Doctor-Hospital Consolidations and the Domino Effect

A theory that political events are interrelated and can trigger a chain of other events.  A linear succession of related and usually undesirable events caused by preceding events.

The Domino Effect

September 15, 2012 -  Fear of cascading health care dominos fill the air. 

·         Doctors fear government will cut Medicare incomes by 27% on January 1, 2013 and 40% in the next decade if Obamacare takes effect in earnest.   

·         Hospitals fear a  2% government sequester will occur in January 1, 2013.  

 

·         The AMA, AHA, and National Nurses Association warn if the January 1, 2012 sequester occurs, it will cost the nation 787,000 jobs over the next decade in a health industry that has created 1.2 million jobs since January 2006 while the nation has lost 4.7 million jobs over that same period( John Commins, “Medicare Cuts Threaten 766K Healthcare Jobs,” Healthleadersmedia.com, 9/13/12).

·         The Californian  attorney General has launched a broad investigation into whether growing consolidation among hospital and doctor groups causes higher prices (Anna Wilde Mathews, “Doctor, Hospital Deals Probed, WSJ, 9/14/12)

Let there be no doubt.  According to the Advisory Board Company, the share of doctors practicing at hospitals who are also employees is growing rapidly.

Share of Doctors Owned by Hospitals

·         2000,  specialists 4%, primary care 17%

·         2004, specialists 7%, primary care, 22% 

·         2008, specialists 15%, primary care, 30%

·         2012, specialists 24%, primary care, 40%

Merritt Hawkins estimates that by 2022, hospitals will own 75% of physician practices.

As hospital-physician consolidated entities gain market strength, even create monopolies, they have the power to negotiate higher rates from insurers.   Size has power, and larger integrated entities have an edge in negotiating better contracts.  Consolidation may  lead to pricier hospitals.

Other factors, other than negotiating power, are contributing to the consolidation domino effect.

These include:

·         Lower payment rates from all payers

·         Increased expenses with physician employees, information technology, other technologies (e.g. DeVinci Robotic surgery), and costs of regulatory compliance

·         The  growing specter of Accountable Care Organizations, resulting  in capped budgets with lower Medicare and Medicaid Revenues

·         Hospital concerns that specialists will form competing independent revenue producing centers on their own outside of hospital contr 

Here is how Wikipedia explains the domino effect:

"The domino effect is a chain reaction that occurs when a small change causes a similar change nearby, which then will cause another similar change. And so on in a linaer sequence.  The term is best known as a mechanical effect, and is often used an  analogy to a falling row of dominoes.  It typically refers to a linked sequences of events where the time between successive events is relatively small. It can be used literally (an observed series of actual  collisions) or metaphorically (causal linkages within sysems such as globl fiancé or politics)."

Here is my explanation presented as limericks.

The theory of the effect of the failing domino,

Is that when one falls it alters the status quo.

Other dominos quickly fall one after another,

For one cannot stand without the other.

They are interdependent ducks in a row.

Or,

There once was a set of upright healthcare dominoes,

Hospitals and doctors stood end to end, toes to toes,

Until something called the Affordable Care Law,

Cut their legs from beneath them like a buzz saw,

Now they have to work together nose to nose.

Tweet:  Fear of Medicare cuts drive hospitals and doctors  to consolidate to protect revenues, increase efficiencies, and negotiate higher rates.