Monopoly Power: As Hospitals and Doctors Join Integrated Health Systems, Will Health Care Prices Rise?

Over at Kevin M.D., Kevin Pho has raised the possibility that health care reformers who are calling for more “large integrated health systems like the Mayo Clinic or Kaiser Permanente” may wind up creating monopolies that have the market clout to charge more—raising the total cost of health care.

Kevin notes that “according to the Dartmouth Atlas” these large integrated health systems “lead to better patient care and improved cost control. . .  To that end, [the idea of ]Accountable Care Organizations has become a major part of health reform . . . But,” he warns, “the creation of these large, integrated physician-hospital entities that progressive policy experts espouse comes with repercussions.

“Monopoly power.

“To prepare for the new model of health care delivery, physician practices have been consolidating. In many cases, they’re being bought by hospitals. Last year, I wrote how this is leading to the death of the private practice physician.

“And with consolidation comes a tilt in market power. Health insurers, desperate to control costs, are finding it more difficult to negotiate with hospital-physician practices that dominate a market.  And patients are going to side with the hospital — insurers that leave out popular doctors and medical facilities face a backlash from patients. Witness the power that Partners Healthcare has in the Boston market that’s mostly driven by patient demand for big-reputation, high-cost Massachusetts General Hospital and Brigham and Women’s Hospital.”

[Note: I wrote about how brand-name hospitals in Massachusetts were over-charging for simple procedures that could be done just as well at hospitals that charged lower rates here on HealthBeat.]

Kevin continues: “Merrill Goozner notes how consolidation in California actually raised prices:
“‘A national study conducted for the Robert Wood Johnson Foundation found that after the merger wave between 1990 and 2003, 90 percent of large metropolitan area hospitals wielded excessive market power as defined by the Federal Trade Commission. The study suggested the mergers raised prices by anywhere from 5 to 40 percent (depending on how close the merged facilities were to each other) and probably led to lower quality.’”

[Note: In California, market power has shifted back and forth between insurers and health care providers. In the past, in some places insurers enjoyed great market clout—and paid providers less. In other cases, as Goozner notes, hospital consolidation gave providers the power to charge more. I wrote about this in Money-Driven Medicine—MM]

“The fear now is that ‘ACOs could make an existing problem marginally worse,’ said Robert Berenson, a senior fellow at the Urban Institute, who conducted the California survey. ‘The issue is market power.’
“Progressives face a conundrum,” Kevin concludes. “They want doctors to practice in integrated health systems so that economies of scale can lead to better health IT integration, cost control, and better quality — or so says the Dartmouth Atlas data.

“But in doing so, they’re promoting monopolies, where medical providers and hospitals can then dictate prices and have a greater say in health care pricing. That is antithetical to progressive health policy dogma.
“So, ironically, it may be because of health reformers’ zeal to integrate doctors and hospitals that may be the biggest impediment to cost control going forward.”

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When he posted on this topic, Kevin e-mailed me to ask what I thought about consolidation. I replied in a comment on his blog. Below, an edited version of what I said:

“Under health care reform, most people in the insurance industry agree that there will be a ‘shake-out’– many insurers just won’t be able to return the profit shareholders expect. The fact that they can’t ‘cherry-pick’ healthy customers, combined with the rule that when covering large groups, they can keep only 15% of premiums to cover their own costs and profits, paying out 85% (80% when covering small groups) will force them out of business.

“In addition, insurers who, in the past, made their money selling high-deductible ‘Swiss cheese’ plans (filled with holes) also will go under.”

                The Shakeout is Likely to Begin This Year
It is hard to say how quickly consolidation will happen in the insurance industry. But Weiss Ratings (the one independent group that rates the financial health of these insurers) predicts that smaller insurers will be going out of business beginning this year. (Close to half of the insurers they rate in terms of financial health already are getting a “C” to “D” rating.)

Weiss lists just 16 large insurers who get ratings ranging from “A” to “B”,  and based on what I know, I can see four of those 16 getting out of the business. Everything turns on how they made their money in the past. If they did it by selling stripped-down insurance, they are in trouble.

Standard & Poor’s also predicts that “mid-tier players” will be knocked out of the business starting this year. Because so many people think that insurers got a “sweet deal” from the administration–and don’t understand how insurers make money– they don’t realize how tough the new rules are.

Only large insurers who enjoy efficiencies of scale are likely to survive. They will gobble up some of the smaller companies, and we’ll be left with many fewer large insurers. Meanwhile, if Accountable Care Organizations are successful, health care providers also will be consolidating.

                    Large Insurers Will Be Pushing Back

But under reform, even large insurers will not be able to afford the sky-high fees that some large brand name hospitals have been demanding because it will no longer be so easy for insurers to simply pass the cost along in the form of higher premiums. In most states, regulators are going to be taking a close look at requests to hike premiums. And even if insurers receive permission to lift their prices they will be able to keep only 15 cents out of each $1 increase—85 cents will have to go to medical care. (If they don’t spend 85% on care, the Affordable Care Act requires that insurers rebate what they didn’t spend to their customers.) 

Insurers know this, and they are beginning to push back against very expensive hospitals. Today, I received an e-mail from the Corporate Research Group explaining that “Blue Cross Blue Shield of Massachusetts (Boston) is reporting unprecedented interest in a new health plan that jacks up member co-pays for procedures at 15 hospitals on its list of “high-cost” facilities.

“According to a spokeswoman, nearly 30% of BCBS-MA’s small business and individual clients renewing in January 2011 signed up for the Hospital Choice Cost-Share plan. Typically, a new plan option attracts just 1% to 2% of BCBS-MA businesses in the first year. A separate BCBS-MA tiered network product called Blue Options – launched in 2007 – has 95,000 members.

“HCCS offers average premium savings of about 5% compared to traditional plans. However, member co-pays in six key areas are far higher. For example, inpatient co-pays at one HCCS plan are $1500 for high-cost hospitals versus $500 in low-cost hospitals (see chart). Outpatient day surgery co-pay is $1250 at high-cost facilities versus $250 a low-cost facilities.

“Among the hospitals on the high-cost list are major academic centers like Brigham and Women’s Hospital and specialty facilities like Children’s Hospital Medical Center  . . .”

In general, I don’t favor lifting co-pays: too often, this means that middle-income patients cannot afford the care they need. In this case, I would be concerned that a cancer patient facing a particularly difficult surgery might not be able to afford Brigham (where Atul Gawande might be her surgeon, and all of the cancer teams are highly experienced). Instead, she might wind up at a small hospital where surgical teams do many fewer complicated surgeries.

But if BCBS charged patients higher co-pays if they went to pricey hospitals for routine, fairly simple procedures that could be done just as well—and just as safely—at a small community hospital, this would make sense.

