The Obama Administration in Clashes All By Itself over Accountable Care Organizations: Has Government Created A Cost-Raising Monster?

When Congress passed the health care law, it envisioned doctors and hospitals joining forces, coordinating care and holding down costs, with the prospect of earning government bonuses for controlling costs.

Robert Pear, “Consumer Risks Fearing as Health Law Spurs Mergers, “New York Times, November 21, 2010

Doctors interested in creating Accountable Care Organizations (ACOs) with hospitals should be aware of legal and regulatory obstacles.

One, regulations for forming these organizations are just being written.

Two, federal agencies - the FTC, the Justice Department, and the Inspector General – have laws forbidding monopolistic behavior by dominate systems of hospital and doctors, and fraud, and abuse practices that dominant ACOs may foster.

In many ways, the federal government has created a series of clashes it must resolve before ACOs become functional. It will require a bevy of lawyers and lobbyists to change existing laws to resolve these clashes. Doctors and hospitals should be prepared to pay hefty legal bills to make sure their ACOs pass legal muster.

Clash Number One – Under the Guise of ACOs, Big Hospital Systems Can Consolidate and Conquer Regional Markets, Raising Rather Than Lowering Prices

In its rush and push to get hospitals and doctors to cooperate, improve care, and save money through accountable care organizations, the health reform law has created incentives for hospitals and doctors to form dominant health systems. These systems will have the clout and incentives to negotiate higher prices with private plans while stinting on care of Medicare patients. The big systems can pursue a “consolidate and conquer strategy.”

Elizabeth Gilbertson, a union health plan for hotel and restaurant employees, observes,

“In some markets, the dominant hospital is like the sun at the center of the solar system. It owns physician groups, surgery centers, labs and pharmacies. Accountable care organizations bring more planets into the system and strengthen the bonds between them, making the whole entity more powerful, with a commensurate ability to raise prices.”

Private health plans, then, will “have” to deal with “must have” systems as the only option in any given market. The plans cannot effectively negotiate lower costs with prestigious monopoly hospital systems, already the case in markets like San Francisco, Baltimore, Milwaukee, and Boston.

Clash Number Two – Federal Agencies Must Enforce Anti-Trust, Fraud, and Abuse Laws Yet Waiving These Laws Are Necessary to Form ACOs.

Lawyers and lobbyists from hospitals and doctor groups are pressuring the FTC, the Justice Department, and the Inspector General’s Office to relax or waive the laws forbidding monopolistic behavior by hospital systems. Eight months into the new law, a wave of mergers between hospitals, between hospitals and doctor groups is well underway, eager to save share costs and savings and cash in on the incentives. The risk for consumers is that dominant hospital systems will exercise their market clout to raise prices.

Clash Number Three - Incentives for ACOs May Be to Stint on Care for Medicare Patients, Which the Law is Supposed to Protect

The new law cuts over $500 billion out of Medicare. Many hospitals already lose money on Medicare patients, and margins are low for the rest. The incentives therefore may be to raise prices on private patients and while lowering costs of care for the sick elderly. Consumer groups are alarmed. They fear Medicare patients and others with disabilities or chronic disease that requires specialized or complex care may have trouble getting access to medical devices and rehabilitation facilities.

The Obama administration must balance potential benefits of clinical cooperation against the need to enforce fraud, abuse, and antitrust laws.