Stanley Feld M.D.,FACP,MACE
This article appeared in Kevin M.D. several weeks ago. The article has some valid points. However, it misses the vital reasons hospital mergers are not working.
By creating incentives for physicians and health providers to coordinate under accountable care organizations (ACOs), the ACA hindered the ability of regulators to block hospital mergers while incentivizing hospital consolidation.”
The government published reason for encouraging hospital mergers was to increase hospital efficiency and decrease healthcare costs.
I have said over and over again that the real goal of Obamacare was to have total control over the healthcare system. This control could be accomplished by controlling all the providers.
Hospitals realized that physicians controlled the utilization of hospital facilities. As knowledge and technology improved more and more diagnosis and treatment could be performed on an outpatient basis.
All the hospitals had to offer was a brick and mortar facility. Hospitals tried to stop physicians, before Obamacare, from developing their own outpatient facilities. The hospitals lobbied the government to require certificate of need for advanced outpatient technology (MRI, CAT scans, Outpatient Surgical facilities, and laboratories).
It did not work.
Obamacare provided incentives for hospitals to merge and consolidate into hospital systems.
Obamacare also provided incentives for hospital systems to create Accountable Care Organizations (ACOs). I have written about ACOs destiny to fail ad nauseum.
The government’s pretext was that hospital consolidation into hospital systems would increase efficiency with resultant decreases in hospital care costs.
The real reason was to get hospitals to hire physicians. At that point they would lower reimbursement on both. Hospitals and physicians would be totally dependent on the government.
“There is a growing body of evidence that hospital mergers lead to higher prices for consumers, employers, insurance and the government.”
The result is opposite the stated goal and was totally predictable.
“It is imperative to educate patients and lawmakers as to how the consolidation of hospitals and medical practices raise costs, decrease access, eliminate jobs and, ultimately, reduce care quality as a result.”
The development of hospital systems led to the expansion of administrative personnel which in turn led to increased administrative salaries and costs. Administrative costs are not government controlled. They are part of the overinflated hospital overhead.
In some cases, the government increased hospital systems’ subsidies because of increased administrative costs.
It did not lead to greater compensation to physicians they hired. Yet the hospital system was totally dependent on staff physicians for revenue production.
Physicians tended to work hard when they owned their own practice. Now that their salary was guaranteed they tended not to work 12-hour days.
Initially, hospital systems paid physicians on the basis of physicians’ previous productivity in their private practice. Additionally, physicians were given a payout for their practice. The payout was never the real value of their practice.
Hospital systems calculated the physicians’ productivity because the hospital system hired all the full-time employees. The hospital systems’ computer systems were also used in the calculation of productivity and overhead.
Hospital systems controlled the overhead and the books. A lot of the time the calculation was inaccurate. This was the result of two fees collected from the government and the insurance companies. One was a technical fee that belonged to the hospital system. The other was a professional fee for the physician.
At times, the professional fees were not collected and the physician groups could not figure out the discrepancy.
There had been a long-standing mistrust by physicians toward hospitals prior to Obamacare. The errors in calculations resulted in greater mistrust by physicians toward hospitals.
If a physician was not producing according to the hospital system’s calculation the physician, at the end of a usual two-year contract, was let go. This created more mistrust and suspicion among physicians toward hospital systems.
It has also caused physicians who anticipated this stranglehold by hospital systems to become concierge physicians or open outpatient clinics of their own.
This has caused hospital systems to provide concierge physicians of their own as well as hospital outpatient ambulatory surgical care clinics. The problem is that the free-standing physician owned ambulatory surgical care clinics (ASC) are more efficient and cheaper than the inpatient hospital care and the hospital’s own outpatient ambulatory surgical care clinics (HOPD). Some privately own ASC are cheaper than the increasing deductibles patients with private insurance have to pay using their insurance.
Below are some examples of Ambulatory Care Surgical Center fees as opposed to Hospital Owned Outpatient Surgical fees.
“According to a 2012 study by the Robert Wood Johnson Foundation, “the magnitude of price increases when hospitals merge in concentrated markets is typically quite large, most exceeding 20 percent.”
Forbes’ Avvik Roy of Forbes said, a presentation in 2012.
The underlying theme is that President Obama wanted Obamacare to fail so it can be replaced by a single party payer system that has been pushed by progressives since 1935. Obamacare is moribund despite claims by Democrats. They refuse to face the fact that socialism does not work even thought it is a feel-good concept.
“A recent paper authored by Northwestern’s Leemore Dafny, Columbia’s Kate Ho, and Harvard’s Robin Lee provides some definitive proof that when hospitals consolidate, prices increase substantially. The effect is made worse directly in proportion to proximity of the merging hospitals. “If you are doing it because you think in the long run it will serve your community well, you should think twice,” Dafny said.”
Hospital systems are consolidating because they think it is in their vested interests to consolidate. They are falling right into President Obama’s trap. Hospital systems do not control productivity. Physicians control productivity.
A study published by the National Bureau of Economic Research, conducted by Zack Cooper of Yale University, Stuart Craig of the University of Pennsylvania, Martin Gaynor of Carnegie Mellon and John Van Reenen of the London School of Economics, sheds light on the real cost of reduced competition among hospitals: hospital prices are 15.3 % higher when a hospital had no competition compared in markets with four or more hospitals, amounting to a cost difference of up to $2000 per admission. Hospital prices are 6.4% higher in markets with two hospitals and those with three are 4.8 % more expensive when compared to markets with four hospitals.”
The American Hospital Association has been aggressive in criticizing those reports. It has funded a couple of critical reports defending mergers and consolidations. The American Hospital Association doesn’t understand the progressives’ trap either.
It is backfiring already as hospital systems are saying they are losing money. The government is cutting reimbursement, the insurance companies are raising insurance rates and increased deductibles are unaffordable. Consumers are experiencing a decreased access to care.
None of the policy makers are focused on the right problems because they want a single party payer system in order to gain total control over the healthcare system. Progressive have no interests in the cost of care, the need to raise taxes or the delivery of efficient care.
America is going to experience an economic disaster as it has been experienced in Canada, England and many other countries in the world.
Consumers are continuing to take it on the chin in other countries because 80% are not sick at any one time. Consumers in other countries feel secure with the guaranteed coverage even if it increases their taxes and decreases access to care.
The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.
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