Provider Consolidation Paper

right642593Healthcare Provider Consolidation and its effect on the Pharmaceutical IndustryThe driving forces behind the change and how Pharma can respond450000Healthcare Provider Consolidation and its effect on the Pharmaceutical IndustryThe driving forces behind the change and how Pharma can respond4000310515center5/1/2014
33000950005/1/2014
420003263900880008851265T. Daniel MooreRutgers business school450000T. Daniel MooreRutgers business school
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Introduction
Why Provider Consolidation Matters to the Pharmaceutical Industry
There is a wave of massive consolidation amongst US-healthcare providers. That consolidation is coming as payers try to reduce healthcare spending. In total, providers including hospitals, physicians
When a physician office practice is purchased by a hospital system, the hospital system takes over the fixed costs like office expenses as well as administrative tasks like scheduling. Most important, are upgrades to electronic health records that comply with federal mandates CITATION McK13 \l 1033 (McKinsey, 2013). These are very costly and become a responsibility borne by the purchasing hospital system. It is clearly an attractive option of physicians. However, research indicates that the hospital systems themselves are losing money on the transactionsCITATION Num13 \t \l 1033 (Numerof, 2013). According to Moody’s hospital systems that purchase physician practices see an average increase of 5.2% for salaries. This is a major increase considering the thin margins hospitals operate on (Moody’s 2013). Most hospitals see a net loss on their investment in physician practices (Moody’s 2013). Why then would they do it? The reason lies in control. In exchange for shuffling off the risk of operating a practice to the hospital system, the physician gives up some measure of autonomy. Hospitals can directly contract a physician’s behavior and incentivize his prescribing behavior CITATION Hea13 \l 1033 (Healthcare Economics Editorial Board, 2013). This is unique, as not even payers could so directly influence a physicians practice. This means that the financial interests of the
The shift in healthcare consolidation is to one of systematic care. Products must add value not only to the patient and their unmet need but also to the unmet need of the system as a hole. There is an opportunity for pharmaceuticals to compete on a more complete value picture. As consolidated healthcare providers become responsible for episodes of care they may become less price sensitive CITATION Hea13 \l 1033 (Healthcare Economics Editorial Board, 2013). The price sensitivity is different for each disease, but understanding how this price sensitivity is relevant to the various areas of care will be critical for the pharmaceutical industry. Price sensitivity will be, in part, determined by the nature of the consolidation. Understanding these price sensitivities by category and attribute will allow pharmaceutical companies to build endpoints in clinical trials that create a proper value proposition for cost conscious consolidate healthcare provider networks.
Figure SEQ Figure \* ARABIC 5 Analysis of Price Sensitivities by Disease and Product Characteristics. These can be used to design endpoints in clinical trials right3465759Source: Adapted from Nature – “Pricing Medicines: Theory and Practice, Challenges and Opportunities” – 2005
Retrieved from Presentation by Brian Corvino Head of Americas, DRG Consulting Division – Decisions Resources