2016 will bring an acceleration of alliances, acquisitions, and targeted construction as integrated delivery networks position themselves to be self-contained, one-stop-shops within a region, acclimating patients to receiving all their healthcare and wellness services within a single system. These siloed IDNs will be well prepared to partner with insurers (or start their own insurance divisions) to become anchors of mutually exclusive healthcare ecosystems, which will be de rigueur by 2020.

But as major insurers wait for regulatory approval to merge and presidential contenders pledge to undo the Affordable Care Act, blockbuster acquisitions of IDNs by insurers and the widespread entry into managed care by regionally powerful IDNs may wait until after Election Day.

As IDNs develop distinct healthcare ecosystems, geography is key. IDNs will work to have hospitals, outpatient centers, and other access points throughout a region—even if that means duplication of services. Just as CVS and Walgreens pharmacies always seem within blocks of each other, expect rival IDNs to have facilities in close proximity.

To keep premiums in check and reduce customer confusion, insurers will increasingly limit their provider networks to a single IDN or clinically integrated ACOs within a market to achieve greater cost efficiencies, a more defined patient population, and tighter provider controls. Similarly, IDNs will limit their in-network availability to only a few insurers.

Because of this dynamic favoring IDN ubiquity, health systems with gaps in geographic coverage will plug those holes by acquiring existing acute-care facilities or building new ones.

Expect to see a greater proliferation of strategically placed microhospitals, which allow an IDN (and by extension, a provider network) to claim that a significant percentage of a market’s population is within a few miles of an in-network, acute-care facility. Microhospitals with six to eight beds are already being constructed in Las Vegas, Denver, Dallas, and San Antonio. These facilities will propagate in markets with high levels of sprawl.

The specter of FTC interference will also encourage major IDNs to build or acquire smaller hospitals rather than merge with other large IDNs within a market. In late 2015, the FTC challenged three proposed IDN mergers in Chicago, West Virginia, and Pennsylvania because the merged IDNs would have a majority of inpatient volume within a specific geography.

The FTC appears ready to foil any plans for a single IDN to dominate a given market, preferring that local customers have access to at least two viable IDNs. Obamacare comes with mechanisms (such as price transparency through the health insurance exchange and inducements for value-based contracting through ACOs) intended to allow market forces to lower costs and increase quality. But to realize the fullest cost/quality potential, markets must preserve intense competition between near-equivalent IDNs.

Because of limits on consolidation within a market, expect IDNs to affiliate with IDNs in nearby markets, forming regional clinically integrated alliances that act as super-ACOs. These alliances preserve the independence of member IDNs but allow them to cooperative on risk-based contracting and narrow provider networks. Whole states and regions will divide into two or three competing alliances. States with these alliances already in place will start announcing risk-based contracting and narrow networks with insurers in mid-2016.

The IDNs and super-ACOs that successfully position themselves as viable self-contained systems this year will spend the rest of the decade tightly aligning with a limited number of insurers.

By 2020, health insurance will look more like a membership to a specific healthcare ecosystem rather than broad access to nearly all providers. Modern consumerism is moving toward the membership model: Your Netflix subscription won't allow you to watch movies on Amazon Prime, and your Costco card won't get you into a Sam's Club.

But while many people subscribe to both Netflix and Amazon Prime, health insurance premiums are too cost prohibitive for customers to purchase access to both major IDNs within a given market. Exchange customers (and increasingly employees of large companies) will have to choose between one healthcare ecosystem or the other.

Mark Cherry is a principal analyst at DRG and a Hospitals and IDN expert. Follow him on Twitter at @MarkCherryDRG.


View the rest of the 2016 Targeted Insights series.

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