The Office of the Assistant Secretary for Preparedness and Response (ASPR) leads the nation in preparing for, responding to, and recovering from the adverse health effects of public health emergencies by supporting communities’ ability to withstand adversity, strengthening regional health and response systems, and enhancing national health security.Reference Lurie 1 Housed within the US Department of Health and Human Services, ASPR and its Hospital Preparedness Program seek to enhance community health and resilience through formal collaborations between hospitals, health systems, community health centers (CHCs), public health departments, and various community organizations via what are known as health care coalitions (HCCs). 2 HCCs endeavor to meet the medical surge demands inherent to disasters, and improve public health outcomes before, during, and after emergencies.
Emergency preparedness is a national, not just federal, concern. Past disasters such as Hurricanes Katrina (2005), Isaac (2012), and Sandy (2012), the Deepwater Horizon oil spill (2010), and the disease outbreaks of H1N1 (2009) and Ebola (2014) illustrate the import of public health emergency preparedness and, by extension, national health security. Defined as the state in which the nation and its people are prepared for, protected from, and resilient in the face of health threats with potentially negative health consequences, 3 national health security is achievable through a scalable, copacetic emergency preparedness system built upon the backs of strong day-to-day operating health systems.Reference Lurie 1 As ASPR commits to bolstering both public health emergency preparedness and national health security, the strategy and structure of its HCCs will be critical to ensure an effective, timely response during times of emergency.
Currently, 2 primary and concurrent trends are poised to affect the development of HCCs: health care market dynamics and government intervention. By examining these trends through the lens of public health emergency preparedness, this article examines whether HCCs, in structure, are synergistic or divergent with 2 specific components composing each trend: (1) hospital consolidation and (2) Affordable Care Act (ACA) implementation. How HCCs adapt to the changing economic and political landscape of health care will hold major implications for public health emergency preparedness in the years ahead.
Section I: Market Dynamics and Hospital Consolidation
Hospital consolidation has been a product of the momentous shifts within health care over the past 2 decades. Hospital consolidation is defined as the mergers, acquisitions, joint ventures, joint operating agreements, and affiliations between various hospital systems. 4 Hospital consolidation has been precipitated by a myriad of factors, including but not limited to (1) an increased competition for market share, (2) an emphasis on integrated delivery networks, (3) a rise in the cost of new medical technologies, and (4) a competition for health insurance negotiating clout. Historically, hospital consolidation has occurred in waves; peaking in the early 1990s with the proliferation of health maintenance organizations adding competition and lowering health systems’ rate of reimbursement, and stabilizing thereafter with subsequent market readjustments.Reference Connor, Dowd and Radcliff 5 As hospitals sought to gain leverage and avoid being “left out” of mutually beneficial partnerships to regain market share, they consolidated at a rapid rate. This trend continued until the late 1990s. Two decades later, consolidation is again occurring at an increasing rate.
Today, the hospital market is more concentrated and less competitive than ever in American history.Reference Cutler and Morton 6 During the mid-1980s, an average of 5 equally sized, independent hospital systems existed within a single metropolitan area.Reference Cutler and Morton 6 Today, in 2015, that number has decreased to 3 systems.Reference Dafny 7 Additionally, as these hospital systems consolidated, they typically structured around a single, large academic medical institution, making it harder for independent, nonconsolidated hospitals to survive.Reference Cutler and Morton 6 Currently, 60% of all hospitals are a part of a larger health system (up 7% from 2004), and approximately one-fifth of the nation’s 5000 hospitals are planning to consolidate in the next 5 years.Reference Creswell and Abelsen 8 Moreover, the metric for measuring market concentration, the Herfindahl-Hirschman Index, has designated that nearly half (n=150) of all US hospital markets are highly concentrated, one-third (n=98) are moderately concentrated, and only one-sixth (n=58) are not concentrated, indicating that an increase in concentration has led to a decrease competition. Presently, the Herfindahl-Hirschman Index considers no hospital market “competitive” in the United States.Reference Cutler and Morton 6
In addition, the average hospital market in the United States is typically composed of 1 dominant, and 2 to 3 less dominant, health systems with a residual fringe of smaller systems surrounding its hub.Reference Cutler and Morton 6 Within these systems, the top 3 share leaders account for over 77% of the regional hospital admissions,Reference Cutler and Morton 6 evidencing the power and scope of hospital consolidation within a regional market. Unsurprisingly, this trend of hospital consolidation is expected to continue, as there are undeniable advantages of “being big.”
