A real problem with the ACA

In my region, big hospital chains have gotten bigger. National chains have moved into the area. Little hospital groups have grown up to be middle sized hospital groups.  Loose shared purchasing alliances have transformed into rural hospital conglomerates.

Some mergers every year are to be expected.  There are the “rescue” mergers where a failing hospital is taken over by a larger partner, there are regional consolidation of expertise mergers where a region that used to be able to support three trauma centers now only have the demand for two trauma centers due to natural population loss.  And then there are the rent extraction mergers where the entire goal is to increase the market power of a provider so that they can get higher reimbursement rates.  The executives will also say that they can bring syngergies and eliminate back-end duplication which will lower costs but the evidence supports that most mergers don’t change the cost structure of a regional market except to increase average prices paid.

Obamacare is contributing to this trend as it is placing two major requirements on large providers.  The first driver is the push towards electronic medical records (EMR).  EMR’s are very useful but expensive.  They also are extremely susceptible to being almost scale invariant in the amount of high cost back-end support needed.  An EMR that is used by one hospital with eighty beds is only slightly cheaper to run than an EMR that is used by four hospitals with five hundred beds.  The install costs are scaled nearly linearly, but the running costs barely budge.

The other, and I think the bigger driver, is the transfer of population risk management from the nearly exclusive domain of insurers and local governments to now including providers through the proliferation of accountable care organizations and quality related payment schemes.  ACOs require large up-front infrastructure investments to get started, and again those investments don’t scale linearly.  The marginal cost of adding one additional office to a current ACO is far less than the cost of starting a new ACO for a new office.  Furthermore, statistical tyranny comes into play.  Population health management is far less risky as the populatin gets larger.  Large populations under care management means all the random things that can happen get balanced out at a higher rate.  There is less variance which means there is less risk.

This is a problem because concentrating provider markets while at the same deconcentrating payor markets means pricing power shifts even more to providers.  We already pay the most per unit of care in the OECD, and this shift nudges us further out on the cost curve.  Perhaps the move to narrower networks is enough to counteract this nudge, perhaps the move to ACOs and shared risk payment models brings the cost curve down sufficiently so that on net, we’re still in good shape, perhaps the re-engineering of hospitals as a source of wellness instead of sick care is dropping utilization to mask the increased pricing pressure.  Perhaps…. but this is still a problem that has been excacerbtaed by PPACA.






25 replies
  1. 1
    Jim says:

    Don’t get me started on electronic medical records. I think they’re essential, but it would be nice if the different systems being offered could at least talk with each other. I have records in three of them, and each doctor/hospital thinks theirs is great, even though they can’t see my records in the others’ without some effort. My urologist cringes whenever I bring up the subject of EMRs. He serves on several hospital committees, but runs and hides whenever he thinks they’ll ask him to be part of the IT committee.

  2. 2
    raven says:

    @Jim: This was a year ago here:

    Lack of input, training created problems with Athens Regional electronic records system

    “If you look back at this effort, hindsight is 20/20 … Successful projects — and this is true across the board — are clinically driven, not IT-driven,” Cerner Vice President Ben Hilmes said, adding that some important decisions about workflow and design should have been made by the physicians and staff who use Millennium every day, and not by the IT department. “It came out of balance toward the IT side of things.”

  3. 3
    Geeno says:

    @raven: As an IT professional who has worked in the hospital environment, the reason the project became “out of balance” is because the physicians and staff who should have made the calls never got around to answering the questions the IT department needed answers to. IT doesn’t like to make these decisions on its own – too much risk/responsibility there – but if no one has gotten back to you and the project is due yesterday, you make the calls as best you can and hope it works out.

  4. 4
    Mike J says:

    @raven:

    If you look back at this effort, hindsight is 20/20 … Successful projects — and this is true across the board — are clinically driven, not IT-driven,

    In every field, this is almost always the culprit in the failure of large systems. The computer geeks don’t understand how the humans do things, and don’t want to understand. They insist on forcing new workflows on people that completely change the way their job is done, without ever asking if there’s a reason why they prefer a sub-optimal method. Too often, the IT people forget that people doing other jobs are just as smart as they are, and are also hard working professionals.

  5. 5
    raven says:

    @Mike J: We face it in education fo sho!

  6. 6
    ThresherK says:

    Don’t get me started on Catholic hospitals infecting the non-Catholic hospitals they rescue with their particular brand of half-assed women’s healthcare.

