Tuesday, August 24, 2010

ACO + global payments --> Market dominance?

Is the move towards accountable care organizations and capitated (aka, global) payments likely to reduce health care costs and insurance premiums, or will it do the opposite? Being an economist, my answer will be, "On the one hand . . . On the other hand . . ."

On the one hand, ACOs offer the potential for a better integration of care across the spectrum of primary care, hospitalization, skilled nursing, rehabilitation, and hospice. If the ACO faces an annual budget per patient under a capitated payment scheme, there is an incentive to avoid unnecessary tests and procedures and also to help direct patients to the most cost-effective component of the health care continuum.

On the other hand, if an ACO becomes the dominant provider in a region and especially if it has a electronic health record that is not interoperable with others in the region, that ACO will have substantial market power and will negotiate a higher global payment than would occur in a more competitive marketplace.

As noted here:

The federal Patient Protection and Affordable Care Act is looking for $500 billion in savings over the next decade to help pay for extending coverage to 32 million uninsured Americans. Yet it doesn’t address the problem of market concentration -- and may make it worse, said Robert Berenson, a physician and policy analyst at the Urban Institute in Washington D.C.

I suspect that the tools used by the Federal Trade Commission will be ineffectual in most regions. For one thing, ACOs will not always be created by corporate consolidation, the usual vehicle for FTC review. For another, the usual metrics used to study market dominance, like the Herfindahl-Hirschman Index, are not particularly effective in evaluating a market characterized by many discrete lines of business. Medicine is not one service. It has multiple pathways for patient entry and egress, covering a huge number of clinical conditions.

Here in Massachusetts, we have a dominant provider that has been able to demand high reimbursement rates because even the dominant insurer has been unable to withstand its market power. We have seen little political will on the part of the government, or commercial interest on the part of insurers, to attack that source or use of market power.

How much stronger will the dominant firm be allowed to become once insurers and the government encourage it to be an ACO? What if it enters into a referral relationship with the second largest provider network, combining the market power of the two largest groups? What will stand in the way of that dominant provider, alone or with its new affiliate, from demanding a global payment in excess of other market participants?

On the other hand, maybe everything will turn out fine.


Anonymous said...

Somebody like Dr. Halamka correct me if I'm wrong, but I believe that HIT meaningful use rules include the mandate for eventual interoperability. Notice I say eventual, because I don't think that's in the initial phase.

ACO's worry me for more reasons than your fears of market dominance, although I think those fears are legitimate. I worry that hospitals and doctors are rushing into them without thinking through either the governance nor the clinical implications, possibly resulting in a repeat of the failed model of the '80's or early 90's, where hospitals rushed to buy up physician practices and then dumped them a few years later.

Aside from the obvious pitfalls like what the capitated payment will be and who will receive it to distribute among the members; balanced power sharing will be absolutely critical to both excellent and efficient patient care, and to the business success of the venture. I fear these details are not being adequately considered. We live in interesting times.

nonlocal MD

Anonymous said...

Dr. Halamka informs me:

"Meaningful Use Stage 1 (2011) interoperability includes:

Core Set
1. Provide patients an electronic copy of their ambulatory, ED or inpatient summary of care record record;
2. Transmit prescriptions;
3. Capability to exchange key clinical information among care providers and patient authorized entities;
4. Report clinical quality measures.

Menu (Optional) Set
5. Incorporate clinical lab tests results into EHRs as structured data;
6. Provide summary of care record for patients referred or transition to another provider or setting;
7. Capability to submit data to immunization registries, provide syndromic surveillance and lab data to public health agencies.

Meaningful Use Stage 2 (2013) will include many more data exchanges.

Given that even Meaningful Use Stage 1 requires a certified EHR which supports all the standards needed for data exchange, we will have the foundation for interoperability within the next year."

Anonymous said...

As to monopolies, see your Globe's article on the newly formed Carilion Clinic in Roanoke, Va:


Roanoke is the major health care anchor for all of SW Va. so this is not some dink operation; the monopoly issues are similar to what you are speaking of.I agree that this possibility needs to be addressed in Boston.

As for EMR interoperability, I will consider it successful when my elderly mother can be admitted to any of the multiple hospitals in Northern Va. (or elsewhere if she travels), and have her medication list, past lab and imaging tests (inpt or outpt), most recent doctor's office notes and discharge summaries from any of the hospitals, available to her ER docs, instantaneously.
That's meaningful use of interoperability - difficult as it may seem. We deserve nothing less - and, it will discourage "captive" patients in monopolized health systems.

nonlocal MD

Anonymous said...

Let's try that link again:


Despite e-patient Dave's patient instruction, I am still not a competent link embedder.


Aaron said...

I think your concerns are very legitimate. At my firm, we are organizing ourselves to present what we think is the best ACO from the business perspective of healthcare; however, I am a learned economist. I believe that your concerns are correct.

right now, another monopoly is being created called a ACO. So now two monopolies will be battling for power, insurance companies vs hospital groups (ACOs). Something has to give and that will be the patients and suppliers.

I can see ACOs trying to be like a Walmart, cut costs to maximize revenues, but the problem is that the revenues are focused on the ACO and not the patient. The patient gets a supposed better deal through the back end. Besides, Walmart is not only focused on costs but also reducing prices. Walmart brings value to the customer. I cant yet see how a ACO will bring direct value to the patient. It is all indirect, aka greater local "access", centralized services.

Richard Wittrup said...

We need a market economy in health care but we need to think about how it should be structured. We shouldn't have monopolies or providers who can unduly dominate a market. We shouldn't have providers skimping on care just to save money. We need to accept some restriction on freedom of choice of physician without anyone having absolute power to assign patients to doctors.

In a health care market economy there needs to be accountability for selecting the provider that offers the best combination of cost, quality, and patient satisfaction. Having each patient do it individually is probably not workable. Individuals cannot know enough to make an informed choice and don't have enough economic power to be effective. Insurance companies are probably the best candidate, but there needs to be a way to hold them accountable.

If insurance companies are selected, patients should have a choice of companies, either individually or through the employer.

Pressure on the provider to perform should take the form of the realistic possibility of losing patients to competing providers. Offering extra pay for quality won't do it.

A credible threat of losing patients requires empty beds to move them to. This means getting rid of certificate of need.

We need to move towards a market economy by discussing these issues and trying different arrangements to see which works best.

global payments said...

very nice posts..........I believe your concern are very justifiable. At my firm, we are organizing ourselves to present what we think is the best ACO from the industry standpoint of healthcare; however, I am a learned economist. I believe that your concerns are correct.

accurate now, another domination is being created called a ACO. So now two monopolies will be battling for power, indemnity companies vs sanatorium groups (ACOs). Something has to give and that will be the patients and suppliers.