Hospital Consolidation via Economics
For hospitals, one major advantage of “being big” is an increased negotiating clout with health insurers (many of whom consolidated years before) for better insurance reimbursements. Hospitals traditionally argue that through better insurance reimbursement rates, superior patient care can be achieved via larger investments in new medical technologies, more robust staff compensation, and improved procedural pricing.Reference Creswell and Abelsen 8 In addition to increased insurance reimbursements, hospital consolidation can also achieve the phenomenon of economies of scale.
In theory, hospital consolidation leads to achieving economies of scale, which are mechanisms that cause the cost per unit of output to fall. 9 In this instance, the cost is that of providing health care goods and services. Economies of scale are primarily achieved through 2 modes: horizontal and vertical consolidation. In this context, horizontal consolidation involves 2 hospitals merging together, because both entities operate within the same production level (ie, patient care), therefore allowing them to share medical resources and spread fixed costs over multiple units of output.Reference Gaynor 10 Similarly, vertical consolidation involves hospitals merging with various health care entities at different levels across patient care (such as long-term care facilities, outpatient centers, and physician groups) to allow for a broader scope of patient interaction and care delivery across the patient continuum of care.Reference Gaynor 10 In essence, owing to hospital systems’ increased depth and breadth within the market via horizontal and vertical consolidation, policy makers both revere and revile large consolidated health systems, because increased size brings both challenges and opportunities to regional health care markets.
Proponents of increased consolidation posit that achieving the benefits of economies of scale will allow for hospitals to lower costs and reinvest in measures that will ultimately improve patient care, similar to the increased revenues found from stronger health insurance reimbursements. Repeated studies have shown that hospital consolidation increases the volume of specialized services, such as complex surgeries, while simultaneously spreading the costs of expensive medical procedures, providing a deduction of unit cost per investment.Reference Birkmeyer, Stukel and Siewers 11 Moreover, large health systems can distribute the burden of costly investments, such as investing in new medical technologies, across multiple entities, illustrating a tangible benefit from achieving economies of scale.
Conversely, opponents of hospital consolidation often cite the anti-trust concerns of decreased competition and increased consumer pricing with regards to health systems becoming too large. In fact, the Federal Trade Commission’s injunction of numerous hospital consolidations (such as Ohio’s ProMedica Health System, Inc and St. Luke’s Hospital 12 ) enumerates this concern. With a decrease in competition, hospitals can charge consumers set prices with mitigated concerns of patients leaving for competing health systems. Additionally, owing to higher leveraged reimbursements, hospitals can continue to set prices unabated by health insurance negotiations. Because consolidation reduces the aggregate number of hospitals in a region, a payor simply cannot afford to exclude a single health system from a product, therefore allowing hospitals to dictate higher consumer pricing.Reference Cutler and Morton 6
Hospital Consolidation via the Affordable Care Act
In addition to these market dynamics, future ACA implementations are likely to perpetuate hospital consolidation. Two main drivers of this potential increase are the expansion of health insurance coverage, as well as the prevention of insurers from denying coverage for preexisting conditions. In conjunction, 3 critical, but not exclusive, precipitating factors include (1) an increase in Medicare and Medicaid expansion, (2) a decrease in Medicare and Medicaid reimbursement, and (3) a shift from volume to value-based payment.
Through the ACA, nearly 11.7 million Americans have received health insurance via the Health Insurance Marketplace. 13 This lowered the nationwide number of uninsured from 18% in 2013Reference Sharpe 14 to 12.9% in 2015.Reference Levy 15 However, the immediate pressures of this expansion can be felt as the newly insured and baby boom interact more regularly with the overall health system.Reference Lurie 16 Of the 76 million adults who make up the baby boom, nearly 3 million of them will hit retirement age every year for the next 20 years.Reference Barr 17 Nevertheless, the long-term opportunities for improvement presented by this influx of patients may include the potential for better-coordinated care (via synchronized electronic health records), greater health literacy (via increased primary care interaction), and lowered rates of hospital readmissions (via more consistent preventative care). Nonetheless, while logic suggests that a greater influx of insured patients may seem financially beneficial to a health system, the reality of decreased government reimbursement may not make it so.
