Wednesday, October 27, 2010

Heath Care Waves

The winds and waves are always on the side of the ablest navigators.

Edward Gibbon, 1737-1794, The History of the Fall and Rise of the Roman Empire

ObamaCare is already driving a wave of health-care consolidation—and higher costs.

“Big Insurance, Big Medicine, “ Wall Street Journal, October 27, 2010

Generators of Wave

First came the Obama wave. It came out of anti-Bush sentiment. It was a powerful wave, generated by the young, the have-nots, the uninsured, women, the all-knowing, all-seeing elite, and the forces for the common good, who envisioned a redistribution of wealth and benefits and a government-led utopia, with one-for-all and all-for-one.

Those behind the wave saw health reform as their manifest destiny, as an unprecedented historical achievement that exemplified all that was good.

Navigators of Wave

Many of those navigating the health care wave saw it differently. They saw it as unwanted and unneeded government intervention into individual freedoms and business practices cultivated and developed over decades dating back to World War II and involving every American in the non-federal sectors of the economy.

Secondary Waves

What resulted, unexpectedly and unbeknownst to many observers, was a series of secondary health care waves. These waves created a powerful undertow that undermined the intent of the Obama wave – to make health care less costly and more accessible to all Americans.

The navigators of the medical industrial complex were not going to be swept away by the federal tide. They would defend themselves, and they would defend what they saw as the American way – individual choice, enterprise, and innovation.

Consolidation Waves

They would consolidate. A wave of consolidation began to wash over the health care markets. Consolidation, unfortunately, portended higher costs, less choice, and less access – the converse of what the Obama wave intended. If the government was going to get bigger, they would get bigger too.

The health insurance companies grew bigger to manage the new political risks and uncertainties of reform. So did hospital systems and medical groups. The companies, hospitals, and physicians decided they needed to gain market share, even dominate their markets.

That way they could negotiate better contracts and make themselves indispensible to the government who had promised care in those markets.

The new government mandates and regulations created higher overheads and the need for more sophisticated administrative skills, the stuff of bigger organizations.

Hospitals and Physicians Consolidate

Hospitals saw the reform handwriting on the wall. They went into a frenzy of mergers, they acquired physician groups, spread their tentacles into the countryside, acquiring laboratories, surgery centers, rehab facilities, anything that smacked of health care. They sought to minimize competition to fortify their position.

Hospitals knew Obamacare promised to cut $575 billion out of Medicare, their financial lifeblood. Physicians, meanwhile, knew health reform was projected to cut their fees below those of Medicare and Medicaid.

Both hospitals and doctors knew that in low-margin businesses, size, capital, and political clout were paramount.

Government Promote Consolidation

The government knew it too why they promoted “accountable care organizations.” ACOs would be easier for the government to handle and to bundle as organizations providing Medicare services. The models for ACOs were Mayo, Geisinger, the Cleveland Clinic, and other large integrated systems.

The result? In the words of a WSJ editorial,

“Hospitals are now on a buying spree of private physician practices in the rush to build something that will qualify as an ACO. Some 65% of doctors who changed jobs in 2009 moved into a hospital-owned practice, while 49% of doctors out of residency were hired by hospitals, according to the Medical Group Management Association. In its 2010 census, the American College of Cardiology reports that nearly 40% of private cardiology groups are currently integrating with hospitals or merging with other practices.”

“Doctors are selling because complying with the ever-growing list of mandates has become more cumbersome; and while staff physicians on salary do gain predictability, they also lose the autonomy of independent practice. The other problem is price controls in Medicare, which are about 20% below private payments for doctors and 30% lower for hospitals. Hospitals are also scooping up practices to lock in referral sources and make up for ObamaCare's Medicare cuts. As it is, two-thirds of hospitals lose money today on Medicare inpatient services, according to Medicare.”

And so, as Dr. Suess, observed in this tale of the Lorax,

Business is business!

And business must grow

I meant no harm. I most truly did not.

But I had to grow bigger. So bigger I got.

I biggered my factory. I biggered my roads.

I biggered my wagons. I biggered the loads.

And I’m figuring

On biggering,

And biggering.

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