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November 22, 2010

Health Care Reform: What Price Progress?

There's a lot of breast-beating going on out there regarding recent "shocking" behavior by many health care provider organizations.  Believe it or not, all across the nation, health care providers are seeking to affiliate/acquire/be acquired in the hopes of creating more efficient, more comprehensive provider networks, which can survive and flourish under new reimbursement regimes designed to squeeze inefficiencies out of the system in an effort to achieve the much-vaunted triple aim of providing high quality health care to ensure population health at a reasonable cost. 

This thread was picked up in Robert Pear's Sunday New York Times piece, Consumer Risks Feared as Health Law Spurs Mergers, which focuses on concerns that prices will go up as health care providers consolidate and gain greater market power.  

Clearly, some structural changes will be required in our health care "system" in order for efficiencies and savings to be realized by us all.  Since in this round of health reform we have not opted for a single payor system, or even a public option (remember the "Gummint out of my Medicare" comments at Obama town hall meetings?), we have to live with the consequences, i.e., continued involvement of market forces.  Thus, savings incentivized by changes in Medicare reimbursement policies will not be realized by the fragmented purchasers of health care services in the private sector unless they are able to adopt a mix of regulatory and market strategies to match those on the provider side (consider, for example, the fraud and abuse and anti-trust exemptions under discussion on the provider side for accountable care organizaitons, or ACOs).

In Massachusetts, we have seen the effects of having the provider market dominated by an 800-pound gorilla (higher prices for services that are not necessarily of higher quality, as documented by the state attorney general's report on the subject and other related state hearing testimony).  It will be very interesting to see what effect the new kid on the block (Cerberus' "Steward Healthcare," which is the new for-profit owner of the formerly Church-owned Caritas Health Care System) has on market dynamics here in the Bay State.  (See Paul Levy's recent take on Cerberus and Caritas, and some older HealthBlawg posts on Caritas -- more here.)  This is but one example of a provider-side strategy for dealing with new realities in the health care marketplace.  Payors may be able to gain firmer footing in their negotiations with provider networks (including dominant networks in their service areas) if they stand their ground.  Thus far, dominant provider networks have been able to cow payors into granting significant concessions, and the costs end up being passed along to the ultimate payors -- the employers and indivuduals who are the payors of ever-increasing premiums.  The reaction to the federales' move to global budgets and shared savings, ACOs and patient centered medical homes, cannot simply be ever-higher cost increases on the non-governmental-payor side.  It's unsustainable, and payors and providers need to work together to fashion a new reality.

Payors that sought to block or modify the ACA now don't want to see it repealed -- the uncertainty would be bad for business.  Providers are largely focused on structural changes (such as the consolidations described in the Robert Pear piece), but must also focus, as Kent Bottles wrote recently, on the cultural changes necessary to enable a more collaborative approach to delivering care in the face of new provider organizational structures, reimbursement systems, and quality metrics.  This is, of course, a requirement in any endeavor involving significant change, and I would add to Kent's recommended reading list John Kotter's writings on change management (highlighted again for me recently at a session I attended at the Annual Healthcare Internet Conference).  Any organization, or group of entities, considering development of an accountable care organization, or ACO, must dig deep into this reading list, and into this approach to thinking about change management.

In the short term, health reform's cost controls focus on ratcheting down fee schedules.  In the long term, however, it's all about moving away from fee-for-service medicine.  This will require broader thinking on the part of both providers and payors, and an openness to collaboration at levels previously unseen.

David Harlow
The Harlow Group LLC
Health Care Law and Consulting



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