5 areas of healthcare ripe for disintermediation

Middlemen soon may need to find another line of work. We are seeing it everywhere — industries are finding more ways to cut out the intermediaries and bring customers closer to their products or services in an effort to reduce costs. This process, called disintermediation, unfolded in the movie rental industry when Netflix overthrew Blockbuster and in the retail industry, where Amazon now reigns king.

Healthcare is not exempt from this kind of disruption. In fact, the perfect storm is brewing in healthcare for disintermediation right now. "Three players are reshuffling the food chain, and taking certain parties out so they can gain more leverage," Paul Keckley, PhD, managing editor of "The Keckley Report." These three forces — large health systems, pharmaceutical retailers and major payers — are perfectly positioned to knock out a few layers of the healthcare food chain.

He pinpointed five likely sources of prey for these players in the coming months. Here are the top five areas of healthcare where middlemen must adapt or risk becoming obsolete.

1. Drug companies. Ballooning drug costs are a top-of-mind issue for providers, payers, patients and politicians alike. Drug prices across the board jumped more than 10 percent in 2015, and are expected to keep growing. Policy makers are focusing on how to balance drug research and development while still reigning in prices. One of the best ways to do this may be disintermediation, according to Dr. Keckley.

"If you are a drug company, your deal right now is to go to doctors and hospitals and say, 'If you put me in a more favorable position in your formulary, I'll give you a deeper discount,'" Dr. Keckley says. However, there may be a quicker way for patients to access drugs and face lower costs, perhaps through direct sales to consumers or across another path. However, this is not a one-size-fits-all projection.

The drug makers that have gotten the most attention in the news for aggressive price increases — like Turing Pharmaceuticals and makers of the level 4 drugs — do not have the same disintermediation threat as makers of the first three levels of drugs do, according to Dr. Keckley. Makers of drugs like Sovaldi, for hepatitis C, "are the only game in town and have been able to write their own rules," he says. To see any change among the prices of Schedule IV drugs is a matter of what policy will allow, according to Dr. Keckley.    

2. Rural hospitals. Rural community hospitals — all 1,855 of them — still serve an important purpose for community health and primary care. However, among the 1,330 or so that are considered critical access hospitals, the average patient census is 5.7 per day, according to Dr. Keckley. "Long-term, it's not clinically safe or effective to deliver inpatient care in these settings," he says.

The future of rural health, he says, is in primary care and long-term telehealth rather than acute care. What's likely to happen? Big regional health systems will roll up rural providers into networks and redeploy capital from inpatient acute care to skilled nursing, rehab and primary care, according to Dr. Keckley. Telehealth will help connect specialists in urban and suburban areas with rural primary care providers, like internists, Ob/GYNs and geriatricians.

With nearly 673 rural hospitals vulnerable to closure, according to iVantage Health Analytics, 99,000 healthcare jobs in rural communities are at risk. If these jobs were lost, GDP would take a $277 billion hit, according to iVantage. This means one of the top challenges in this arena is to ensure quality of care remains a priority over job creation when making decisions about the future of rural hospitals, Dr. Keckley says.

"What has been the rush to keep these folks floating has not been the quality," Dr. Keckley says, "It's been the jobs. It's the congressmen that beat their chest on the Hill, and say 'This is the biggest employer in my community.'"

3. Academic medical centers. AMCs are "ground zero" for delivery systems that will see significant change in the near future, according to Dr. Keckley. First, academic medicine is in the process of re-engineering medical education to teach future physicians how to continuously learn and adapt over the course of their careers. "Science is too fast," he says, "And deity is not a winning model."

Second, funding research and bench-to-bedside teaching is a losing proposition for most AMCs, and it is subsidized by patient care, according to Dr. Keckley. While AMCs are still offering top-notch care, other hospitals around the country are now able to offer similar levels of care. "Academic medicine can no longer say, 'We are so much better at what we do,'" Dr. Keckley says. "That's one of the most difficult challenges."

As it becomes more difficult to justify higher costs at AMCs, and research remains paramount to medical progress, it could ignite a conflict so dramatic Dr. Keckely drew comparisons to international conflict. He predicts separate funding for teaching and research activity while AMCs' hospitals and clinics become more consumer-centric and compete more directly with other community-based providers.  

4. Private insurers. Once health systems build enough scale, they will more aggressively begin to pursue their own insurance plans, according to Dr. Keckley. Specifically, as ACOs and the Next Generation ACO model move health systems and provider organizations to take on more risk, these organizations will likely make the short hop into launching their own Medicare Advantage plans, and eventually, plans for Medicare and commercial patients as well. Thus far, provider-sponsored plans have been welcomed by employers and consumers, putting private payers on the line for disintermediation.

"Some of the big private insurers do not see their future in managing insurance risk," Dr. Keckley says. They will likely continue to be rolled up and consolidated, and as providers edge into their space, private insurers will likely focus on acquiring or creating alliances with medical groups and retail health clinics, he says. Through these venues, payers move closer to the patient and have more opportunities to control healthcare costs with enhanced data, care coordination and preventive care.

5. Physicians. Consumers are taking the reigns as they look for more access, engagement and transparency. They're also less attached to a specific physician and more open to non-physician clinicians, retail clinics and other venues that make care more convenient.

"It's a tough position to be in, and physician leaders deal with this every day," Dr. Keckley says. "It's the tension between the new world order and the old world many fantasize about." While this theme is not new, physicians will have to adapt as retail clinics, telehealth options, apps and other resources become available to patients.

Medical school graduates today are already shifting their expectations to employment and more corporate structure, which can offer them more flexibility in their personal lives and the ability to negotiate compensation. However, they will have to continue to keep pace with consumer expectations as millennials age. "They are very self-driven, and will perhaps be the most compelling drivers of disintermediation," Dr. Keckley says. "There is an openness to [disintermediation]…What I'm watching right now is how fast consumers will accept it."

 

Correction: This article was updated March 31, 2016 at 9:20 a.m. CT to correct an error in the number of rural hospitals and CAHs. This article incorrectly stated there were 1,300 rural hospitals in the U.S. and 800 CAHs. There are 1,855 rural community hospitals and 1,331 certified CAHs in the U.S. We regret this error.   

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