The ACA will reduce the rate of Medicare reimbursement 1.5% annually via a series of payment reductions in attempt to curb overall national health care spending. 18 This reduction reflects the federal government’s anticipation of augmented hospital revenue from increased insurance coverage for millions of patients nationwide. While this reduction may be fiscally prudent from a national perspective, the regional realities that hospitals operate within are likely to experience lower income levels, particularly for those states “opting out” of the Medicaid expansion coverage. Furthermore, while Medicaid expansion is not totally analogous to Medicare reduction, both impact hospitals by accepting similar, albeit different, patient populations. As of publication, 31 states are implementing (including the District of Columbia), 19 are not, and 1 remains in debate. 19 In addition, many of the states not pursuing Medicaid expansion have large, rural areas served by a small number of hospitals typically functioning on a thin operating budget. With these potential decreases in reimbursement, valid concerns exist that many rural hospitals may perpetuate this trend toward increased consolidation.
Section II: Public Health Emergency Preparedness and The Affordable Care Act
Community Health and Resilience
Health care is a regional enterprise. Unlike other industries, the markets that hospitals, HCCs and public health centers operate within are directly related to the region, geography, and populations that they serve. The ACA recognizes these regional realities by emphasizing health, and by association resilience, at the community level. For instance, community resilience is the sustained ability of communities to withstand, adapt to, and recover from adversity. 3 Similarly, community health resilience is a community’s ability to use its assets to strengthen public health and local health departments and to improve the community’s physical, behavioral, and social health to withstand, adapt to, and recover from adversity. 3 With ACA provisions focusing on improving community health, these measures parlay into the concept of community health resilience, allowing for the notion that the stronger a community’s health resilience is, the more likely it will respond effectively to a public health emergency. A key structural component underpinning this actualization of community health resilience are CHCs, which have received extensive funding through the ACA.
CHCs are private, nonprofit organizations that directly or indirectly (through contracts and cooperative agreements) provide primary health services to residents of a defined geographic area that is medically underserved. 20 In fact, a majority of CHC patients are either uninsured (41%) or on Medicaid (33%). Nearly 59% of patients fall below the poverty level, with another 20% between 100% and 200% of poverty. 20 Owing to this patient demographic, CHCs emphasize coordinated primary and preventative care services to help reduce health disparities for low-income individuals and rural health communities. The ACA places value in CHCs, providing $11 billion over a 5-year period for the Community Health Center Fund in order to facilitate the operation, expansion, and construction of CHCs across the nation. 21 This funding is intended to (1) support ongoing health center operations, (2) create new health center sites in medically underserved areas, (3) expand preventative and primary health care services (eg, oral and behavioral health), and (4) support major construction and renovation at CHCs nationwide. 21 Moreover, it is believed by the end of the 5-year period, CHCs may serve as many as 20 million new patients for a total of 40 million nationwide. 21
Furthermore, the ACA looks to bolster community health through the new Community Health Needs Assessment (CHNA) provision for nonprofit hospitals. In order to validate their 501(c)(3) tax-exempt status, nonprofit hospitals must address community health needs at least once every 3 years or face an excise tax. As of 2013, 70% of local health departments had conducted some form of a CHNA within the previous 5 years. 22 Additionally, to avoid this new tax, many hospitals have facilitated community enrollment into the health insurance marketplaces in hopes that more regular medical trips, as opposed to sporadic emergency room visits, will allow for lower readmissions and better coordinated care.
An Emphasis on Health Information Technology
The ACA is facilitating a new era of health information technology (IT) that benefits public health emergency preparedness. Section 1561 of the ACA requires the development of security standards and protocols to promote the interoperability of IT systems for the enrollment of individuals in federal and state health departments. 23 These standards lay the groundwork for enabling the sharing of electronic health records during a public health emergency, thus allowing local health departments, CHCs, and hospitals within an HCC to address personalized patient medical conditions before, during, and after an incident.
For example, in the fall of 2012, Hurricane Isaac left the city of New Orleans without power for 5 days. During that time, there was an immense concern for the residents who were physically unable to evacuate the city and were dependent on electronic durable medical equipment. Instead of having public health officials knock door-to-door to identify those high-risk individuals, Medicare claims data were used to identify residential areas most in need of power to operate their electronic durable medical equipment. Public health officials then worked with regional electric companies to restore power to these individuals in need first. By utilizing Medicare claims data in methods compliant with the Health Insurance Portability and Accountability Act (HIPAA), public health officials were 93% accurate in identifying homes with an oxygen concentrator or ventilator.Reference DeSalvo, Lurie and Finne 24 In this instance, health IT allowed for an efficient and effective public health emergency response that offers a potential template for HCCs to facilitate in the future.
