Consolidations and collaborations are driving the health care business here and elsewhere as former rivals break out of their silos to tackle clinical functions, with an eye to improving quality and spreading out overhead costs.
In Albuquerque, most of entities pursuing this sort of integration are entrenched players. And it’s mostly the hospitals that are playing.
Still, some doctors in private practices are looking for exit strategies or alliances with deep-pocketed partners. Fed up with rising business expenses and shrinking payouts from insurers, several have sold practices to private-equity investors, larger medical groups or hospital systems.
In Albuquerque, competitors have teamed to tackle emergency room overflow, rehabilitation services and cardiac health. Some notable examples of the past year include:
• Lovelace and the University of New Mexico health systems signing off on a patient transfer deal to help when UNM’s emergency room beds are in short supply.
• Lovelace and UNM Medical Group merging their respective expertise in rehabilitation services with a joint venture at the newly renamed LovelaceUNM Rehabilitation Hospital near the Lovelace Medical Center Downtown.
• TriCore Reference Laboratories taking over lab services at four Lovelace Health System hospitals. In addition, a health care logistics company called MedSpeed contracted with TriCore to handle the transportation of blood samples of clinical tests for the local laboratory.
• Lovelace Health System went from contracting talent for its hospitalist program to hiring 32 doctors to be part of its medical group.
• The New Heart Center for Wellness, Fitness and Cardiac Rehabilitation merging its operations with the New Mexico Heart Institute Foundation.
In none of these transactions did the parties detail financial terms. Some said the new alignments were driven by the Patient Protection and Affordable Care Act, noting that it encouraged partnerships to reduce costs and improve patient outcomes.
“We’re all faced with trying to provide greater value in health care,” Ron Stern, president and CEO Lovelace Health System, said at the recent opening of the LovelaceUNM Rehabilitation Hospital, which exemplified the reality of entities merging when they used to compete economically around the same business line.
“In this day and age, we’re starting to see stronger organizations partnering together,” he said. More collaborations could be coming down the road around other specialized areas of care, Stern hinted.
Health care ‘trifecta’
The Lovelace-UNMH rehab joint venture is unusual in one regard.
“It is extraordinary in the U.S. for a for-profit entity to collaborate with a public-academic institution to build a partnership such as this,” said Dr. Paul Roth, chancellor for UNM’s Health Sciences Center. He called the accord a “trifecta,” where patients benefit from “the superb management from Lovelace, an excellent standard of care from providers and a large academic research institution.”
Several years in the planning, both parties were mum on the costs associated with the merger but said they will jointly support the operations of the facility. The parties also “will buy certain services from each other,” said Dr. Michael Richards, executive physician-in-chief at the UNM Health System.
Richards emphasized that the collaboration is about more than cost savings. “We think there’s greater opportunity in talking about clinical innovation,” he said, adding that UNM researchers and scientists, for instance, could share best practices for how to achieve better outcomes for patients. “Each partner has lessons to share.”
The partners wouldn’t disclose the potential annual revenue. But Richards said the combined entity will have two significant advantages: more capital to invest in high-end diagnostic equipment and attracting potential physician recruits who want to become rehabilitation specialists.
Health systems uniting around common medical goals makes sense in a place like New Mexico, said one longtime observer.
Pat Montoya, executive director of the New Mexico Coalition for Healthcare Value, expects to see more alignments among competitors in areas where there are provider shortages. “The recruiting environment is extremely tough right now (in New Mexico), so you are seeing more hospitals and health systems being more creative and asking, ‘Who are the right partners?’ in order for us to serve (increasing numbers of) people with conditions like cancer and heart disease,” said Montoya.
At the same time, Obamacare has increased the costs for independent physicians, with elements such as mandates to install costly electronic record keeping. “The bureaucratic requirements are just too difficult for many solo practitioners,” said Montoya.
Affiliation with a larger entity can be especially appealing. Some sell to investors who take on the hassle of business functions and allow the doctors to stay in their old offices and see the same patients.
A good example are two groups of well-known dermatologists who recently sold their businesses to a Texas-based private-equity group. What used to be Dermatology Consultants of Albuquerque and Medical Arts Dermatology are now flying the flag of Epiphany Dermatology. Dr. James Icken, previous owner of Dermatology Consultants and now an Epiphany employee, said the sale gave him more time to treat patients and ease many of the administrative burdens he faced as a solo practitioner.
Icken, who had owned the business for three years and worked at the clinic for 10, said under the new ownership, Epiphany Kaseman will get help with such back-office functions as insurance contract negotiations, marketing, billing, compliance and recruiting. Icken said the same staff of nine people is in place.
The reasons investors are drawn to the specialty is because common medical and surgical dermatology procedures are typically well-reimbursed. Also, high-margin cosmetic procedures tend to be paid out of pocket by consumers and are not as reliant on discounts made to insurance providers.
“Many medical specialists, not just dermatologists, realize it’s hard to survive unless they align themselves with a bigger player,” said Icken. Now there are three dermatology clinics in the city branded as Epiphany, in addition to locations in Las Cruces and Santa Fe.
Lovelace Health System recently ramped up its cancer care services by hiring nearly 30 employees of Hematology Oncology Associates of New Mexico. The deal brings two doctors and two advanced practice providers into the Lovelace fold, along with 25 support staff members, according to Christie White, director of Lovelace Cancer Care.
“As you look across the country, you see more and more private practices struggling with the overall expense of cancer care today, especially the high cost of drugs,” said White. “Coming under a health system’s umbrella from a drug purchasing perspective” is a huge factor for cancer medicine groups either being acquired or hiring on to a larger, better-funded, entity, she added.
Several forces are combining to create a historic period of consolidation in the health care industry.
Increased competition, a shift to outcomes-based reimbursement models, and an overall need to widen the scope of care while reducing costs are driving more and bigger M&A deals.
The number and dollar value of health care sector mergers and acquisitions grew to “record-breaking” proportions in 2015, according to a report from Irving Levin Associates. The consultant said M&As increased from $52 billion in 2014 to $62 billion in 2015.