In any case, BCBS’ action—and the fact that the insurance is popular—does suggest that even if health care providers consolidate, they will not have unlimited market power

              Medicare Will Lower Fees If Care Is Over-Priced

Meanwhile, under reform, Medicare will be much tougher. Under the Affordable Care Act, the Secretary of HHS has the power to lower physicians’ fees for “overvalued services” while raising fees for “undervalued services.”  Private insurers have said that if Medicare provides political cover they will follow suit. Already private insurers are paying less for some diagnostic testing.

Bottom-line: we’ll wind up in a world where both large private sector insurers and Medicare are rewarding doctors and hospitals for value (providing better care for less) while penalizing them for inefficiency, overtreatment and attempting to over-charge.

At the same time, large provider systems will have their own market power. As Kevin points out, patients will want them in their insurers’ network.

Monopoly power is not necessarily bad if it is balanced–and if insurers are regulated. The 85/15 rule is a good one, and the government was quite tough in deciding what counts as part of the 85%. The fact that all insurers will have to provide “essential benefits” also is crucial. This will make it very difficult to refuse to cover a treatment just because it is very expensive.

Finally “consolidation” is not, in and of itself, a bad thing. Our health care system is too fragmented, and this adds to the costs and waste.

We need more collaboration (not more competition which causes hospitals to over-spend on cutting edge equipment, rather than sharing it.) One reason care is less costly in other countries is because their health care systems tend to be less fragmented.

And we know, from experience in this country, that large, collaborative organizations that encourage doctors and hospitals to work together can provide better care for less. This doesn’t mean that small practices will disappear. In some parts of the country, they will be needed. But I suspect that they, too, will begin to work together in “virtual networks” that let them share resources as well as information.

35 thoughts on “Monopoly Power: As Hospitals and Doctors Join Integrated Health Systems, Will Health Care Prices Rise?

  1. I know that insurers are concerned about the potential for increased market power among providers as they form ACO’s to increase medical costs and prices. I think it’s up to the FTC or the DOJ to ensure that market power does not become overly concentrated. When UnitedHealth Group acquired Sierra Health Systems, which had a significant market share in Las Vegas, United had to divest the membership that it already had in Las Vegas which it sold to Humana. There is no reason why the same standard couldn’t be applied to hospital and physician groups.
    The new insurance products being offered by BCBS of MA that you mentioned are enjoying the fastest growth and market acceptance that the company ever had as employers show increasing interest in tiered networks and narrow networks. In theory, there is no reason why if, say, MGH or Brigham & Women’s really is the best provider in a few highly sophisticated areas like organ transplants or treatment of rare cancers, they can’t be placed in the preferred tier for those but stay in the non-preferred tier for all the routine procedures that lots of other places can do just as well for less money, The only impediment would be if the big name hospitals simply refused to sign such contracts though that could presumably be dealt with by regulators.

  2. I would point out that hospital systems are already consolidating, and were long before health care reform was enacted. Health care is an industry now, and hospitals are grabbing more and more market share.
    I agree with Kevin Pho that consolidation has the potential to be bad for consumers. I also think that eventually there will be some sort of regulation to keep costs contained: there will have to be, or health care inflation will continue to escalate.

  3. Isn’t the best protection against a monopoly, a monopsony or single buyer for a product???? In healthcare, that would be a single payer at least regionally.

  4. Maggie, that article you tweeted last week (and are writing about here) about employers choosing to pay lower premiums for plans that don’t cover Partners was literally the best healthcare-related news I’ve read since reform passed. It really feels like a light at the end of the tunnel.
    In retrospect, you couldn’t go from total choice and virtually zero out of pocket exposure to aggressively closed networks as we tried in the ’90s. But I bet you can go from total choice and very high out of pocket exposure to less choice and less exposure. Once people realize how expensive their “freedom” is, they’ll gladly choose more top-down approaches to managing costs.

  5. Just follow what is happening in Mass. to see what may evolve in health care. They are already in the process of starting to limit costs at the govermental level, with the governor pushing policies for such control to counter the increased cost of the Partners Health Systems. There will need to be some solid govermental oversight and the insurers will need to become more agreesive in their negotiations to limit increases.
    I would point out that the insurers still seem incentivised under this current plan to increase costs; after all, do you want 15% of 100 dollars or 1000 dollars? The higher the amount they spend on health care, the more potential profit in their pockets! If they play hard ball with providers and limit costs, they end up with potentially less that they can keep. So why not throw more money at providers? The only limitation will be the cost of their policies and whether they will be competitive with other insurers, but I could see some tacit cooperation developing amongst insurers who will see their profit margins linked to how much they pay out to providers.

  6. NG–
    A single payer system could set reimbursements wherever it wished and patients would have no alternatives.
    For example, today, poor patients have only one choice– Medicaid– which is, in essence, a regional single-payer system for the poor.
    The rates that doctors are paid are so low that many specialists won’t take Medicaid patients, so often theese patients cannot get certain surgeries and other specalists’ care. (I wrote about this in Money-Driven Medicine.)
    If we had a single-payer system for everyone, a conservative government might decide to limit care for both the poor and median-income famlies (joint income of around $58,000)
    by raising co-pays and dedutibles so that only the upper-middle class and upper-class could
    afford very expensive procedures.
    As you know, many conservatives do not view
    health care as a right.
    They also would like to shift the costs of Medicare to the patient (raising co-pays and deductibles). In general,
    conservatives feel that we spend way too much on “entitlement programs” and that people should take ]care of themselves– buying the health care that they can afford.
    As conservatives put it: not everyone can afford a cadillac, and not everyone can afford cadillac healthcare.
    This is one of the many dangers of a single-payer system. There is no guarantee that the government in charge of the system would be as generous as today’s reformers.
    Moreover, many voters would support a conservative government that wanted to lift co-pays and deductibles, limiting the amount of care that pooor or lower-middle class families rece3ive.
    Unfortunately, in this country we don’t tend to think collectively in terms of what would be best for everyone. Instead, we tend to identify with people who remind us of ourselves and our families.
    As a result, a great many Americans are perfectly comfortable not offering care to immigrants or the children of immigrants.
    Many Americans are perfectly comfortable offering limited and often sub-par care to Medicaid patients.
    Some young Americans would be perfectly comfortable slashing Medicare for seniors.
    In Europe and Canada people tend to think collectively–in terms of “us”, rather than “me and my family.” So, in Germany, for example,
    everyone gets the same high level of free health care–including a huge number of immigrants from
    Turkey and other places.
    The Germans pay higher taxes than we do to make this possible. And they spend far less building hospitals– many fewer private rooms, etc. Compared to U.S. hospitals, their hospitals are Spartan–but while Germans don’t enjoy hotel-like amenities, they do all get a high level of medical care.
    In additoin, if you or I were traveling in Canada or much of Europe, we woudl be given free health care.
    But if a Canadian or someone from Europe travels here, they need to take out special medical
    insurance for travelling–or keep their fingers crossed that they don’t get sick.
    This is why I would not trust the U.S. government (states or federal) to run an equitable single-payer system that didn’t ration care by ability to pay.
    We don’t know who will be in office in the future, and it is quite possible that Jed Bush, Rick Scott or another extreme conservative could become president, with a conservative majority in both houses.
    In most of Canada and Europe voters would not elect someone who would limit care for the poor.
    The same cannot be said of the U.S. –or the U.K.
    Look at what happened to the UK’s health care system when Margaret Thatcher was in power. . . .
    And Medicare came way too close to being privatized when G.W. Bush was in office.