    Connecticut’s own Joe “Midnight Cab Ride” Lieberman was selling this particular brand of snake oil before I even heard the term “Christian pharmacist”.

  7. 7
    MomSense says:

    @Geeno:

    As an IT professional who has worked in the hospital environment, the reason the project became “out of balance” is because the physicians and staff who should have made the calls never got around to answering the questions the IT department needed answers to. IT doesn’t like to make these decisions on its own – too much risk/responsibility there – but if no one has gotten back to you and the project is due yesterday, you make the calls as best you can and hope it works out.

    I’m sure this is exactly what happens because the hospital administrators always send out a memo or sometimes even visit the clinical side of things and tell the clinicians and support staff how important it is to give their input to IT however they don’t actually budget for or schedule additional staff to cover the shifts so that the clinicians and their support staff have the time to provide input to IT. So they just keep looking at their calendars and think they still have time to answer the IT questions until there is no more time left and then they hurriedly answer or ask their admin to hurriedly answer. When it doesn’t work out the administrators say stupid shit like the balance was more toward the IT side of the house.

    Insert same process for renovations/new construction/policies and procedures manuals…

  8. 8
    Another Holocene Human says:

    @Geeno: No kidding.

    EMR is a project that ought to have had more government involvement than a mandate. One of those traditional federal government-industry next gen research collaborations might not have been the best plan (you know, 70s style), but Nextbus was developed with a government-sponsored private partnership pilot program, and people who use that love it. Talking GPS for cars was seeded by a similar, lower-profile program. In the 1990s Congress knew that sometimes to get new technology rolling, new technology needed a little help. But this was the Shrub II era. Eh, whatever, they’ll figure it out.

  9. 9
    Another Holocene Human says:

    @MomSense: Well, when you are a very stupid person of low moral character whose overstuffed salary (which pays your oversized mortgage and car payments–being a stupid person you are incapable of living below your means) depends upon working the highly qualified professionals who make the whole thing possible quite up to the point where they break or drop….

  10. 10
    Belafon says:

    Could it also be that health care is one of the few places that hasn’t been assaulted by Wall Street’s “merge two companies and cut 50% of the employees” mania, and that the timing is just right?

  11. 11
    MomSense says:

    @Another Holocene Human:

    And when it predictably goes wrong you can foment blame and discord between the IT and clinical side so that everyone will forget that the overstuffed salaried administrators set up a process guaranteed to fail.

  12. 12
    Another Holocene Human says:

    @Mike J: To be fair, sometimes “the way we’ve always done things” is a stupid way, professionals included.

    Witness the noisy resistance to checklists at hospitals, you know, TO PREVENT KILLING CHILDREN. My local hospital killed two kids due to STUPID ERRORS involving drug dosing within a couple of years. Nasty.

  13. 13
    dr. bloor says:

    Mergers have been on a smooth upward curve for the past ten years (2009 was an outlier data point), and I’d guess a response to cost/risk transfer pushed on hospitals by insurers. There’s nothing compelling in the curve that specifically points to ACA as the cause of the non-spike in the data.

    http://www.nytimes.com/interac.....rgers.html

  14. 14
    Keith G says:

    Hmm, golly. I can’t wait for the HCA Comcast merger.

  15. 15
    hoodie says:

    @dr. bloor: Yeah, not sure that this isn’t a feature, rather than a bug. This post illustrates how easily the ACA can be blamed by creative use of statistics. Considering how inefficient US healthcare delivery is, consolidation was inevitable, as Wall St. never rests if there is money to be hoovered out a system. Moreover, the pricing power issue existed before ACA, as you point out. If anything, the ACA’s saving grace may be that it provides regulation mechanisms in exchange for allowing consolidation to proceed to allow for advancements like ERM, which have uses other than bottom line efficiency (e.g., better coordination of care to prevent mistakes and suffering) Frankly, having recently dealt with the fragmented, siloed nature of US healthcare, this can’t come too soon. So, it may be wildly inaccurate to say that PPACA causes or exacerbates problems.

  16. 16
    pseudonymous in nc says:

    It’s not just hospital-hospital mergers: our local hospital leviathan (a big fish in a small pond) is busily gobbling up specialists and primary care providers which in turn allows them to move certain services under the auspices of the hospital and bill them at outpatient rates. Doing so also prevents the state’s really big fish from making better offers to those PCPs or gobbling up the hospital itself.

