Physician consolidation places health reformers in an ironic dilemma

One of the major efforts of the Affordable Care Act is to consolidate physician groups, so they can be modeled after integrated health systems like the Minnesota’s Mayo Clinic or California’s Kaiser Permanente.

According to health reformers, these integrated systems can reduce variation in care, which improves quality, and potentially reduces costs.

There’s been a major effort to re-organize hospitals and physicians under guises of Patient Centered Medical Homes and Accountable Care Organizations.  The primary way these entities save money is by operating under a set budget, rather than fee for service.

Glorified capitation, if you will.

So, how’s it working out so far?  Like the rest of health reform, we can look to Massachusetts for initial answers.  And the news isn’t good.

According to preliminary reports, putting doctors on a global budget not only didn’t save money, it cost more in some cases:

The yearlong review of what six large Massachusetts insurers paid providers in 2009 found that doctors working under the new “global payment’’ system — which puts them on a per-patient monthly budget — generally did not cost less than doctors paid the standard way. And in some cases, large doctors groups such as Atrius Health and Mount Auburn Cambridge were far more expensive than physicians paid under the fee-for-service system, despite being put on a budget.

The main reason?  Monopoly power caused by consolidation of  provider groups.  Bigger groups can negotiate better rates with insurers.

As I wrote back in February, this result was entirely predictable, and places health reformers in an ironic dilemma:

Progressives face a conundrum.  They want doctors to practice in integrated health systems so that economies of scale can lead to better health IT integration, cost control, and better quality — or so says the Dartmouth Atlas data.

But in doing so, they’re promoting monopolies, where medical providers and hospitals can then dictate prices and have a greater say in health care pricing.  That is antithetical to progressive health policy dogma.

So, ironically, it may be because of health reformers’ zeal to integrate doctors and hospitals that may be the biggest impediment to cost control going forward.

Patients benefit when quality is rewarded and the incentive to do more is removed.  So from a patient care standpoint, I applaud the transition away from fee for service medicine.

But whether any cost savings will be realized remains in question.  Progressive reformers need to reconcile their desire to consolidate physicians into large, salary-paying entities with the obvious shift in negotiating power that comes from that re-alignment.

Resolving that dissonance will determine the success of the Affordable Care Act’s cost control aspirations.

Kevin Pho is an internal medicine physician and on the Board of Contributors at USA Today.  He is founder and editor of, also on FacebookTwitter, and LinkedIn.

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  • e-patient

    I would guess that physicians in private practice don’t like the idea of working for a corporation.

    If doctors get paid more for working in a group and the patients aren’t overtreated, isn’t that a good thing?

    Shouldn’t we look at the quality of care and project cost savings into the future. If I get the care I need and it means 5 years from now I won’t need to be hospitalized, isn’t that a good thing?

  • Joe

    Amen Kevin, I think it is the magical trust that these same folks have in regulation and labels.

    Lots of 800 pound gorilla health care systems go under the label of “Non-profit” and have the power of capturing the regulators lawfully.

    But if you just look at the labels and the pretty PR they spit out, they are not making profit and have great regulatory relationships.

    I can’t understand why many progressive types don’t see reality. The doctors who are caught in these systems normally can tell you the problems first hand although most can not do anything about it because there is no other place to work in their town.

    Absolute power corrupts absolutly, and the executives in charge of large dominant healthcare providers have nearly absolute power. When hidden under the “non-profit label” there is very little visibility into the inner workings of such places.

    I have talked to patients wronged by these institutions and the patients actually communicate a fear that if they speak up the next time they need care they will get illtreated.

    Astounding that folks actually fear that a health system would purposfully provide poor care!! Even if it is just a fear, it is still very telling.

    Regulators have very often been a rubber stamp on the creation of these behemoths. Why so? Now it seems the regulators will have another excuse to allow the big to get bigger.

  • Marc Gorayeb, MD

    You really should have told ‘the rest of the story.’ The AG and Governor in that state are both agitating for price controls – setting uniform prices for services across all providers.
    So what have we learned? That eliminating negotiated fee-for-service necessarily leads to uniformity in pricing, rewarding mediocrity and eliminating any potential for price differentiation according to effort, skill and talent. This is the ultimate socialist agenda. There is no “ironic dilemma” here. This has been the design of Obamacare from the start: first consolidate and then control.
    If you really want to solve the cost problem, then empower individual patients to make decisions based on their own assessment of the value of the services offered. They need to have a financial stake in the decision to consume services, they need to have pricing transparency, and they need to have choices in the marketplace. All the exact opposite of what is now being pushed down our throats.

    • Margalit Gur-Arie

      Getting rid of fee-for-service seems to be some sort of obsession nowadays with little or no evidence that FFS is a problem, or that the alternative capitation model is financially better, not to mention its effects on quality
      More on that here:

      However, I don’t believe that shifting costs to patients is the best solution. Sure, financial transparency is a good thing, but transparency in quality is much more important and powerful. When people look for a doctor or a hospital, they don’t usually look for bargains. They want the best for little Tommy or Mom, even if they religiously clip coupons for groceries.
      This is not necessarily bad, since if there are many choices, as opposed to one big ACO, or whatever they want to call this novel bigness, then quality, and subsequent patient demand, can and should command higher fees, thus leading to competition based on quality, not on how cheap things are (like Walmart clinics). I somehow think it’s better this way, and more equitable too.

  • Ken Terry

    Fee for service drives up costs without creating value–as the Institute of Medicine pointed out in “Crossing The Quality Chasm”–but creating large integrated systems centered around hospitals isn’t the solution. What would make more sense, as I point out in my book “Rx for Healthcare Reform,” is having all primary-care doctors join large groups. Competition among these groups should replace competition among insurance companies to create value and reduce waste. If these primary care groups set their own budgets, contracting with hospitals and specialists as needed, costs would assuredly drop.

  • jim jaffe

    perhaps heath is not totally the parallel universe we consider it and normal rules can apply. we accept the fact that an electric utility or land-line phone company can deliver broad service more cheaply and effectively than smaller operations while simultaneously trying to reap monopoly profits unless constrained. medicare shows the way on physician reimbursement, maryland on paying hospitals. the tools are there if folks choose to use them.

  • doctor1991

    Good points. And remember when the administrators at these large institutions negotiate better reimbursement, they use this to justify larger productivity bonuses for themselves. Don’t assume the extra money is going to those who are actually caring for the patients.

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