Saturday, October 25, 2014

Coordination, Consolidation, and Costs – Three More New Cs

The Rule of Three Perplexes me,

and its Practice Drive me Mad


In 2006, James Hawkins and I wrote a book Sailing the Seven “Cs” of Hospital Physician Relations.

The Seven Cs were:

• Competence

• Convenience

• Clarity

• Continuity

• Competition

• Control

• Cash

Three More Cs

To these seven Cs, I would like to add three more Cs- Coordination, Consolidation, and Costs.

Over the last six years or so, there has been a big push to “coordinate” care.

Surely, the theory goes, if only hospitals and doctors would work together closely, care would improve, costs would come down, care would not be duplicated, and community continuity and population health as a whole would be better served.

The Obama administration picked up on this theory, and in ObamaCare, the concept of Accountable Care Organizations was lauched, with 22 “Pioneer ACOs,” established integrated health care organizations, recruited as exemplars of what was to come. Hospitals and physicians would work together to save money for a defined Medicare population, and the “savings” would be shared by hospitals and physicians.

There are signs ACOs might be a failed dream. Big successful integrated organizations – Mayo, Kaiser, and Geisinger – declined to join the ACO ranks. Medical specialists, two thirds of the physician workforce, were skeptical. And more recently three pioneer ACOs dropped out of the savings race.

Then came the big crunch - increased costs. As ObamaCare kicked in, and hospitals and doctors got caught up in the reimbursement and regulation squeezes, inherent in the health law, hospitals and medical groups began to consolidate to protect their bottom lines. Hospitals began to acquire physicians, both primary care and specialists, at a record, unprecedented rate, with less than 50% of doctors left in private practice.

It has become apparent that when big hospitals buying out and merging with small hospitals, and hospitals acquiring physicians, costs of care rise, not fall.

John Commins details the rises in cost in an October 23 articles “Debate Over Health Care Consolidation Effect Rages On.”
James Robinson and a research team at the University of California in Berkley studied 158 major medical groups and 4.5 million patients in California (“Physician Practice Competition and Prices Paid by Private Insurers for Office Visits,” Journal of the American Medical Association, October 22-29, 2014).

Costs were 19.8% higher for practice visits in physician groups owned by large multi-hospital systems compared to practice groups owned by physicians, and 10.3% higher for visits to practices owned by local hospitals compared to physician owned groups. The bigger the hospital the higher the prices for physician-owned groups.

Why higher costs? It’s simple, or perhaps I should say complex. Hospitals are big multi-layered complex organizations with lots of overhead. In the words of Commins, “They have ambulatory services centers they want to keep full. They have imaging equipment they want to use.” And the physicians they own know implicitly they are obligated to use the hospital’s imaging, laboratory, and other services even though the consolidated organization’s prices are higher than competing outside organizations. Employed physicians are not in the game to save the hospital money.

The AHIP (American Hospital Insurance Plans) says hospital consolidation axiomatically means higher costs, and hospit rhetoric about greater efficiency of consolidation and coordinated Accountable Care Organizations doesn’t match reality.

The AHA (American Hospital Association) counters by saying: 1) sure, safety and quality regulations make costs automatically higher; 2) but hospitals have higher safety and quality standards; and 3) anyway, continuity of care offered by hospitals is better and more comprehensive than episodic physician care. For these reasons, hospitals do not need to meet the prices offered by independent physicians and those retail prices being offered by Walmart, Walgreens, and CVS Health and like-minded retail outlets.

America is in a new era with ObamaCare-driven high deductible plans. Consumers are smarter and more cost-conscious, and many are gravitating to less expensive, some direct pay, independent physician groups, who require no co-pays or deductible and who offer upfront transparent pricing, and to retail clinics, who are similarly free of co-pays and deductible impediments.

Whether consumers will buy the safety and quality arguments of hospitals remains in question. Lower costs and direct and quick access with a minimum of bureaucracy are powerful inducements in the current health care environment.

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