This week, Julie Creswell and Reed Abelson published an interesting piece in the New York Times about how the war between hospital chains puts doctors in a bind. I think the article includes many relevant facts about the consolidation of the health care market. But, I conceptualize the conflict a little differently.
Here’s my take…
For a number of years, there has been an internal battle within the federal government. The CMS has been promoting the idea of formation of ACOs to achieve clinical integration of physician and hospital services. But, as I described in an earlier post, the FTC and the Justice Department have been concerned that hospitals would use ACO safe harbor provisions as cover for consolidation to increase market power and drive up prices.
CMS was confident that, if ACOs faced enough risk, the savings from clinical integration and care process transformation would outweigh cost increases from higher prices. But, when CMS proposed ACO regulations that had the audacity to include a modest amount of downside risk for providers, they faced a huge provider backlash. CMS buckled under the pressure, and approved final ACOs regs that allowed providers to choose only upside rewards, with no downside risk. As I’ve noted before, the vast majority of providers that ended up forming ACOs have very little skin in the game.
Within hospital organizations that formed ACOs, there are a mix of leaders. Some leaders are enthusiastic promoters of the CMS vision of clinical integration, a resurgence of primary care, and achieving the “triple aim” of improving quality, increasing satisfaction and reducing per capita cost. Other ACO leaders are more focused on the financial health of the hospital portion of the delivery system. Such leaders are concerned that the per capita cost take out will come out of the hides of hospitals, some of which will be forced to close when their revenue cannot cover their substantial fixed costs. These two types of leaders have been unable to agree on the need to make substantial investments in clinical process transformation and the associated clinical information systems designed to achieve the cost take-out. So, the federal government came to the rescue with HITECH funding for EMR technology. The Feds were able to justify this funding based on the need to stimulate the economy, rather than the need to reduce health care cost. As a result, the HITECH “meaningful use” regulations are focused more on quality than cost take-out. Though well meaning, the HITECH funding and the associated meaningful use regs actually created a huge distraction for IT professionals within provider organizations. Many ACO leaders have directed their IT professionals to focus on meeting externally-defined meaningful use requirements — studying for the test — rather than doing the far more challenging work of actually figuring out how to support the triple aim through clinical process transformation.
The one thing that the two types of ACO leaders could agree upon was physician practice acquisition. The triple-aim-oriented leaders were in favor of acquiring practices as a means to get sufficient control to achieve clinical integration. The hospital-oriented leaders were in favor of acquiring practices as a means of controlling the hospital’s inbound referral pipeline to keep the beds filled and to increase market share to gain bargaining power against health plans. So, practice acquisition has proceeded vigorously. Now, the race is on to see which group of ACO leaders is going to dominate. To this point, the triple-aim-oriented leaders remain hampered by longstanding weakness in physician leadership and governance structures (the problem of “herding cats”), the traditional dominance of specialty leaders over primary care leaders, the lack of available analytic talent, and lame clinical information systems.
Right now, the hospital-market-power-oriented leaders are out in front. There is a great risk that they will be too successful, making it too obvious that the FTC and the Justice Department were right about market consolidation. That outcome would lead the health care policy community and the public to conclude that “accountable care” is a failure, as happened with “managed care” in the 1990s, sending the idealistic triple-aimers back into exile for another decade. But, that outcome is not yet certain. There remains a chance for some provider organizations to figure out ways to achieve the triple aim, including per capita cost take-out, and still accomplish profitability and growth, thereby disrupting the long-standing hospital-centric order. I would estimate the probability of that outcome to be less than 50%, but still likely enough to be worth fighting for.