Healthcare's Game of Thrones

As HBO’s highly successful, award winning “Game of Thrones” enters its 6th season, viewers will be treated to the saga of warring dynasties seeking control of the Iron Throne in the Seven Kingdoms of Westeros.

Adapted from George R.R. Martin’s best-selling ‘A Song of Ice and Fire’ series, the story line draws from distant Western European history– the 15th century between the houses of Lancaster and York (War of the Roses 1445-1485), the scheming queen Isabella of France aka “the she wolf of France” (circa 1295-1358), the Icelandic sagas of the Viking age, and the Hundred Years war (1337-1453). The focus in these era—the relentless, sometimes unscrupulous efforts of sinister dynasties to control the kingdom and enjoy the spoils of the conflict.

The Games of Thrones franchise is a huge commercial success. Its audience is global, surpassing HBO’s Sopranos as its biggest hit series. Its box sets and BluRay sales have eclipsed retail records. It’s seen in China, Australia, Canada, and 167 other countries. By any measure, the pursuit of the Iron Throne has captured a loyal following worldwide.

Season One of healthcare’s version of Game of Thrones started last Thursday: the main characters are the dynasties of health insurance, hospitals and physicians. The Iron Throne is control of healthcare’s power, influence and economics. The setting was the U.S. House of Representatives Judiciary Subcommittee on Regulatory Reform, Commercial and Antitrust Law that held hearings about the looming consolidation in healthcare and notably the recent announcements that Anthem will acquire Cigna, and Aetna’s intent to acquire Humana (Exhibit A).

Control of the Iron Throne in U.S. healthcare is a big deal. There’s much at stake. The U.S. spends more than $9000 per person for its healthcare system. Our results are mixed: we do well with high tech management of complex and serious conditions and we fall short in preventive health and access to primary care. More and more is being spent on the 5% that represent 80% of costs, and less and less is available for the 95% who are 20% of total costs. The Iron Throne is a $3 trillion dollar collection of public and private services that’s transitioning to fully integrated systems of care than span regions and manage all citizens in the realm, not just the sick, frail and injured.

There are multiple dynasties that seek healthcare’s Iron Throne. The major players are three:

  • Physicians believe the healthcare system in the U.S. is the best in world largely due to their prowess, but at risk of losing its preeminence due to unwelcome intrusion from regulators and outsiders who dare challenge medicine’s role. They think health plans provide marginal value, add administrative hassle and pay them less each year. They believe the medical profession stands above all others in knowing how best the system should be run, and decry efforts to standardize diagnosis and treatment as cookbook medicine, report cards about physician performance as ill-conceived and inaccurate, and narrowing networks as demonic.
  • Health insurers believe the system is fundamentally flawed as a result of its chronic neglect of costs and purposeful lack of transparency about its prices and outcomes. Health plans believe theirs is the mission of care coordination, population health management and cost containment and they discount efforts by physicians and hospitals to attempt any of these in a meaningful, systemic way.
  • Hospitals believe physicians are essential to the system’s clinical performance and see themselves as the organizer of health services in their communities. They believe health insurers provide nominal value relative for the administrative burden they add and think “shared savings’ is an oxymoron since the most savings aren’t shared at all. They believe plan consolidation will increase the advantage they already have in many markets, see the government’s effort to reform healthcare via the transition from volume to value as incomplete unless accompanied by solutions to runaway drug costs and increased responsibility for the under-insured and uninsured that use their facilities and leave bills unpaid.

Looking on are other dynasties with much at stake. Drug and device manufacturers, facing mounting challenges to their pricing want to align with the eventual victor. Pharmacy benefits managers and group purchasing organizations want to maintain their allegiances without disruption. Employers suspect the battles will not be fought for the purpose of reducing cost, their primary aim. And regulators are watchful to determine how the rules of the realm might change.

