“Are provider-led health care networks too big to fail?”

Twenty20 License

AEI recently published an interesting article that serves as a thought experiment on whether the Affordable Care Act will push consolidated health networks to such a large degree that they become too big to fail.

I have attempted to chronicle elsewhere the growing list of unintended consequences of the ACA, as well as what I believe are some sensible, free-market oriented reforms that would set us on the right path that are tucked within a Hoover Institute essay written by University of Chicago economist John Cochrane,  but this “moral hazard” of health networks that are too big to fail that is similar to what we have recently witnessed in the financial industry and meltdown of 2008 certainly adds a new wrinkle that I had not previously contemplated.

Expanding beyond the AEI article that focuses on the Accountable Care Organizations, my own experience informs me that the ACOs within the ACA are unfortunately but one prong in the Obama administration and the Centers for Medicare and Medicaid Services (CMS) arsenal in this coordinated and dedicated effort to foist large integrated networks upon us. These will indeed wind up being “too big to fail.” Hospitals already possess an unfair advantage in blocking new entrants and hide behind “non-profit” status as well as serving as the largest employers in many communities. The massive rush to merge and acquire will surely exacerbate this.  Even organizations outside of the ACO model are going to be pushed to consolidate through being increasingly subjected to “value-based” payment models that shift payments from fee-for-service to models that are tied to various outcomes measures. CMS has set a goal of having fully 50% of payments to hospitals by 2018 funneled through such mechanisms. While on the surface shifting from fee-for-service to quality based measures seems a logical and positive step in the right direction, we must beware of the unintended consequences. Many of these “quality” payments are aimed squarely at issues such as readmitted patients back to hospitals, “excessive” spend per Medicare beneficiary that occurs in the outpatient settings, and one bundled payment per an episode of care (i.e. a hip and knee replacement). Interestingly, CMS is targeting directly the large hospital and not the outpatient settings. In essence, the hospital is heavily incentivized to buy and control the outpatient setting and physician practices in order to control the flow of patients and the finances. Or in the very least, hospitals that don’t acquire will starve out recalcitrant outpatient and physician practices that can’t or won’t toe the line to the hospital’s demands by shutting them out of their referral network. We will consequently be left with narrower networks and less choice.

Now, there might be some good in all of this as it relates to care coordination and the cost of care delivery, but do we really expect that these giant regional monopolies are going to pass on these cost savings to consumers, if indeed they actually do occur? Do we really expect the focus to be on product quality and consumer  value when there is no competition left, or will the focus turn to gaming the system, lobbying CMS, and inevitable asking for bailouts (per this article)? I would argue that the government conveniently ignored all of these likely negative consequences in their rush to revolutionize the system to their liking – one in which they will increasingly call the shots on who wins and who loses.



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