  7. Keith–
    The 85/15 (80/20 for small groups) rule makes hiking premiums significantly less attractive. Insurers know that they cannot raise premiums by thousands of dollars– even if they tried to conspire to do this in unison.
    Under the ACA they have to justify increaes to state or federal regulators. HHS Secretary Sebelius has already shown that she can get tough when she forced Medicare Advantage insurers to lower rates for this year.
    Wall Street knows that there are tough times ahead for insurers:this is why S&P and Weiss are predicting that so many insurers will get out of the business.
    Only very large insurers that are pretty efficient will survive. And they will not have the power to set rates wherever they choose.
    Nor will they be inclined to shower providers with higher payments. What Blue Cross is doing in Mass is working. Patients are choosing less expensive policies even if that means that certain very expensive hospitals and doctors won’t be in their network. This means less business for these hosptials and doctors. If more insurers do this (and the plan has been so successful that you can be certain they will) these providers will lose business. This will have a chilling effect on any future increases in fees, and may cause some to lower charges.
    According to Dr. ATul Gawande, he and colleagues at Brigham have begun to talk about going on salary rather than charging fee-for-service. We know, from experience, that when doctors are on salary, total costs come down.
    Much of the inflation in health care spending comes from hospitals charging more (see California) and doctors doing more and thus billing more, while drug-makers and device-makers continue to sell more products and raise prices.
    All of this will have to change. Under the ACA, Medicare will be cutting increases to hospitals by 1% each year. (Assume that
    typically hospitals would get a 3% increase to cover inflation. Now, they would get 2% this year, next year, and the year after.)
    Following MedPAC’s advice, Medicare wants to force hosptials to be more efficient and more productive (fewer errors, fewer redundancies) by trimming increases by 1% a year. Research shows that when hospitals are under some financial pressure (not too much, but some) they can and do become more prdouctive. Most hospitals actually turn a profit on Medicare patients.
    And private insurers over-pay many hospitals (this is all in MedPac data that I have written about in the past.)
    Finally, under the ACA Sebelius will be cutting Medicare payments for “over-valued services” and porivate insurers have said that they will follow here lead. She also will be lifting payments for “undervalued services” (in the bill, primary care docs already get a 10% increase). But net net, Medicare will be saving money by cutting fees for some very expensive services.
    In addition, if Medicare inflation continues, the Independent Payment Advisory Board will be recommending cuts that automatically become law(without going through Congress and teh lobbyists that control Congress) unless Congress can come up with equal savings without cutting Medicare beneifts or raising co-pays and deductibles.
    Again, private insurers will follow Medicare’s lead in making cuts. They just want Medicare to offer political cover.

  8. The comments on the kevinmd.com post give a balance to what is written here. The cost reductions anticipated depend mainly on regulators saying no to insurance companies and regulating bodies saying no to doctors. I submit that the self interest of these individuals favors allowing costs to rise.
    All the insurance companies have to do is to justify their increases, which will be easy to do it hospital costs continue to spiral up.
    Monopoly power in many markets has increased not decreased costs, more power in the hands of a few will make things worse not better. These hospitals have better lawyers, better numbers crunchers, and less ethical constraint.
    Its no use arguing about it, I guess we will all see what happens as the future pans out.

  9. Joe Says,Barry, Panacea, Mike C.
    Joe–Once again, you’re offering an opinion, without evidence.
    You have every right to your opinion,of course,but without evidence it isn’t terribly persuasive and doesn’t add any new information to the discussion. As is often the case, you’re simply expressing your somewhat sour view that everyone will do their best to rip off everyone else.
    See my comment below to Panacea on Tufts & Havard Pilgrim. If they merge, Mass will have just two insurers– Tufts/Pilgrim and BCBS– both are non-profits and both are pushing hard to bring down provider fees.
    Barry –
    Yes I agree that places like MGH or Brigham should be put in a preferred tier
    for highly sophisticated procedures like organ transplants.
    Ultimately, Massachusetts is pushing hard to move away from fee-for-service by 2015. Providers would be paid to keep patients “well”–which means they would paid for the qualitiy of care they provide, not the volume. Past experience shows that this would reduce total costs.
    Fee-for-service leads to over-treatment.
    Panacea-
    Yes, hospitals have been consolidating in many parts of the country for some time.
    But insurers also have been consolidating and as S&P and the rating agency sugggest that process is likely to speed up this year as the 80/20 rule kicks in.
    Tufts and Harvard Pilgrim– two of the biggests insurers in Mass are talking about merging. They have said that they could bring prices down because they would have more market clout when negotiating with providers.
    I agree that they may well also need help from regulators.
    Mike C.–
    Yes, I too think that we’re paying too much for the freedom to choose from
    an enormous menu of providers.
    Ideally, a good non-profit insurers would put together a network of hospitals and doctors who provide efficient,high quality care, and are willing to be paid for value, not volume.
    (Those who provide very good care are most likely to be
    willing to switch from fee-for-service.)

  10. Regarding consolidation among insurers, there are currently about 1,500 health insurance “entities” in the U.S. Some of this has to do with the fact that health insurers are regulated largely at the state level. Each of these entities will be subject to the MLR rules under health reform. The MLR’s will be calculated separately for each entity’s individual book and its small group book. If an entity has fewer than 75,000 lives in either its individual or small group book or both, it gets something called a credibility adjustment which makes it a bit easier to meet the regulations. Other entities may only serve the Medicare and/or Medicaid market. I was surprised to learn recently that of these 1,500 entities nationally, approximately 400 are owned by UnitedHealth Group! There will be a lot more consolidation to come as small players either exit the business or sell out to the larger carriers. Technology and scale will become increasingly important over time.

