Repairing the Healthcare System: Hospital System Monopolies And ACOs

Stanley Feld M.D.,FACP,MACE

I have been a constant critic of Accountable Care Organizations. I have said they cannot work to the benefit of patients and physicians because of the difficulty of organizing them and the subsequent unintended consequences. ACOs will increase the costs to the government and healthcare insurance industry to provide the administrative services.

Government has proven over and over again its ability to make complicated mistakes. These mistakes result from bloated bureaucracies and conflicting bureaucratic missions.

Additionally the government outsources administrative services to the healthcare insurance industry. Administrative services fees are constantly increasing because of waste, inefficiency, and mark-ups.

Hospital systems have been merging for 15 years. In the process they are attempting to buy physicians practice and provide a salary for physicians.

Hospitals are brick and mortar structures. They are not the future of medical care. Hospitals, now hospital systems, had to change their business plan because more and more patients are being treated out of the hospital.

Outpatient clinics, diagnostic imaging centers, chemistry laboratories and ambulatory surgical centers have shifted income from hospitals to physician owned outpatient clinics.

Hospital systems goal has been to buy physicians’ practices and ancillary care facilities. Hospital systems’ consultants have concluded that they would be in a better position to negotiate price if they owned the physicians infrastructure regardless of the cost and pay physicians a salary.

The published reason given for this action is to provide better and integrated medical care within their hospital system. The real reason is to capture the revenue lost to outpatient facilities and profit from physicians’ productivity. Physicians are realizing they are being taken advantage of and are demanding their fair share of their own productivity.

The Federal Trade Commission is supposed to have the authority to challenge monopolistic hospital mergers to protect consumers.

In 1996, the FTC amended its policies on health care mergers. The new policy encouraged hospital systems to merge by providing safe harbor to competing hospital systems when the hospital system could prove their hospital could achieve sufficient clinical integration.

The definition of sufficient integration was very loose and ill defined. The government thought it could save money by having all the fees under one roof. The FTC encouraged healthcare system monopolies in order to achieve more efficient and integrated care. It did not realize it would bite them in the leg someday.

It has always been a mystery to me how the government came to this conclusion. Suddenly the government has realized that the monopolies have turned on it and are in a position to demand more reimbursement.

J. Frank Rosch the FTC Commissioner said,

“I thought that the 1996 amendments…were the biggest loophole in the antitrust laws I had seen,”

“Subsequent Advisory Opinions issued by Commission staff…were about as clear as mud.”

Dr. Donald Berwick and President Obama claim that Accountable Care Organizations are the cure to our rising healthcare costs. A gigantic and expensive bureaucratic system has been constructed by CMS to regulate these new ACOs. ACO’s promote further consolidation and mergers of physicians and hospital systems.

“The net result” of ACOs, says Rosch, “may therefore be higher costs and lower quality health care—precisely the opposite of its goal.”

Remember the government outsources all of the administrative services to the healthcare insurance industry. I have shown how the healthcare insurance industry has taken 30 to 50% of every Medicare healthcare dollar to the disadvantage of the taxpayer and seniors.

Large merged hospital systems have in turn taken advantage of their size to take advantage of the healthcare insurance industry.

The healthcare insurance industry has taken advantage of the government in pricing administrative services.

Finally, the government has taken advantage of seniors by increasing Medicare premiums, increasing deductibles and decreasing benefits..

“ The final ACO guidelines, says Rosch, are “extraordinarily generous to providers,” and will constrain the FTC’s ability to block exploitative provider mergers.”

The Congressional Budget Office, much to the dismay of Obamacare’s advocates, did not think ACO’s would save much money in ten years.

The CBO projected that the Medicare ACO initiative would save $5.3 billion over ten years.

“In other words,” Rosch points out, “the savings to Medicare from the ACO program are no more than a rounding error. Yet even the CBO’s modest cost savings projections are likely overstated.”

This supposed savings amounts to eight-hundredths of one percent of Medicare’s spending over the projected ten years.

People have a tendency not to do the arithmetic when present with what sounds like a big number.

“Against the very meager prospects for cost savings,” Rosch concludes, “there is a very real risk that some ACOs will be formed with an eye toward creating or exercising market power.

Middle-class Americans are already struggling with the burdens of the rising cost of health insurance. The potential ACO policy blunder is not to be taken lightly.

Obamacare’s failure will skyrocket our federal debt. The lack of consideration of the dysfunctional dynamics of the healthcare system will result in unintended consequences that will create greater dysfunction and higher costs.

Obamacare and ACOs will end up making health care even less affordable and accessible.

Maybe that is President Obama’s goal.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

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