As consolidation in U.S. healthcare continues at an increasing rate, the nation's largest health systems and payers have evolved to look more like each other: diverse, health services giants that can deliver healthcare and coverage across a variety of settings.
But for Robert Pearl, MD, the rise of healthcare giants such as UnitedHealth Group and CVS Health are more iterations of a payer-provider model that has been working successfully for 78 years: Kaiser Permanente.
Dr. Pearl led more than 10,000 physicians at The Permanente Medical Group from 1999 to 2017 and was president of the Mid-Atlantic group from 2009 to 2017. Today, he is a clinical professor of plastic surgery at Stanford University School of Medicine and is on the faculty at the Stanford Graduate School of Business.
Becker's sat down with Dr. Pearl to discuss the rapid consolidation in healthcare among payers and providers, along with his thoughts on what comes next for retail giants such as Amazon and Walmart.
Question: What effect will the emergence of integrated health services companies like UnitedHealth Group and CVS Health have on health quality and costs?
Dr. Robert Pearl: The hospital industry is probably the leading place for consolidation, and when you consolidate, you have two options: improve performance through economies of scale or you can raise prices through market control. Through research that's been published, consolidated hospital systems have almost always not improved performance or lowered costs, they've simply driven up the price.
But you need to step back from hospitals to understand the entry of the retail giants into healthcare. Where are Amazon, CVS, Walmart and UnitedHealth going? At the business school at Stanford, I look at what's happening rather than starting with a hypothesis. We're seeing massive acquisitions, but they're not random. Each of these companies now has or partners with a pharmacy, a care delivery arm, insurance companies and home health services. Why would they do all these things? I think it's because they're trying to replace all of our current healthcare system. One might say their idea is to create a Kaiser Permanente, and I think they're preparing for that.
If I'm an insurer or healthcare organization that is not affiliated with any of these groups, I'd be very worried that they're going to take my patients away and drive me out of existence.
Q: UnitedHealth's Optum now employs or is affiliated with more than 70,000 physicians across the country. Is that a good thing for the U.S. healthcare system?
RP: It's all about the relationship. At Kaiser Permanente, they have a mutually exclusive relationship. And when it works well, it works brilliantly. But it's got to work well, and that's what I would say about the UnitedHealth world.
I've previously made the analogy to a war. If you invade another country, you don't do it and then say you need tanks, fuel and food. You amass people at the border and wait until you have everything in place. That's what I see — why would you have 70,000 employed physicians unless you have a plan that requires that kind of relationship?
Q: How does the hospital industry feel about this consolidating trend among "disruptors"?
RP: Half of the hospitals in the United States are in competitive areas and half are not. I think the ones in noncompetitive areas aren't worried, though maybe they should be. They believe that no matter what happens, UnitedHealth's not going to start building hospitals to compete with them. For those in competitive environments, they should be really worried right now because a lot of them are losing money and it's going to get worse, not better.
There's no question in my mind that if these retail giants are going to be successful, they can't contract with every hospital. They're going to find the best hospitals and the best deals and insist surgeons go there and work at them. Again, the retail giants are replicating what Kaiser Permanente was designed to do.
What will be very interesting to see, particularly with Amazon and CVS, is how they are going to delegate clinicians. Are they going to try to control them or will they see them as the people they need to rely on?
Q: What's your key message to hospitals about these disruptors?
RP: I have a warning for both insurers and the delivery system: Small won't continue to work, and you better have a relationship with at least one of these retail giants. Going forward, the model of the past is going to disappear, and the money you're losing now is only going to get worse over time.
The insurers need to figure out who is going to be their medical partners because the fee-for-service model of the past with 10,000 doctors in a network is not going to work, and the retail giants are going to take your lunch.