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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