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By Mark Cherry, Principal Analyst

The COVID-19 pandemic is fundamentally changing healthcare delivery in the United States, from the acceptance of virtual physician visits to payment reform, and from the consolidation of integrated delivery networks to the very survival of independent physician practices. The resultant healthcare environment will be one that is more integrated into daily life with provider reimbursement tied to value-based, patient-centered care.

To assess how these changes are playing out, we examine the following topics in a series of three blogs: IDNs (below), telehealth and physicians.

The pandemic has highlighted the value of retail companies with strong branding, prevalent points of access, and established frameworks for online interaction. While healthcare may not be impacted the same as Amazon, Apple, and Walmart, strong IDNs now have a wider opening to acquire smaller health systems and medical groups, implement value-based reforms, and prevent leakage to rival systems.

The large, well-capitalized regional nonprofit IDNs with a broad geographic spread and strong clinical integration can absorb the brunt of the financial impact caused by the pandemic. Many of these IDNs already had developed the framework for telemedicine but had not seen widespread utilization of the technology because of lack of reimbursement and patient reticence at remote diagnosis. The pandemic alleviated these concerns by ushering in measures for better telehealth reimbursement while making remote office visits preferable to in-person.

Large pan-regional IDNs develop across state lines

In terms of consolidation, we’ve already seen the start of large IDNs merging with IDNs in neighboring states to form regional behemoths, starting with the 2018 merger of Advocate HealthCare and Aurora Health Care, the largest IDNs of metro Chicago and greater Milwaukee. The combined Advocate Aurora is now in talks with Beaumont Health, Detroit’s largest IDN, to form a massive system covering the largest American metropolises along the Great Lakes. Atrium Health, the dominant IDN of Charlotte, North Carolina, has expanded rapidly across that state and is buying up IDNs in Georgia. Sentara Healthcare, the largest integrated payer/provider in Norfolk, Virginia, plans to expand more into North Carolina with the acquisition of Cone Health in Greensboro.

While these large IDNs may currently use their leverage to negotiate for higher payer reimbursement, and hence higher costs, this dynamic persists because of fragmented markets and still-dichotomous payer/provider relations. As markets grow more consolidated and mature, the few IDNs left standing will likely work with payers (or develop their own health plans) in order to lower costs and direct patient volume. For example, Pittsburgh is locked in a rivalry between homegrown integrated payer/providers UPMC and Highmark, and the market has consistently posted some of the lowest premiums on the health insurance exchange. Payers in larger markets, such as Los Angeles and Philadelphia, are already using "high performance" narrow provider networks to steer patients to lower cost IDNs and physicians.

Risk-based reimbursement could be hedge against volume fluctuations

While hospitals and providers have seen revenue hits during the pandemic because of fewer elective procedures and office visits, insurers are seeing lower costs because of fewer medical claims. IDNs with considerable market share and capabilities to manage risk may invest in their own health plans or co-own a local plan with a traditional insurer. Adding a premium revenue stream may be a hedge against future pandemic-related shutdowns and can allow the IDN to have more control over referral streams, provider protocols, and patient behavior. Even if they don’t jump right into the insurance business, IDNs with accountable care organizations/clinically integrated networks adept at value-based contracting may choose to take on more risk through capitated or bundled payments to ensure a more consistent revenue and patient stream.

The last major industry disruption (The Great Recession and implementation of the Affordable Care Act) was an opportunity for IDNs to place their own health plans on the newly established health insurance exchanges. But the healthcare reform law’s flawed risk adjustment program punished plans like Northwell Health’s CareConnect while rewarding established insurers who enrolled riskier patients. IDNs may first venture into the payer realm with a traditional insurer or into products with less risk exposure, such as Medicare Advantage or direct contracting with employers, at least until the law is amended.

As entire regions consolidate and the lines between provider and payer are blurred, expect to see heightened regional competition between a few mammoth systems, such as UPMC vs Highmark in most of Pennsylvania and Avera vs. Sanford in the Dakotas. While several notable IDN acquisitions (such as Beaumont acquiring Summa Health of Akron, Ohio) have been shelved because systems are wary about taking on new debt during the pandemic, this aversion to risk could encourage more blockbuster mergers (such as Beaumont talking with Advocate Aurora) so that the resultant ecosystems will have greater access to capital.

Key takeaway: The big get bigger as established IDNs and payers scoop up struggling smaller hospitals and physician groups. As consolidation can lead to higher costs and duplication of services, regulators may keep a watchful eye to preserve competition within regions and markets and encourage value-based contracting.

Insights provided in this article were developed from DRG expert analysts, part of Clarivate, using data and analysis of the largest, most influential IDNs in the United States. DRG provides extensive profiling of 200+ IDNs as part of Healthbase, which also includes affiliations data for health systems and providers across the United States.