of Employee Productivity.

Loss of productivity costs resulting from acts of incivility and poor managerial behavior are staggering and yet goes largely unrecognized. There is no financial statement line item, no general ledger entry, and no budget explicitly set aside for this expense that can cost an evenly modestly sized company hundreds of thousands of dollars each year. Likewise, those companies taking action to improve their workplace environments can realize significant financial rewards by doing so.

Using the StrategyDriven Value of Employee Productivity nomograph and method outlined here, organization leaders can gain a better appreciation for the direct monetary value associated with a change in employee productivity and begin to better value their diversity and inclusion initiatives.

StrategyDriven Premium Members can access the Cost of Employee Distraction by clicking here.

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