  11. Barry–
    Agreed. And I think the
    consolidation, along with
    greater use of technology
    will make our insurance system more effiicent and less expensive.
    I also expect that we’ll see insurers moving toward using very similar or identical reimbursement forms –which will make things much easier for
    providers and patients.
    After all, they’ll all be offering the same essential benefits, and will be expected to play by the same rules (in terms of what they cover) so the only differences in rembursement forms should
    reflect “extras” that some insurers decide to offer.

  12. An anecdote (at best) or wishful thinking is no proof. Doing something that has no outcome study is at odds with the suggestion of how to contain healthcare spending. In medicine, this would be considered potentially unethical.
    The vast majority of research in healthcare (and other industries) says that monopolies increase cost and stifle change that may endanger the monopoly. That is the predominent outcome to be expected from ACOs.
    I believe that it is incumbent upon those pushing the change to provide the evidence.

  13. Joe Says: here’s evidence for you.
    Look at how tightly utilities are regulated. They can’t raise prices without regulatory approval, and those regulators have been anything but pushovers.
    The insurance industry is similarly regulated. Auto and home insurance rates are also tightly regulated, and requests to increase rates are often rejected. Here in North Carolina, a request to raise auto rates a few years ago was met with an order to reduce them.
    When BCBS raised rates in North Carolina, the Insurance Commission lowered the amount they were raised by on the grounds the increases were not justified by the costs.
    Similar regulation of the health insurer’s will prevent arbitrary increases, and encourage greater efficiency.

  14. Dear Panacea – I like your anecdotal examples, however I can site similar. In my state utility companies were broken down into distributors and producers to provide the competition intended to reduce costs that regulators couldn’t control. Such is the problem with anecdotes.
    Regarding your insurance examples, I believe they are not relevant because we are talking about healthcare providers not insurers. Certainly no regulator should approve a rate increase when there is no underlying support for price increases.
    The paper at http://www.ajmc.com/media/pdf/AJMC_2010febChernew_131to138.pdf is probably the most recent dataset that supports a relationship between cost and market power of healthcare providers. Can you supply something that would refute this and similar studies that all seem to point in the same direction?
    Is there any evidence that supports the notion that market consolodation that would create large healthcare providers with a significant percentage of the market would provide lower cost higher quality healthcare?

  15. “Is there any evidence that supports the notion that market consolodation that would create large healthcare providers with a significant percentage of the market would provide lower cost higher quality healthcare?”
    If providers consolidate into large ACO’s, the potential to improve care quality and reduce costs would be driven by much better care coordination which would depend, in part, on extensive use of electronic records to sharply reduce duplicate testing and adverse drug interactions. Hospital based quality improvement and cost reduction would depend on the extent to which they can reduce avoidable harm such as infections and complications from surgery. To reach their full potential to reduce costs, we would also need to move away from the fee for service payment model in favor of some sort of global budget with risk sharing and opportunities for providers to earn bonus compensation if costs are under budget and quality metrics, including patient satisfaction, are achieved.
    That all said, insurers fear that if ACO’s are too big and too powerful within a market, they could negotiate global payments that are higher than what costs would have been under fee for service in a less concentrated provider market. The FTC and DOJ need to be mindful of this and not allow any one provider organization to accumulate excessive market power. With respect to already powerful hospital groups, employers are finally starting to show more interest in tiered networks and narrow or limited networks. These have the potential to create countervailing power against hospitals that command very high reimbursement rates because of their market power and not their care quality.

  16. Joe Says (Your 1st comment and your second comment)
    Joe– You write:
    “I believe that it is incumbent upon those pushing the change to provide the evidence.”
    No ,on this blog, anyone who joins the discussion is expected to add value by making an argument and pointing to evidence. It doesn’t matter whether you are for change or against change.
    Joe– (your second post)
    Panacea isn’t offering “anecdotes”–she is pointing to facts.
    Utilities are an excellent example beucuse, like health care providers, they are providing a necessity.
    This is why we regulate utliities, and this is why
    virtually all developed countries regulate health care provider prices one way or another.
    Under Medicare reform, Medicare will be cutting reimbursements for some provider services and commerical insurers have said they will follow Medicare’s lead — as long as Medicare provides political cover.
    Under reform, insurers will no lnoger be able to simply pass along higher costs in the form of higher premiums.As regulators put pressure on them, they will have to put pressure on providers.
    As Panacea points out,
    in North Carolina regulators are already getting tough with health insurers.
    In Masschusetts, BCBS has raised co-pays for patients who want to go to expensive hospitals. It turns out that customers are picking these policies becuase they have lower premiums. In most cases, these customers will then avoid the expensive hospitals with high co-pays and deductibles. BCBS is putting them under pressure; other commerical insurers will follow suit.
    The study is you link to is interesting–and it is evidence–at least of what happened in the past.
    But it doesn’t tell us that what will happen under reform when insurers can no longer save money by cherry-picking, selling stripped down policies, etc.
    If they want to stay in business, insurers will have to get tough with providers–much as they did in the mid 1990s, when they “managed care” and kept prices down.
    Except this time around, insurers won’t be making the decision about what care provides benefits for patients– they’ll be following Medicare’s decisions as to what services are “over-valued,” and Medicare will be loooking at comparative effectiveness reserach as well as MedPac’s excellent reserach.
    Moreover, insuers will have to cover all of the care that the reform laws say is “essential”–they won’t be able to refuse to cover a procedure simply becuause its expensive.
    The 2010 study also doesn’t
    tell us what happens as Medicare, Medicaid and SCHIP cover more and more Americans.
    Private sector insurers now cover many fewer customers. The government plans have the clout to set market rates.
    Meanwhile, no hospital can keep its door open without Medicare patients. Medicare has made it clear that it will stop papying for patients at hospitals which fail to become more efficient (better care at a lower price).
    And as Medicare publicizes which hospitals have the highest infectoin rates (in Manhattan, these can be the most expensive hospitals), they will lose business.
    Finallly, more states may well adopt the Maryland solution: In Maryland all hospitals are paid the same amount for the same service (after adjusting for additional costs at hospitals that treat sicker patients, etc.)
    It wasn’t that long ago that many states followed the Maryland plan. Then, as more conservatives take over state legislatures, they repealed the rule (under pressure from lobbyists).
    Now that we’re in a recession, liberal state legislatures may reinstate the Maryland policy. Any state has the power to do this.
    Finally, the most expensive providers tend to be in urban areas, and we know that in urban areas, more competition among more providers does not lead to lower prices–it leads to higher prices. (Think of Boston, Manhattan, L.A. Miami, etc– all places where there are many hospitals and providers competing and prices are among the highest in the country
    ACOs will bring down prices because their docs will no longer be paid fee for service. This, we know from experience, reduced the volume of tests and treatments. Hospitals also will no longer be paid for avoidable readmissions and other errors that, in the past, have hiked hospital bills. (You can be sure that commerical insurers will follow Medicare’s lead here.)
    Some hospitals will close.
    Some will be small, subuurban hosptials that over-charge, overtreat, and don’t provide good value for the healthcare dollar.
    Some of those hospitals will be absrobed by large hospitals that are forming Accountable Care Organizatoins.
    When it comes to hospital beds, we have excess capacity in many parts of the country.