So the war for the Iron Throne in healthcare is underway: each of the three primary combatants is likely to exploit the vulnerabilities of the others…

  • Physicians typically lack business acumen and access to capital for their military buildup. They are prone to fight intramural conflicts between their specialties to protect those realms at the expense of larger engagements to fix the system. And the profession falls short in policing its own who trade in unnecessary care to inflate their income.
  • Plans lack transparency in their business dealings, public trust, and a vexing question about the value they add. They are formidable combatants—especially the big investor owned and 36 Blues who have formidable war chests of capital and data.
  • Hospital vulnerabilities are lack of transparency about costs and prices, growing dissension in their ranks between the strongest and weakest soldiers, and regulatory constraints that limit battlefield effectiveness.

Each set of vulnerabilities will be exploited by their adversaries. And each is fortifying their defenses by bulking up via consolidation—the focus of last week’s Congressional hearing. It’s likely the initial battle will pit hospitals against plans with much at stake. Consider…

  • Per HHS, 83% of the US 385 hospital markets are highly concentrated already (a Hirschman-Herfindahl Index of 2500 or higher), a gradual increase from 79% in 2000. From 2007 to 2013, 469 hospital merger and acquisition deals were announced, involving 966 hospitals. The majority of these involve in-market consolidation by local not for profit health systems. Hospital consolidation is prone to be locally focused, and in the vast majority of markets, two-three systems compete.
  • Per Kaiser Family Foundation analysis, using the same HHI calculus, in the individual insurance market, 31 state markets are dominated by one single player (more than 50% of market share), in the small group market, 27 state markets are dominated by one single player (more than 50% of market share), and in the large group market, 31 state markets are dominated by a single payer.

So as the quest for the Iron Throne begins, the concentration of fighting power at the market level is decidedly in favor of insurers in most markets. In some, hospital concentration is above plans; in many more, one plan is dominant. And relative to other industries in our economic realm, there’s still room for more consolidation. To illustrate, comparisons between national market shares of the four top players in each sector vs. other industries:

Source: IBIS World Industry Report

The quest for the Iron Throne to control an evolving system of health is underway. To the winner goes responsibility to create connected systems of care that span regions, equips individuals to participate confidently in their health, rationalizes capital to balance access with efficiency and effectiveness, and controls costs. The Game of Thrones in healthcare is underway.

Paul

P.S. Consolidation in healthcare is a frequent focus of scholarly research. The attachment “In Consolidation, Methods Matter” provides a useful basis for understanding what’s known and the starting point for the major combatants in the Game of Thrones—hospitals and plans (Exhibit B).

Exhibit A: Recap of Subcommittee on Regulatory Reform, Commercial and Antitrust Law Hearing – The State of Competition in the Health Care Marketplace: The Patient Protection and Affordable Care Act’s Impact on Competition, September 10, 2015.

Exhibit B: In Consolidation, Methods Matter

Sources: Milne, Ben (April 4, 2014). “Game of Thrones: The cult French novel that inspired George RR Martin,” BBC News Magazine, Retrieved April 6, 2014; O’Connell, Michael (May 22, 2012). “‘Game of Thrones’ Topped by ‘Spartacus: Vengeance’ as TV’s Deadliest Series.” The Hollywood Reporter, Retrieved May 23, 2012; Hibberd, James (March 2015). “‘Game of Thrones': EW spends 240 hours in Westeros,” Entertainment Weekly; Andreeva, Nellie (July 30, 2015). “‘Game Of Thrones’ Will Likely End After 8 Seasons; HBO Open To Prequel, Addresses Violence Criticism & Jon Snow’s Fate – TCA,” Deadline.com. Retrieved July 31, 2015; U.S. Department of Health & Human Services, “National Hospital Concentration”; American Medical Association. Competition in Health Insurance: A Comprehensive Study of U.S. Markets. 2012 Version. (Abrief executive summary can be found here); Kaiser Family Foundation (2014).Health Insurance & Managed Care Indicators insurance market competitiveness.

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.