The current reorganization of health care could make it better and cheaper for everyone, harnessing real creative and competitive energies to build the “next health care” —or it could lead to local monopolies, higher prices and less real competition where it matters. The many and various moves toward accountability, competition and transparency could defeat themselves.

The theme of the reorganization is clear: new types of cooperation between physicians, hospitals and other providers that cut down on duplication and unnecessary procedures and tests; that make the system accountable both for processes and outcomes; and that share economic risk among the providers. This new and strange cooperation comes in many types, typically labeled “accountable care organizations” (ACOs), “bundling,” “patient-centered medical homes” (PCMHs) and “co-management.”

All these concepts require new structures: complex organizational, contractual, reporting, liability and payment structures that in one way or another stretch across specialties and providers throughout whole regions. What could these new structures (particularly ACOs) look like if they were to turn evil? They could look like monopolies, like regional health care cartels, capable of forcing other providers into disadvantaged relationships and jacking up prices to health plans and employers.

Legal hurdles

These new structures are absolutely necessary for the new era. They are key to making the system work. No better alternative has been proposed or seems likely. Yet many of them also seem to be illegal unless laws are reexamined. One Medicare/Medicaid law severely penalizes any institution that knowingly gives a physician any compensation “as an inducement to reduce or limit services.” The law makes no allowance for the possibility that you might be paying a physician a bonus to reduce duplicative, unnecessary or even inappropriate services. Doing anything to limit even inappropriate services could get you bumped from the program and denied any compensation from Medicare or Medicaid.

Other laws make it a crime to pay physicians any inducement to refer their patients to any particular institution. Any kind of “gain-sharing” bonus obviously depends on their referring patients to your institution (you’re not sharing somebody else’s gains), so it’s illegal. The thicket of Stark laws and the prohibitions in California and some other states against the “corporate practice of medicine” can make it tortuously difficult to bring physician practices and other services under the same roof. Similarly, health systems attempting to create comprehensive regional organizations find themselves continually running up against anti-trust laws and in need of waivers from the Department of Justice.

These laws were designed to protect the public from corporate predation and monopoly, but they represent an outmoded concept of how health care should be organized—a view of health care as a cottage industry built out of small, unrelated entities. For the new era to work, these laws and regulations must be changed.

At the same time, those laws and regulations had a purpose: to restrain health care organizations from enriching themselves at the expense of the public. Without them, we are left with only our good intentions and high moral stature.

Not for comfort

We are all homo economicus—you, me, the guy down the block and all the organizations we work for, whether they are for-profit or nonprofit. Nonprofit status does not keep us from competing for what we perceive as best for us personally, or for the organizations we serve. This is only what is best for our customers if we are forced to it, if truly serving our customers is the most efficient path to making ourselves comfortable.

Yes, we all care about the health of the people we serve. We are all in this together, serving the public. Let’s all hold hands and sing one more chorus around the campfire. Then let’s get back to work to create organizations that are not just “not-for-profit,” but “not-for-comfort,” organizations willing and able to take on real risk, to actually compete for customers on the basis of real results and real prices.

Do we need another set of laws to restrain us and make us do the right thing? Mostly, the answer is no. What we need, and what we are getting, is far more vigorous and demanding customers, and something approaching real transparency. If we don’t create a competitive, risk-accepting provider market ourselves, our customers will find ways to create it for us.

Redesigning markets

We don’t need to just build ACOs and PCMHs and OWAs (“other weird arrangements”). We need to redesign regional health care markets to create real point-of-care competition for particular types of care.

ACOs, bundling, PCMHs and co-management are not just the different types of new organizations that are on offer. They also map out the nature of “taking on risk.” It is appropriate for hospitals and health systems to take on a larger share of the provider risk simply because they are usually bigger than the physician organizations they work with. Individual physicians can take on risk appropriate to the size of their business model in the form of performance incentives and per-patient-per-month payments.

The goal: real competition within each region for measurable price and quality goals at the level at which buyers make choices. Let’s unpack this:

Competition. Real competition exists in a given market when the buyers:

• have the ability to make choices (they are not locked in by law, contract or some other constraint);
• have suppliers of comparable goods and services they can choose among; and
• have real information about the costs and benefits of the choices.

Buyers. Buyers are those who choose a product and pay for it. The “buyers” in health care are health plans, employers and government, as well as patients and their families who (together with doctors) drive individual utilization decisions. In a more transparent, “consumer-directed” world, we can expect the health plans and employers, especially, to get very aggressive in shopping for the best health care at the lowest cost.

Region. The definition of “region” (or “buyer catchment area”) varies with the nature of the service. People will travel for laser eye services or hip replacements if there is a much better provider elsewhere. Birthing? You’d better be able to get there after the contractions start.

Measurement. There is no competition if you can’t tell the buyers how much it will actually cost them, and show them how good it is.

Level of choice. For the most part, people are not trying to buy “health care.” They are trying to buy solutions to their health problems. Despite all your efforts at branding, patients usually do not make choices about what is the best system. They ask, “What’s the best place to deal with my particular problem?” In a “consumer-directed” system, an aching back, a diabetes diagnosis, a metabolic syndrome or a pregnancy become conditions that require care. The consumer asks, “What’s the best solution?” Employers and health plans will increasingly be asking that question forcefully as proxies for their employees and members.

If you don’t have each of these elements, you don’t have a truly competitive market. But don’t be surprised when the employers and health plans in your area manage to create competition for you, when you least expect it, against your most profitable service lines.

Beyond “aligning incentives”

Finally, in order to create a truly competitive regional market, you must involve the physicians in strategic decision making, simply because you need their support, and people support what they create. Their involvement must go way beyond aligning incentives. This is true whether they work for you or not, or work for some larger entity that you helped create. You can effectively create more doctors by lifting non-medical burdens from them, burdens such as IT, measurement, liability and insurance, either by taking them on directly (if they are on your payroll) or by helping them streamline their practices.

This is what we are seeing take shape across the country: a wholesale reshaping of health care markets, prodded and encouraged by the reform act, but pushed by far more powerful forces in the private, “consumer-directed” and increasingly employer-directed private market. These forces engage us in real change at a much deeper level than legislation ever could. It’s time to get clear on the goal and head there.

Joe Flower is a healthcare speaker, writer, and consultant who blogs at Healthcare Futurist: Joe Flower.

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