  17. Panacea, Barry–
    Panacea– Yes, the parallel to utilities is clear, and a good example.
    (See my reply to Joe.)
    Also, the fact that North Carolina’s regulators are pushing back is a good sign–this is what we will be seeing in most parts of the country.
    Barry–
    Agreed. ACOs can, and will, reduce costs.
    What we don’t know is How Much they will save.
    ACOs will be more successful in some parts of the country than in others.
    On hospital consolidation raising prices:
    A few years ago, a study in Health Affairs showed that when there are more hospitals competing in a given area, prices do Not Come Down. Often,they are higher.
    Think of NYC, L.A.,
    Dallas, Boston, etc. Many hospitals, many providers–and higher prices.
    This is in part because when more hospitals are competing and comeptition is stiffer, they invest more in the medical technology “arms race”–buying new equipment that they don’t really need as they try to attract well-heeled docs and their well-insured patients.
    Unfortunately, however, in the past hospital consolidation has not led to savings. When hospitals merge, in most cases they don’t create more efficient ACOs. Instead,they simply merge–and everyone holds onto his fiefdom. As a result, you have many redundances in a hopsital that is not taking advantage of economies of scale.
    But I don’t think this will be the case with ACOs–they will be sharing in financial risk, and so will have to become more
    efficient.
    The only place where hospital consolidation could raise prices is in an underpopulated rural area where there is only one large ACO in, say, a 60 mile radius.
    But even then, I think insurers will be pushing back– and state officials are going to be looking at hospitals that over-charge.
    Finally, past experience shows that larger hospitals that work like ACOs tend to be more efficient. They do enjoy econmies of scale. And they are in a position to
    insist that physicians collaborate with each other and with the hospital. In many cases, I expect that physicians in these ACOs will be on salary.
    Finally, as I noted in my reply to Joe, I wouldn’t be at all suprised if more states become more proactive about setting rates–following the Maryland model which says that all hospitals are paid the same fees for the same
    services, after adjusting for the fact that somme hospitals treat sicker patients, are teaching hospitals, etc.

  18. Interesting, I don’t dispute your anecdotes, but I do not think they hold the same weight as a large scale study with scientific methods from a respected peer reviewed journal.
    Also, your examples of utilities support my view that market power matters more than law. Lessons from the experiment in energy deregulation are clear, nothing in the theory, law or practice worldwide seemed to be able to counteract market power.
    Quoting from a recent, wide ranging study of efforts to achieve the right regulation for utilities, Woo et. al. Costs of electricity deregulation, Energy, Volume 31, Issues 6-7, Electricity Market Reform and Deregulation, May-June 2006, Pages 747-768. (The full article available at http://ethree.com/papers/Costs_of_elec%20dereg_112204.pdf has examples and the full references which are great reading I’d strongly suggest).
    “Market power is a seller’s ability to raise market price by (a) economic withholding whereby the seller’s offer price exceeds its marginal cost [39] or (b) physical withholding whereby the seller withholds some capacity to raise the price of output from its remaining capacity [40,41]. It is a primary cause for the California electricity crisis in May 2000 to April 2001 [42-47]. Market power increases when transmission constraints create load pockets [48,49] or when regulatory actions limit forward trading and demand response [50-52].”
    References mentioned in that passage include:
    [39] Borenstein S. The trouble with electricity markets: understanding California’s restructuring disaster. Journal of Economic Perspectives 2002;16(1):191-211.
    [40] CPUC. Wholesale Generator Investigation Report. California Public Utilities Commission, San Francisco, California; 2002.
    [41] CPUC. Supplement to the California Public Utilities Commission Staff’s Wholesale Generator Investigation Report. California Public Utilities Commission, San Francisco, California; 2003.
    [42] Wolak FA. Diagnosing the California electricity crisis. Electricity Journal 2003;16(7):11-37.
    [43] Wolak FA. Measuring unilateral market power in wholesale electricity markets: the California market. American Economic Review 2003;93(2):425-430.
    [44] Borenstein S, Bushnell JB, Wolak FA. Measuring market inefficiencies in California’s restructured wholesale electricity market. American Economic Review 2002; 92:1376- 1405.
    [45] Joskow PL, Kahn E. A quantitative analysis of pricing behavior in California’s wholesale electricity market during Summer 2000. Energy Journal 2002; 23(4):1-35.
    [46] Jurewitz JL. California electricity debacle: a guided tour. Electricity Journal 2002;15(4):10-29
    [47] Hildebrandt E. Further Analysis of the Exercise and Cost Impacts of Market Power in California’s Wholesale Energy Market. California Independent System Operator,
    Folsom, California; 2001.
    [48] Joskow PL, Tirole J. Transmission rights and market power on electric power networks. Rand Journal of Economics 2000;31(3): 450-487.
    [49] Borenstein S, Bushnell JB, Stoft S. The competitive effects of transmission capacity in a deregulated electricity industry market. Rand Journal of Economics 2000;31:294-325.
    [50] GAO. Restructured Electricity Markets: California Market Designed Enabled Exercise of Market Power. U.S. General Accounting Office, Washington DC; 2002.
    [51] Faruqui A, Chao, H-P, Niemeyer V, Platt J, Stahlkopf K. Analyzing California’s power crisis. Energy Journal 2001;22(4):29-52.
    [52] Bushnell J. California’s electricity crisis: a market apart? Energy Policy 2004; 32:1045-1052.
    [53] Blumsack S, Perekhodtsev D, Lave LB. Market power in deregulated wholesale markets: issues in measurement and the cost of mitigation. Electricity Journal 2002;15(9):11-24.
    After reading some research, does anyone want to still use the utility business as an example that supports more cost effective care from large ACOs that would have great market power?

