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Why Hospitals Shouldn't Run "Accountable Care Organizations"

A funny thing happened on the way to accountable care organizations (ACOs). Suddenly, these groupings of doctors and hospitals, which are supposed to cut healthcare costs by improving quality and efficiency, look like they might increase costs by increasing their market clout vis-a vis insurers and employers. But there is a solution: don't let hospitals run ACOs.

It's been known for a long time that when hospitals consolidate and form larger organizations, local health costs go up. A wave of hospital mergers that began in the late 1990s peaked around 2006, and national merger activity has dropped since the recession began, except in the mid-Atlantic area. (There, the merger mania has gotten to the point where just 10 hospital systems provide nearly all inpatient care in Virginia, for example.)

But there are signs that a new wave of hospital consolidation may be on the horizon, according to a Kaiser Health News/Washington Post article by Julie Appleby. The reason is healthcare reform. The Affordable Care Act authorizes the Centers for Medicare and Medicaid Services (CMS) to offer a "shared-savings" program to ACOs, starting in 2012. Under this program, ACOs that meet CMS' quality criteria will be eligible to share in the savings they produce for Medicare, above a certain threshold. While CMS has not yet specified its split with providers, healthcare organizations across the country are excited about the prospect. More important, they're convinced that Medicare and private payers will soon begin to change how they pay hospitals and physicians.

Partly as a result, hospitals are hiring more physicians and buying out more physician groups. Some of them are also looking at merging with neighboring facilities so they will be able to serve a larger population. Nobody believes that shared savings will be the end of the story; sooner or later, they think, they'll be required to take partial or full responsibility for the cost of care, from soup to nuts.

What this trend promises is larger healthcare systems that are able to drive harder bargains with payers. This is nothing new, of course. Just in the past year, there have been several instances of all-out war between major hospital systems and payers in markets across the country. But analysts at the Center for Studying Health System Change, citing the experience of California, predict that if healthcare systems and their affiliated physicians gain more market power through ACOs, health costs and insurance rates will rise.

This doesn't have to happen. The Affordable Care Act's definition of an ACO requires only that it include primary care doctors and care for at least 5,000 Medicare patients. Everything else is up for grabs. While an ACO does have to be accountable for a population across the spectrum of care, including hospital care, a hospital does not have to run the organization or even be a member of it. Private group practices and, presumably, certain kinds of independent practice associations (IPAs) could become ACOs. These physician-run entities could contract with CMS and/or private payers for shared savings or prepayment of services and could then subcontract with hospitals.

Unfortunately, there aren't enough large multispecialty groups or "clinically integrated" IPAs across the country to give hospitals real competition in the ACO arena. In most regions, it's likely that hospitals -- particularly, multi-hospital systems with large groups of employed doctors -- will form the ACOs. And if that happens, they will run the ACOs to serve their own interests first, and those of physicians and consumers second.

Image supplied courtesy of Geograph.
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