Eruptive Consolidation: Insurers and Doctors Consolidate Their Businesses in Wake of ObamaCare's Passage

President Obama guaranteed Americans that after health reform became law they could keep their insurance plans and their doctors. It's clear that this promise cannot be kept. Insurers and physicians are already reshaping their businesses as a result of Mr. Obama's plan.

Scott Gottlieb, MD. “No, You Can’t Keep Your Health Plan, “ Wall Street Journal, May 18. 2010

Lost in the rhetoric after Obamacare's passage are some of its consequences. One of these is the rapid increase in premiums for individuals, somewhere in the 10% to 30% range in 2010 alone; and the other is loss of access of patients to individual physicians in the neighborhood and region.

Because of expenses entailed in marketing to the individual market and Obamacare’s 20% cap on health plan money spent on marketing and administration, health plans are offering fewer policies for individuals and ratcheting up premiums, making care not only less affordable but less accessible as well.

To manage their expenses, health plans are also reducing fees to hospitals and doctors, particularly in such high-tech fields of radiology, cardiology, and orthopedics. These cuts are expected to average about 10% these year, and up to 40% in Medicare fees for high tech specialists.

As a result, “eruptive consolidation” is already well underway. Physicians and hospitals are engaging in CYA “Cover Your Ass” defensive business arrangements. Doctors , primary care practitioners as well as specialists, are lining up to sell their practices to hospitals. Insecure physicians have read the handwriting on the wall – mandates to buy and install electronic health records, rising malpractice rates, falling Medicare reimbursements, increasing business and regulatory expenses, an unfriendly political environment – and bailing out. The number of doctors in private practice has dropped from 67% to less than 50% in the last two years.

Hospitals can read the handwriting too. They read projections that Obamacare will cause 15% of hospitals to fail because of the onslaught of 34 million more insured, most of whom are being paid for at Medicaid rates that do not meet practice expenses, and of the 78 million baby boomers becoming eligible for Medicare in 2011, at the rate of 13,000 each day, reimbursed at Medicare rates, which did not meet the cost of providing hospital care.

Furthermore, hospitals know that forced interoperable digitization to rationalize and monitor care will be too much expense too soon, with little or no return on investment("Too Much, Too Soon, Electronic Medical Record Effort Gets Pushback," WSJ Health Blog" May 18, 2010). It is an expense hospitals and doctors can ill afford. Hospitals know their bottom lines rely overwhelming on high ticket, high tech specialty care. So hospitals are only too happy to buy out specialty practices and the primary care doctors who feed the specialists.

Despite the high flown rhetoric about “disruptive innovation” and “disruptive decentralization,” with greater access and greater affordability, the reform pendulum for the moment, at least, is swinging the other way, towards eruptive consolidation between hospitals and doctors, more limited access to doctors, and higher expenses in centralized, consolidated institutions, where costs are often twice as high as on the outside in ambulatory, decentralized settings.