Coordination > Consolidation

As we have seen over previous years, there has been widespread consolidation in the healthcare market. Both providers and payers alike have been making acquisitions within their locales. Their goals include improving integration across their organization while reaping other benefits such as expanding revenue streams. Although this may seem a viable option right now, this will present challenges in the near future and so here are a few reasons why coordination might be a better bet than consolidation:

Consolidation

• Fewer options will result in higher cost for the patient: In some areas of the US, there are only one or two insurers. As competition decreases, the market drives towards a virtual monopoly and these payers are able to demand higher prices from consumers. This will drive consumers to seek out alternatives, and with this consumer demand will come new independent entrants into the market delivering a greater quality/value proposition, with whom the larger, consolidated health systems will struggle to compete.
• The rise of telehealth: As payers and providers consolidate, they solely focus on their immediate locale. With the gradual increase in adoption of telehealth, these regional borders will start to fade and patients will be exposed to more future-ready and cheaper alternatives leaving the larger, more expensive networks behind. Although consolidated health systems have the ability to drive scale and invest in telehealth, they are likely to be increasingly subjected to competitors further afield who can offer cheaper telehealth services from remote locations for non-critical care.
• Consolidation doesn't necessarily reap economies of scale: One reason why providers are looking to consolidate is to grow economies of scale. However, a 2012 study by the Robert Wood Johnson Foundation found that the main driver was to simply improve bargaining power with payers and so consolidation did not lead to true integration or enhanced performance.

Coordination

• Remain agile: Formal and informal care coordination enables both payers and providers to leverage their partner networks whilst also remaining agile enough to respond to market shifts, new competition and consumer demand. Larger, consolidated systems will find themselves unable to compete on price in a market where already around 20% of Americans cannot afford health insurance. This is supported by the RWJ Foundation study which found that price increases exceeded 20% when mergers occurred in concentrated markets. 
• Coordinated care encourages a value-based reimbursement model: As mentioned above, although consolidation seems to promote care coordination on the surface, it is usually due to financial reasons and so fails to achieve improved patient care. As the healthcare market progresses from a fee-for-service model to a value-based-care model, providers will be judged on the quality of care they are administering. A true effort to coordinate care will improve the quality of care whereas those purely looking for financial benefit may end up having to play catch-up.
• A multitude of both financial and operational benefits: The benefits of care coordination range from empowering patients, improving the delivery of care and increased efficiency to reduced costs, streamlined workflows, reduced waiting times and improved patient outcomes. Providers who have not consolidated have still been able to reap the benefits of coordinated care and so it makes sense to integrate, coordinate and remain agile.

Best Regards,

Jonathan Cordwell
Research Analyst, Healthcare Strategy
ResearchNetwork, CSC