  17. 17
    JGabriel says:

    Richard Mayhew @ Top:

    The executives will also say that they can bring syngergies and eliminate back-end duplication which will lower costs but the evidence supports that most mergers don’t change the cost structure of a regional market except to increase average prices paid.

    That’s because synergy is just corporate shorthand for We can monopolize the entire supply chain and raise prices and profits across the board.

  18. 18
    Chris says:

    @ThresherK:

    Don’t get me started on Catholic hospitals infecting the non-Catholic hospitals they rescue with their particular brand of half-assed women’s healthcare.

    Yeah, I was just gonna say that. One of the worst parts of the current merger thing is that it’s often done not even for profit, but specifically to deny certain types of health care that the rich people involved don’t want the poor to have for ideological reasons.

  19. 19
    piratedan says:

    The other side of the coin that isn’t mentioned here is that with the GOP refusal to expand Medicaid in so many states has had a huge impact on rural hospitals. The change in the finances has been a dagger to the heart of many a small town/regional county entity and making them easy targets for being snapped up and consolidated by larger entities that can pick them up at a discount. If anything, I wonder what the number is in the selling of what were local assets (county hospitals) to for profit systems looks like in this model….

  20. 20
    Geeno says:

    @MomSense: That’s exactly how it goes. It’s almost as if it’s more important to administration to have a ready excuse for failure than it is to succeed.

  21. 21
    Tripod says:

    @piratedan:

    There was also a bunch of ridiculous spend prior to the Bush economic collapse. Hospitals that moved to new gold plated palaces and eight years later are still surrounded by corn fields and a massive debt load.

  22. 22
    Tripod says:

    So, providers are beating economies of scale into their operations, and that largess isn’t flowing to the insurance industry.

    The humanity.

  23. 23
    sanjait says:

    Two things:

    One, the regulatory push toward EHRs does strongly promote consolidation, but it is not primarily driven by ACA. Instead it is driven by the HITECH Act of 2009. Not that this matters so much to the economics … but technically, this is not “a real problem with the ACA.”

    Two, while ACOs also push consolidation, they are a significant reform of payments. So if we’re talking about market power and its effect on prices, we shouldn’t just look at the world as having one factor (level of consolidation) but instead consider how that itself is a countervailing factor tot he effects on prices of ACOs. Those effects are as yet still not established … but we have some pretty good reasons to believe that the incentive effects within ACOs, and how those combined with the market power still retained (actually strengthened) under ACA by the CMS as a huge single payer, that ACOs will actually promote lower prices rather than higher, and better value overall.

  24. 24
  25. 25

    […] A real problem with the ACA She drives us crazy: Amnesia, déjà-vu, fatigue and other symptoms of Hillary-related madness Is Support for Income Redistribution Really Falling? Are we kidding ourselves on competition? Secrets of the Scientologists: Why People Do Horrible Things for Belief Raising the median wage: Policies that target the middle class ‘Help! Fire!’ Talking parrots cause house fire confusion 80 percent of police force resigns after Missouri town elects first African-American mayor Gone Girl: An Interview With An American In ISIS Ruth Marcus, Budget Deficits, and the Meaning of “Whopping” The submerged state: Welfare for the well off Privatized busing comes to San Francisco Secret Files Reveal the Structure of Islamic State The New Segregation Education, Testing Time, Amy Goodman, ……opining on why honest reporting and education matter. Recent poll shows more people support sentencing Tsarnaev to LWOP than death in the Boston area Just This Once […]

Trackbacks & Pingbacks

  1. […] A real problem with the ACA She drives us crazy: Amnesia, déjà-vu, fatigue and other symptoms of Hillary-related madness Is Support for Income Redistribution Really Falling? Are we kidding ourselves on competition? Secrets of the Scientologists: Why People Do Horrible Things for Belief Raising the median wage: Policies that target the middle class ‘Help! Fire!’ Talking parrots cause house fire confusion 80 percent of police force resigns after Missouri town elects first African-American mayor Gone Girl: An Interview With An American In ISIS Ruth Marcus, Budget Deficits, and the Meaning of “Whopping” The submerged state: Welfare for the well off Privatized busing comes to San Francisco Secret Files Reveal the Structure of Islamic State The New Segregation Education, Testing Time, Amy Goodman, ……opining on why honest reporting and education matter. Recent poll shows more people support sentencing Tsarnaev to LWOP than death in the Boston area Just This Once […]

Comments are closed.