Sen. Tom Coburn: Why the New Health Law Could Decrease Competition & Increase Costs | Health Reform Report

Supporters of the Patient Protection and Affordable Care Act argued before the passage of the new law that health care in America needed more “choice and competition.” So they may be surprised to learn the massive overhaul actually could decrease choice and competition.  In fact, an accumulating body of data shows the new law is on track to actually reduce competition between health care providers, which will increase health costs for patients. There are good reasons for concern.

An implicit pledge of the health overhaul is that delivery will be improved through “Accountable Care Organizations.” ACOs are generally envisioned as teams of doctors and nurses share savings in their coordinated effort to deliver higher quality, lower cost health care.  Coordinated care is a great goal, but there are good reasons to be concerned that ACOs will not accomplish. 

First, there is the question of whether or not there will be shared savings. During the past decade, the Medicare program conducted a pilot project in which teams of health care providers could share savings from coordinated care, but only half of the teams in the demo experienced any savings. 

Second, there is the issue of who will share any savings. The health overhaul left in place existing federal restrictions on physician referrals and further barred physicians from having ownership of hospital endeavors. So, unless the rules for ACOs are changed dramatically, ACOs could accelerate the trend of physicians leaving private practice to work in a centralized hospital setting. 

Physicians are already exiting private practice in droves. A recent national survey of more than 2,000 physicians found that more than seven in 10 physicians said they would leave their medical practices for hospital or work-part-time, stop taking new patients, or simply retire altogether.  As a former Medicare official recently noted, “in 2005, more than two-thirds of medical practices were doctor-owned, a share that was largely constant for many years [but] by next year, the share of practices owned by physicians will probably drop below 40 percent, according to data from the Medical Group Management Association.”

At the same time, over the next three years, three in four hospitals or health systems reported they plan on hiring more physicians, and more than half said they will buy entire medical practices  Last year alone, half of new doctors were hired by hospitals.

Respected Harvard health care economist Regina Herzlinger has noted that ACOs hold promise or lead to peril in direct relationship to how they are designed and implemented.  Her conclusions, based on a careful examination of the consolidated health care system in Massachusetts, underline the importance of provider groups of all sizes being enabled to share with patients in any savings.  And, just as important, rather than adopting a one-size-fits-all rules, regulators must adopt a flexible ACO structure that is predictable, yet adaptable.

Many health care providers and policy analysts have offered their prognostications, but Herzlinger’s focus on properly aligning underlying incentives is key.  ACOs could further diminish the quality of patient care if they fail to preserve, and build on, the primacy of the patient-physician relationship.  Unfortunately, the current outlook is not encouraging.

A widely-read recent New York Times article noted “consumer advocates fear that the health care law could worse some of the very problems it was meant to solve -by reducing competition, driving up costs, and creating incentives for doctors and hospitals to stint on care.”  A White House official also recently acknowledged that “the economic forces put in motion by the [health legislation] are likely to lead to vertical organization of providers and accelerate physician employment by hospitals and aggregation into larger physician groups.”

A former Medicare policy advisor said the law assumes “doctors will fold their private offices to become salaried hospital employees, making it easier for the federal government to regulate them and centrally manage the costly medical services they prescribe.”  Certainly, many of the new law’s changes will centralize decisions in Washington, DC, removing power from physicians while dramatically increasing the control of federal bureaucrats and politicians. 

 Economic theory suggests that consolidation of providers under a hospital will increase a hospital system’s market share and negotiating power over remaining providers. As massive hospital systems grow even larger, choice and competition will be reduced in the health care marketplace and costs to consumers will increase even further.

 Such a conclusion is grounded not only in economic theory, but experience. The consolidation of providers is one important reason that health care costs in Massachusetts already are the most expensive in the nation. As the Massachusetts Attorney General concluded in a report earlier this year examining the underlying drivers of health costs, “price variations are correlated to market leverage…of the hospital or provider group compared with other[s] within a geographic region.”

California appears to suffer from a similar problem. The Center for Studying Health System Change studied California’s experience in attempted health reforms and also concluded “proposals to promote integrated care through models such as accountable care organizations could lead to higher rates for private payers.”

And, if these trends were not concerning enough, there is a final wrinkle worth noting. Because the new law cuts nearly $530 billion from Medicare to spend on new programs, some providers are finding their current business model financially unsustainable. 

 Faced with the prospect of shutting its doors or merging with competitors, many health care providers are being consolidated with other types of providers.  The Wall Street Journal recently noted that Moody’s Investors Services informed analysts to “expect consolidation in health industries, as providers acquire different health-care entities to diversify.”  A Deloitte study echoed Moody’s findings, saying “there is considerable [mergers and acquisitions] activity, particularly among those organizations experiencing threats to their reimbursement levels.”  While corporate motives driving these mergers may be benign, the impact on consumers’ wallets will nonetheless be real and potentially significant.

None of these changes are good for consumers, patients, or health care providers. Even supporters of the health care overhaul will be forced to admit the failings of their massive overhaul as costs increase, providers consolidate, and choices for consumers are reduced.  But the likely problems with ACOs are really just a symptom of the larger problem: a massive 2,700 page government-centered approach to health care that fails to fix many of the basic problems and makes some problems even worse.   That is why the best way forward is to repeal the law and replace it with sensible, proven reforms that will reduce costs, increase competition, empower patients, realign incentives, and put federal health spending on a truly sustainable path.   

Tom Coburn, MD is a United States Senator from Oklahoma.

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