Three Forces Expected to Drive Physician Consolidations
In spite of the industry's merger fever, independent physician practices are holding back on partnering with managed care organizations, according to a recent investment study by Hambrecht & Quist, a San Francisco-based investment bank.
Its report, "Better Shop Around," highlights that fewer than 3 percent of the nation's 600,000 physicians have sold their practices to, or partnered with, a physician organization.
In the years ahead, physician affiliations will drive rapid growth. The U.S. market for physician services is $215 billion, signaling vast marketing opportunities to integrate. The report identifies three areas that will spur physician consolidation trends:
- Managed care-The growth of more discriminating and aggressive payers is prompting physicians to be more savvy about simplifying the pricing process and becoming indispensable to payers' provider networks.
- Risk transfer-Physicians are increasingly participating in more risk management, putting some of their earnings on the line to get a higher potential financial return.
- Information technology advances-Technology advances are facilitating more sophisticated evaluations of physicians, particularly in the areas of efficiency and clinical outcomes. (Hambrecht & Quist, Carole A. Newman, 415/439-3611)
Healthcare Cost Increases Exaggerated
Despite industry predictions, employers' healthcare costs barely budged from last year, according to a survey by KPMG Peat Marwick, a New York-based consulting firm.
Overall, employer healthcare costs inched up 3.3 percent in 1998 from 2.1 percent in 1997. Industry analysts had estimated increases in the high-single digits.
However, costs aren't likely to remain flat next year, according to the report.
Kaiser Permanente, the nation's largest HMO, already told employers to expect increases of up to 12 percent, making up for small increases in recent years, says Beverly Hayon, a Kaiser spokeswoman.
And Oxford Health Plans - now under new management and struggling with high expenses from overhauling its computer systems - is also expected to hike its rates.
KPMG's Principal Richard Adams anticipates 1999 healthcare inflation rates will be in the 4.5 percent to 8 percent range.
The 1999 forecast contrasts sharply with the double-digit estimates issued earlier this month from Watson Wyatt, another healthcare consulting firm. According to that study, 1999 traditional plans that allow open access will send costs soaring by 12 percent to 15 percent while HMOs will shoot up 5 percent to 7 percent.
KPMG attributes predictions like Wyatt's to the bleak economic picture of several health plans this year. Only 49 percent of insurance plans made money last year and many managed care companies are dealing with costly mergers like Aetna U.S. Healthcare and United Healthcare.
The KPMG telephone survey involved 1,583 employers with more than 200 employees. (KPMG, Lisa Spicer, 800/972-6671)
Company Size Dictates Employer-Sponsored Coverage
Though most Americans receive health insurance through their employers, the availability of coverage varies greatly from state to state, according to the "National Employer Health Insurance Survey," sponsored by the Department of Health and Human Services. Survey results signal the need to strengthen managed care market segmentation strategies.
Nationwide, 52 percent of private sector employers sponsored group health insurance.
Hawaii, as the only state where employers must provide health insurance, emerges as the most aggressive market, offering employer-sponsored coverage at a rate of 86 percent.
Montana ranked the lowest at 40 percent of employers providing insurance.
The survey, which included data from more than 35,000 businesses, found that firm size (the number of employees nationwide) was the major reason for variation in coverage. (NCHS, 301/436-7551)