“Furthermore, the evidence suggests that system formation has primarily served to increase market power, not improve patient care quality or hospital efficiency, at least in the short run. ” – Alison Evans Cuellar and Paul J Gertler , Professors of Public Health, Health Affairs
Human healthcare has undergone more aggressive consolidation than veterinary medicine for the past several decades. The impacts of private equity and consolidation on healthcare consumer pricing and quality are now being measured. Several recent articles caught my eye.
The Impact of Consolidation on Price
A big reason for mergers is cost savings and thus better margins. With volume purchasing, you can negotiate larger discounts on drugs, equipment, and employee benefits. You also have economies of scale with administration and software.
However, in healthcare, these cost savings do not benefit consumers. A recent study from researchers at UC Berkeley showed that in metropolitan areas with the highest rates of hospital consolidation, prices increased from 11-54%. In one third of the metropolitan areas studied, the cost of hospital stays increased more than 25% from 2012 to 2014.
These findings confirm previous studies. A study of claims to three major insurance groups showed that hospital prices were 15% higher in “monopoly” markets than in areas with at least 4 hospitals. A similar study in California showed that the impact of increasing ownership of physician groups by hospitals was a 12% increase in marketplace insurance premiums.
Because of adverse impacts of consolidation on price for consumers, both the FTC and states have filed anti-competitive lawsuits against healthcare systems. The FTC blocked a healthcare merger in North Dakota that would have left a single provider in a small regional market. The Attorney General in California filed suit against Sutter Health charging that anti-competitive behavior led to unreasonable price increases across Northern California. . The state of Washington filed suit against Franciscan Health System and two doctor groups also for anti-competitive behavior in the Tacoma area.
Does Veterinary Market Consolidation lead to Higher Pricing?
The answer to this is unknown. We know from the recently published 2018 AVMA Economic Report that the number of veterinary groups with more than 100 employees grew 51% from 2013-2016.
During this period of increased consolidation, veterinary prices have increased faster than the consumer index. It is not possible to say whether these two trends are related.
We also know that monopolization is a risk. The FTC ruled that VCA and BluePearl had to divest 12 practices in order for the VCA sale to Mars to go through. Despite that ruling, MARS currently controls over 16% of the veterinary market and over 66% of the emergency and specialty market within the city limits of Seattle.
The veterinary industry needs to study the impact of consolidation on price for consumers.
Private Equity and impact on scientific publications
A recent article brought up another risk of increasing financial pressures in healthcare – swaying of the evidence.
Dermatology is the most recent human healthcare target for consolidation. In 2011, there was one private equity investor in dermatology. By early 2018, there were 30 different private equity groups. A research study demonstrated that private equity was specifically targeting dermatology practices that had unusually high numbers of well-reimbursed procedures. A dermatology journal published this study on its website However, the study was removed from the journal website after complaints from dermatologists who had sold to private equity.
This event is concerning because of the interference with a peer reviewed scientific paper based on financial considerations. We rely on independent peer review to have factual information. The independent peer review process is crucial for evaluation of new drug efficacy, evaluation of new procedures and outcome. It is also important to evaluate industry trends that could impact quality or pricing.
We need to guard against interference by financial players with scientific presentations, publications, and journals.
The Impact of Consolidation on Quality
Another recent study looked at the size of physician groups compared to cost and quality. The researchers hypothesized that the larger groups would have higher quality than the smaller groups. Larger groups have been thought to have higher quality due to better equipment, IT, and facilities. This study used readmission rate as a quality marker. High readmission rates are worrisome as they indicate that patients were sent home before they were stable.
The study confirmed that larger groups had higher charges to medicare than the smaller practices. In contrast to the hypothesis, the larger groups had higher readmission rates.
Quality is quite hard to measure. There is a need both in human and in veterinary medicine for better quality and better value metrics. However, these studies from healthcare demonstrate some of the risks to the veterinary industry and veterinary consumers from private equity backed consolidation.
1 comment
There apparently is no veterinary data addressing quality changes or lack thereof subsequent to corporatization. This from a recent JAVMA (Dec 1 issue) News item on corporatization:
“From seller’s remorse to client rage, anecdotes about the downside of corporate ownership abound. Yet there is no evidence that corporate-owned veterinary practices are inherently worse—or better, for that matter—than independently owned practices in terms of efficiency, patient care, staff salary and benefits, or client satisfaction. Many corporate practices have been in business long enough that, by now, institutional deficiencies in these areas would be apparent.
“Corporate practices have obviously got enough clients that they’re surviving,” said Dr. Karen Felsted, president of Felsted Veterinary Consultants Inc. “You hear all the complaints, but clearly the corporates aren’t so bad that they’re driving all the clients back to independently owned practices.””
Yes, we hear all the complaints, and I’ve got a few of my own. However, with critical mass comes some good things, like purchasing power. There is now a standalone veterinary radiation oncology facility in the Seattle-Tacoma area. Patients no longer need to travel to eastern Washington, Portland, or elsewhere for first-quality radiation oncology care. This benefit to patient health exists because a corporation funded it.
Important things like modern, fully-functional buildings and state-of-the-art medical equipment are expensive. Corporations have greater purchasing power than smaller, independent groups. I recall a few independent practices planning for radiation therapy. It was a corporation that actually did it.