Section III: Health Care Coalitions, Hospital Consolidation, and the Affordable Care Act
HCCs are defined as formal collaborations between hospitals, public health departments, CHCs, and emergency management and response agencies that organize, prepare for, and respond to mass casualty events. 3 HCCs encompass a broad network of public and private sector partnerships that bolster public health emergency preparedness and response across different regions. 3 By their construction, HCCs bring together competing health systems for the brief periods of time in the critical moments before, during, and after a disaster. Owing to their ability to integrate different levels of medical services among hospitals, CHCs, local health departments, and various community centers, HCCs naturally utilize the concepts of horizontal and vertical consolidation in the context of public health emergency preparedness in order to meet the medical surge demand of a disaster. The horizontal and vertical integration naturally built into the system, coupled with the structure of HCCs for potential cooperation, allows for the rapid scalability of the health care system necessary to provide medical triage and care during a public health emergency.
It is widely believed that the healthier individuals are within a community, the more resilient that community will be during a disaster. With the ACA fostering community health resilience through the funding of CHCs and local health departments, as well as its provision of CHNAs, the goal is that overall community health will improve gradually over time. Anticipating that new patients will enter into hospital systems’ records owing to increased access and coverage before a disaster, preexisting patient electronic health records can help public health officials attenuate the effects of public health emergencies. In a tangible way, HCCs can actualize the merits of hospital consolidation to mitigate the effects of a public health emergency.
Knowingly or unknowingly, HCCs benefit from the economies of scale achieved by hospital consolidation. As health systems consolidate both horizontally and vertically to expand the breadth and depth of operations, they inherently allow HCCs to utilize multiple levels of the health care delivery system during times of disaster. With horizontal consolidation offering “more hands on deck” and vertical consolidation adding “more ships to the fleet,” HCCs have the potential to expand the volume of medical services connected to the health care system for communities in a way that few health care entities can.
Section IV: Potential Concerns
While HCCs may benefit from hospital consolidation organically, how HCCs align with future consolidations will be a major policy concern moving forward. Typically, HCCs are cooperative agreements that tend to be regionally based, public-private partnerships that provide for an area during a time of emergency. 3 If HCCs fail to adapt to the continuously changing regional economic landscapes, they may fail to take advantage of the potential benefits of hospital consolidation. This would inevitably divide up consolidated hospital networks, thus eliminating the inherent benefits of economies of scale. Therefore, HCCs must be careful not to divide the various parts of consolidated hospital systems by the simplicity of geography, as this would diminish the mechanisms in place to facilitate increased efficiency and scope. This raises the question: How should HCCs be districted with the prospect of increased hospital consolidations growing beyond the reach of traditional geographic lines?
Moreover, while achieving economies of scale holds immense promise for HCCs, it also harbors potential setbacks, such as ushering in the unintended consequence of diseconomies of scale. Diseconomies of scale are factors that cause the average cost of producing something to increase rather than decrease owing to added organizational complexity and inefficiency. 9 As the name suggests, diseconomies of scale are related, yet diametric to the concept of economies of scale. There are several reasons for these setbacks; namely, entities become too large, too bureaucratic, and too complex for information and services to operate effectively. An example would be when a merged health system is unable to effectively coordinate patient health records between hospitals and providers because of differing IT systems that are not properly aligned. If HCCs experience diseconomies of scale by dividing multiple health systems by regional, instead of financial, lines, and information cannot flow efficiently during the critical moments before, during, and after a disaster, then the effectiveness of HCCs would be diminished. In short, bigger may not always be better.
Section V: Conclusion
There are few, if any, major activities within health policy that do not affect public health emergency preparedness. Nothing in policy happens within a vacuum. The relationships between health policy, health economics, and emergency preparedness are interconnected. The ACA alters the economics of the health system, which in turn alters the hospital market, which then affects regional emergency preparedness and recalibrates the information sent for future federal health policy decisions. Much of this has been precipitated by the ACA, along with the changes in the market over the last several years, and much of this has been the natural evolution of public health emergency preparedness. Yet, while much ink has been spilled on the ACA and its effect on the market, there remains a sizable amount of white space regarding its impact on public health emergency preparedness. While the narrative remains open for print, how the pages are written remains open for collaboration.
Acknowledgments
The author worked at the US Department of Health and Human Services (HHS) Office of the Assistant Secretary for Preparedness and Response (ASPR) as a Health Economics Fellow via the University of Pennsylvania from June to October 2014, and as a Management Analyst via GAP Solutions, Inc from November 2014 to July 2015. The author recognizes and thanks Benoit Stryckman for his insight and support throughout the publication process, as well as Lauren Walsh, Melicia Seay, and Kelly Johnson. Moreover, the views expressed within this article are strictly those of the author and do not reflect the views of HHS, ASPR, or GAP Solutions, Inc.