  19. I’ve said before that electric utilities are natural monopolies because they are enormously capital intensive businesses. It wouldn’t make economic sense to have duplicate sets of poles, transmission lines and distribution transformers crisscrossing a given territory. So, they are regulated at the state level. The rates they are allowed to charge industrial, commercial and residential customers are set high enough, within what the regulators call a “zone of reasonableness,” to allow for sufficient cost recovery, including capital costs, so that utility investors can earn a fair return for the risks they take and the utilities can provide their customers with reliable service. There is also complete price transparency. Since the mid-1990’s, part of the business was deregulated somewhat as it became possible to wheel power in from outside the territory which allows utilities to compete for the generation piece of the business. Billing was unbundled into a generation piece and a transmission and distribution piece to accommodate that.
    As a bit of a data hound, I have, on an Excel spreadsheet, my monthly utility usage and cost back to 1975. My cost per kilowatt-hour (KWHR) from 1975 to the present rose 3.3 times while the Consumer Price Index (CPI) during the same period is up approximately 5.0 times. Since 1983 the CPI about doubled but my cost per KWHR is up 66.6%. If only healthcare costs could have performed as well.
    Healthcare costs are out of control for several reasons. One is that there is no price or quality transparency to speak of. Another is that insured patients are largely insulated from the cost of their care beyond relatively modest coinsurance. A third is that doctors, whose decisions drive most healthcare costs, never considered it part of their job to know or care about costs. Then there is the fee for service payment model which pays doctors and hospitals more if they do more. Defensive medicine is also a factor. Unlike utilities, doctors and hospitals are not natural monopolies. If allowed to consolidate into large enough combinations, however, they can develop monopoly or near monopoly power.
    By the way, back to utilities, the California market was severely strained in 2000 because the wholesale market was deregulated but the retail market was not. So, when wholesale electricity prices suddenly started to spike, the large utilities could not pass them on to retail customers on a timely basis.

  20. The California power crisis was due almost entirely to a market control conspiracy led by Enron and involving several major power companies. The price changes and shortages were a result of that conspiracy to manipulate the market, and were made possible by deregulation and a conscious decision by politicians and bureaucrats to allow power players with strong political connections to loot at will. It was a preview of the recent debacle in the finance industry.
    Discovery in court cases litigating the crash of Enron has produced several communications documenting this, including a suggestion that one company take a power plant off line in exchange for higher payments elsewhere and e-mail and voicemail communications showing Enron executives chortling about robbing “grandma in California.”
    It is, as Maggie notes, another example of the dangers of deregulation in allowing sectors of business to become dominated by sociopathic behavior that drives good business practices out.
    Regulation is critical in controlling that predatory behavior, and preventing the financial rewards of bad behavior from forcing more conscientious people to engage in the same behavior to survive financially. This is as true in health care and insurance as it is in other business. In the end, it requires the intervention of government, since government is the only force with enough power and independence to act as an honest broker. The great danger in the US is that forces with great financial power are becoming able to use that power to co-opt democracy and subvert government control, gaining the ability avoid any effective regulation and the freedom to engage in any behavior they choose regardless of the harm it causes. The California/Enron power crisis is a poster child for this trend.

  21. I did not say that regulation was bad, just that regulators often fail, and if you are depending on the altruism of regulators to outweigh their self interest, I think that is unwise.
    I have provided peer reviewed academic evidence that large market power in healthcare does not reduce costs. I have given you peer reviewed academic evidence that in the utility industry, market power trumps regulation and deregulation to create price advantage.
    What I see provided back are anecdotes and opinions about how things may be that are not backed up by any research.
    In medicine, we require evidence. Evidence is the backbone of how the government intends on reducing costs.
    Changing medicine changes people’s lives. Changing medicine without evidence is like experimentation without support which no responsible IRB would support.

  22. Barry–
    Yes, utilties are capital intensive businesses, and it would not make sense to have two companies running poles and lines through the same neighborhood.
    But the bottom-line reason we regulate them is because heat, light, etc. are necessities
    By contrast, Cable television companies also are capital -intensive businesses, but cable TV is not a necessity of life. Thus we have let the cost of cable television rise sharply.
    Health care, on the other hand, is a necessity, which is why price regulation is important.
    Pat S.
    Enron stands as a powewrful example of what happens when you begin to degregulate businesses that control something that we all need at an affordable price.
    The film, “The Smartest Guys in the Room” does an excellent job of telling the story.

  23. Joe –
    Your articles about the California power crisis are all from the period before the evidence of what actually happened started to become available, and cite the disinformation that came from stake holders in the crisis. Try re-checking the discussion with emphasis on studies dating after 2005, when the Enron conspiracy information became public and the arguments about supposed “imbalances” being corrected by the market leading to cost increases proved false, with the actual cause being a market conspiracy organized by Enron.
    I see that Maggie has commented on this as well. The film she cites is an excellent detailed examination of the facts in the case. As in medicine, articles in refereed journals are not always correct, and certainly are frequently biased by the influence of financial stakeholders.
    The argument that proposed techniques in health care are untested is only valid if we make the assumption that data collected on Europeans cannot be applied to Americans. In fact, every other advanced country in the world has concluded that market forces fail in health care, as they have in the US, and that control of costs and improvement of effectiveness both require regulation.
    In the US, as hard data collected by the Dartmouth group using Medicare data banks has shown, the greatest effectiveness and the lowest overall costs are attained by groups that create their own internal regulation. It is also important to note that charges for individual procedures and interactions are much less important in cost calculations than overall aggregate results. Mayo is actually more expensive, on a charge for charge basis, than Mass General, but care of various specific classes of patients is more expensive at Mass General because Mayo does so much less in attaining effective results. While individual charges do contribute to overall costs, it is the overall cost of any health care encounter that is the end determinant of health care cost. It is much less important what the daily hospital bed charge is than how much total care is absorbed by a given patient.
    It is certainly no surprise that market forces work poorly in health care, since every model for market success requires that both buyer and seller be equally well informed. In the absence of any symetry of information, any health care market becomes a mess. In fact, the Enron/California power episode applies well here, since it was the assymetry of information that allowed Enron to manipulate the market, and that allowed them to conceal the facts from people writing early discussions of the crisis as well.

  24. Dear Pat and Maggie,
    I can’t tell if you agree with me or not.
    I suggest you read the paper I supplied because it (and I) agree with much of what you wrote. However, your responses seem (at least to me) to have little to do with what I have suggested about ACOs and what I depend on in the literature provided.
    I will try again, this time to be very clear without distraction.
    1) As I understand it, the post we are discussing here is about whether ACOs that would potentially have monopoly power in a market would contribute to lower cost higher quality medicine or would they tend to increase prices.
    2) I have provided recent, large scale peer reviewed evidence that in locales with dominant healthcare providers that costs are higher than in competitive markets.
    3) I have also provided evidence in the form of a wide ranging literature review that in the utility industry no sorts of regulation or deregulation has been able to contain prices when a player in a market has sizable market power.
    4) I have not seen any substantial evidence presented here yet that challenge either of these findings.
    5) Therefore I conclude that large ACOs with market power will not be good for cost control.

  25. Joe –
    I agree that very large ACO’s in markets where they attain either near monopoly status or have prestige that gives them power in their communities will be able to dictate pricing to private insurers. They of course will not be able to dictate to Medicare. This is already the case in many markets, as your data points out.
    Regulatory powers of Medicare have been successful in holding down costs in many places, accompanied by choruses of moans from providers and hospitals. I expect that that will continue to happen.
    That brings us back to the familiar fact that the real villain in cost is not the charges for individual encounters (although that contributes to high costs,) but rather patterns of practice that cause wasteful spending on excessive procedures and tests that either produce no measurable benefits in careful studies or are actually harmful, that ignore or underemphasize proven but less highly technical approaches to management of the “big six” chronic diseases that contribute to the largest share of health care costs, and that lead to hospital and physician induced injuries through lack of attention to simple approaches to minimizing patient injury and harm.
    We have talked about this at great length here. Among other things, Maggie has repeatedly cited data from US centers like Mayo, Intermountain, Kaiser, and so on, as well as data from many overseas health systems, showing that changes in these practice patterns leads to both lower costs and better outcomes.
    That, not better control of individual charges, is where people pushing for ACO’s adoption on a wider scale expect the savings from ACO’s to accumulate. ACO’s, by definition tasked with keeping total charges within pre-adjusted ranges, are expected to push enrolled physicians and hospitals to adopt patterns of utilization, management, and quality assurance that will reduce costs.
    I will readily grant that while there is data showing that existing HMO’s and large multi-specialty groups can achieve these savings, and that foreign systems do achieve these savings, there is as of yet no good data showing that ACO’s formed from existing groups of non-affiliated providers can do that. We will have data about that fairly soon, as third party payers, including the government, are successful in creating these organizations.
    In the absence of strong incentives for more rational practice patterns I would expect that, as you suggest, practice consolidation would produce a real danger of continuing current poor practice patterns and be accompanied by more aggressive price negotiation due to market power. For this to succeed, ACO’s must be given strong financial incentives to make the necessary changes to create more rational and more efficient practice patterns that will benefit both patients and the US economy. These incentives must come from payers, both private and government.
    Our success in achieving that goal, through ACO’s or through other means, is what will determine whether the US will be able to continue to offer health care to the majority of citizens, or will be forced to adopt programs designed, by use of financial incentives, to stop most working class and middle class people from getting quality health care.

  26. Pat S.
    I understand and agree with your point about the importance of driving providers to adopt more cost-effective practice patterns in order to save money. However, I’m not sure how we can induce both doctors and hospitals to do the right thing for the healthcare system from a cost standpoint if, in the end, it means less revenue and income for them. I don’t see them taking on the financial risk inherent in a global payment approach though a shared savings / shared risk model like BCBS of MA’s Alternative Quality Contract might be more doable, at least in the short term. To the extent that a particular ACO can establish itself as a low cost, high quality provider, it could offset revenue loss per patient by increasing its share of patients in the community but it seems easier said than done, especially if they want to try to copy Mayo’s model of charging more for the procedures it actually performs.
    Regarding price negotiation between insurers and providers, I note that in Switzerland, all the insurers within a canton negotiate with providers as a single group. They all pay a given provider the same rates for a given service, test, or procedure. Even with an anti-trust exemption, the large insurers would resist that approach in the U.S. because they think they can negotiate a better deal than their smaller competitors under the current system. By contrast, the Maryland style all payer system that Maggie favors is unlikely to go anywhere in the near term because Medicare and Medicaid would both have to pay more overall than they do now per procedure so private insurers could pay less. Given the current fiscal situation at both the federal and state level, it looks like a non-starter to me. Besides, the Maryland experience, which dates back to 1977, is far from compelling. If it were compelling from a cost saving standpoint it would have, presumably, been widely copied and embraced by CMS and state Medicaid programs.

  27. Pat S.–
    You write: “For this to succeed, ACO’s must be given strong financial incentives to make the necessary changes to create more rational and more efficient practice patterns that will benefit both patients and the US economy. These incentives must come from payers, both private and government.”
    Here, I disagree. AS Don Berwick says, it’s not about the money.
    A great many health care professionals WANT to work in a more rational environement where they can do what they want to do– take better care of patients, and feel greater pride in their work.
    They want to work in a collaborative enviroment.
    The waste and redundancy distresses many doctros and nurses.
    IHI’s programs succeed because they inspire professionals by creating systems which let them do their jobs better.
    A great many younger doctors understand the problem of overtreatment.
    Some (certainly not all) of their older colleagues may stick to the notion that “more care is always better” or “the lawyers make us do it”, but I find
    many young doctors very receptive to the fact that we’re wasting money and hurting people by overtreating and over-testing them.
    Most people who go to med school are pretty intelligent. They can understand this even if the general public has not yet wrapped is mind around the factd that “more care and tests are not necessarily better.”
    These young doctors would love to work at a place like Intermountain, or Geisinger. A growing share of them are women. They would like to work more regular hours– even though it means working on salary and earning less than they coudl if they worked long hours in private practice.
    A great many professionals in this country (and not just doctors) do take pride in their work for its own sake.
    As Don Berwick points out, when you try to bribe people with money, you only undermine morale. ( This been shown int the corporate world as well. You have to pay people “enough”–so that they’re not worrying about money.
    But once you get to that point, bonuses work only if you are trying to get people to do very simple, unimaginative tasks.
    With bonsues you get “compliance” –but not
    the thought and creativity that we need to transform our health care system.
    (

  28. Barry–
    You write: “I’m not sure how we can induce both doctors and hospitals to do the right thing for the healthcare system from a cost standpoint if, in the end, it means less revenue and income for them. I don’t see them taking on the financial risk inherent in a global payment approach . . . ”
    Barry, the fact is that in many parts of the country, docs are doing just that. (See the post I wrote about refrom at the ground level in many towns around the U.S.– “How Did they Do That?”
    As for the Maryland example, you are misktane when you suggest that Medicare and Medicaid wouldn’t want to seet the Mayland system spread to other states. The whole system is based on “breaking the curve” of Medicare and Medicaid inflation.
    In Maryland Medicare and Medicaid have agreed to accept the prices that the state Commission sets for various hospital services As Long As Maryland’s Hospital Costs Grow Slower Than Medicare Payments Nationwide.
    AND THEY HAVE.
    See my post here which describes how, in Maryland, all hospitals are paid the same prices for the same services (after certain risk adjustments), with Medicare, Medicaid, and private insure all paying the same prices. http://www.healthbeatblog.com/2010/02/massachusetts-problem-and-marylands-solution-we-dont-have-to-wait-for-washington-part-2-.html
    IN that post, note the chart from the American Hospital ASsocation showing that in Maryand, hospital mark-ups above and beyond their costs have not been soaring– as they have nationwide.
    Meanwhile, hospitals in Maryland have been enjoying steady, predictable profit margins.
    You’re also mistaken when you write “If it [the Maryland Solution] were compelling from a cost saving standpoint it would have, presumably, been widely copied and embraced by CMS and state Medicaid programs.”
    In fact, it was embraced by 30 other states.
    Twenty-nine of those states dropped the plan only as Republicans took over statehouses and voted in favor of deregulation in the 1980s.
    And we know how Reagan’s vision of deregulation worked out — Enron.
    Especially when itcomes to healthcare, we have finally figured out that “the market” doesn’t work to set reasonable prices. We realize that we need some government intervention and regulation– that’s why `Congress passed the “Affordable Care Act.”
    I wouldn’t be too surprised to see some enlightened state governments revisit the Maryland solution.
    Right now some hospitals are overpaid by private insurers simpliy because they have market clout, while other hospitals are underpaid because they lack clout. This needs to change.

  29. Barry–
    You write: “I’m not sure how we can induce both doctors and hospitals to do the right thing for the healthcare system from a cost standpoint if, in the end, it means less revenue and income for them. I don’t see them taking on the financial risk inherent in a global payment approach . . . ”
    Barry: , the fact is that in many parts of the country, docs are doing just that. (See the post I wrote about refrom at the ground level in many towns around the U.S.– “How Do they Do That?”
    As for the Maryland example, you are mistaken when you suggest that Medicare and Medicaid wouldn’t want to seetthe Mayland system spread to other states. The whole system is based on “breaking the curve” of Medicare and Medicaid inflation.
    In Maryland Medicare and Medicaid have agreed to accept the prices that the state Commission sets for various hospital services As Long As Maryland’s Hospital Costs Grow Slower Than Medicare Payments Nationwide.
    AND THEY HAVE.
    See my post here which describes how, in Maryland, all hospitals are paid the same prices for the same services (after certain risk adjustments), with Medicare, Medicaid, and private insure all paying the same prices.
    http://www.healthbeatblog.com/2010/02/massachusetts-problem-and-marylands-solution-we-dont-have-to-wait-for-washington-part-2-.html
    In that post, note the chart from the American Hospital Axsociation showing that in Maryland, hospital mark-ups above and beyond their costs have not been soaring– as they have nationwide.
    Meanwhile, hospitals in Maryland have been enjoying steady, predictable profit margins.
    You’re also mistaken when you write “If it [the Maryland Solution] were compelling from a cost saving standpoint it would have, presumably, been widely copied and embraced by CMS and state Medicaid programs.”
    In fact, it was embraced by 30 other states.
    Twenty-nine of those states dropped the plan only as Republicans took over statehouses and voted in favor of deregulation in the 1980s.
    And we know how Reagan’s vision of deregulation worked out — Enron.
    Especially when we look at healthcare markets, we have finally figured out that “the market” doesn’t work to set reasonable prices. We realize that we need some government intervention and regulation– that’s why `Congress passed the “Affordable Care Act.”
    I wouldn’t be too surprised to see some enlightened state governments revisit the Maryland solution.
    Right now some hospitals are overpaid by private insurers simpliy because they have market clout, while other hospitals are underpaid because they lack clout. This needs to change.

  30. It may be possible to induce doctors to change practice patterns in response to evidence that the practice patterns they are following are not good for patients or the economy, but with few exceptions it has not happened yet.
    The large multispecialty groups attain their results due to cultural values that have existed in their systems for decades. HMO’s are directly influenced by their financial models, which make profits dependent on more efficient and effective practice patterns rather than volume.
    I guess that I would consider the negative example for all this to be the Harvard Affiliated programs in Boston. Despite what is most likely the greatest concentration of experts on rational care patterns, quality assurance, and researchers in those areas — including Berwick and Gawande — the Harvard Affiliated systems are some of the worst cases of overutilization of high tech medicine, over-intensive care patterns, and use of market clout to extract premium prices for their services. In fact, they are one of the poster children, along with South Florida and McAllen, Texas, for what is wrong with American practice patterns, and are responsible for training thousands of young physicians with very bad practice patterns as well.
    In the end, it is possible to convince physicians that there are scientific arguments for more rational patterns of care, but, as the old joke about the mule goes, it helps if you whack them with a two by four of financial incentives to get their attention first.
    HMO’s, ACO’s, the British primary care system, and other similar approaches are built in recognition of these truisms. That is why even idealists like Berwick believe we should be constructing institutions like ACO’s that are, first and foremost, driven by financial incentives. ACO’s are constructed so that doctors and hospitals are dependent on the effectiveness of their management of patients to receive incomes in the range that they desire, and ACO doctors are rewarded financially for meeting those effectiveness goals. That is a major part of what they do, and a major part of how they are designed.

  31. Great info! I also hope to see insurers with same reimbursement forms this would help a lot. By making stuff easier for the people and much quicker. Saving us lots of time… great! thanks!!

  32. Joe SAys, Diana, Pat S.
    Joe Roy Poses and I are usually on the same page.
    But here,he’s not talking about the accoutnable care organizations that health care reform will create.
    He’s talking about large hospitals that will do very poorly under refrom–they dread it. See my reply on Roy’s blog.
    Diana–
    Thanks– and yes, when all insurers have to offer the same “essential benefits” and follow the same rules in so many areas, the forms they use should be very, very similar.
    Pat S.-
    Don B. doesn’t believe that financial incentives are the key to creating better health care.
    He believes that the “will to excellence” is what will drive better health care.
    (Google that phrase and his name)
    And he believes that instead of seeing themslevse as “revenue centers” (with the goal of increasing revenues) hospitals should see themsleves as “cost centers”–and aim to reduce revevnues so as to cost the system less
    “The best hospital bed is an empty hospital bed.”
    Don is far less cynical than most people about what motivates professionals.

  33. I do not agree about how you categorize Dr. Poses feelings Maggie. In fact I think he sums it all up very well in his last blog post with the ACO tag:
    http://hcrenewal.blogspot.com/2011/03/rise-of-corporate-physician-end-of.html
    Quoting from that blog post:
    So we are seeing physicians who practiced solo or in physician-lead, physician-run group practices becoming employees of large health care organizations. And here on Health Care Renewal, we know how most large health care organizations are run.
    This appears to be an unintended consequence of our recent US health care “reform” law:
    ….
    The name of these supposedly collaborative organizations, which are turning out to simply be hospital systems which have purchased physicians’ practices and now employ physicians, is “accountable care organizations,” which now appears ironic at least.

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