ObamaCare: Bureauwonks to the Rescue!

Another day, another trendy bureaucratic health system “fix” from the authors of ObamaCare. The technocratic buzz this week centers on Accountable Care Organizations (ACOs), which are intended to reduce waste and increase the quality of care by encouraging systematic coordination between teams of doctors and specialists. Many of the problems ACOs are intended to address are real. But it’s unlikely that ACOs are the solution; the end result may be to exacerbate many of the difficulties they’re supposed to solve.

Just about everyone agrees that there are serious issues with the way the American health system administers care: Earlier this month, for example, the Government Accountability Office reported that Medicare spends an estimated $48 billion each year on “improper payments” to doctors and other health care providers. To put that in context: Medicare wastes almost four times what private health insurers make in profit each year. That’s the astounding cost of fraud, carelessness, and mismanagement in Medicare today.

More generally, fee-for-service medicine—which pays doctors based on how much they do—encourages doctors to do more, and thus spend more, without performing much in the way of cost-benefit analysis. The fact that roughly 90 percent of all medical care is paid for by a third party—either a private insurer or a government program—only exacerbates the problems associated with the fee-for-service model.

ObamaCare’s authors hoped to ameliorate some of these problems by calling for the creation of Accountable Care Organizations, in which doctors and specialists band together in order to provide coordinated care. These teams of providers are supposed to be given incentives to deliver the best care for the least cost; if care ends up costing less than expected, providers pocket the difference.

In theory, coordinating groups of medical providers and specialists is not a completely terrible idea. As Cato’s Michael Cannon and Arnold Kling argued in 2009, the idea that doctors are “independent craftsmen is anachronistic.” Medicine has become more complex over time, and it’s reasonable to think that the delivery of care ought to follow suit:

When a patient has multiple ailments, there is no longer a simple doctor-patient or doctor-patient-specialist relationship. Instead, there are multiple specialists who have an impact on the patient, each with a set of interdependencies and difficult coordination issues that increase exponentially with the number of ailments involved.

Patients with multiple diagnoses require someone who can organize the efforts of multiple medical professionals. It is not unreasonable to imagine that delivering health care effectively, particularly for complex patients, could require a corporate model of organization.

Cannon and Kling focus on two problems: First, the ubiquity of fee-for-service payment, which they say is “heavily entrenched by Medicare, Medicaid, and [various] regulatory and tax distortions”; second, state licensing regulations that prevent private health care firms from implementing business-side innovations. These are real problems: The practice of medicine is both highly regulated and dominated by government-run payers like Medicare. As a result, health care delivery is built around those regulations and those payment systems rather than around the needs and wants of patients. Medicine is optimized to survive regulatory scrutiny, and to extract money from a payment system that isn’t based on market-driven price signals.

Unfortunately, ObamaCare’s ACOs don’t do much to address these problems. Instead of freeing medical providers from the constraints of government regulations and payment systems, they add more requirements. Earlier today, the Obama administration released 427 pages of proposed new rules regarding the implementation of ACOs. These rules, according to Donald Berwick, the health policy superwonk now running the Centers for Medicare and Medicaid Services, “will define how physicians, hospitals, and other key constituents can adopt this new organizational form.” In other words, the new rules constitute a detailed attempt by the federal government to tell primary care doctors, specialists, and other providers exactly how they should work together. Rather than encourage private, market-driven experimentation, ObamaCare’s ACOs create yet another model of care built around satisfying government rules and regulations.

Will ACOs work? It’s doubtful. Similar efforts have been made before. For the most part, they didn’t pay off. Coordinated care pilot programs were run on a carefully selected group of high-performing medical institutions, and only half were able to achieve any savings—which suggests that these sorts of programs will be difficult, at best, to scale. As even Berwick carefully admits, “not all previous efforts at developing a model of shared savings have met expectations.” But this time will be different, surely. 

Government estimates suggest that ACOs could result in about $4.9 billion in savings over the next ten years—not a huge amount in terms of government spending, but not chump change either. Yet critics worry rather reasonably that they may actually make care more expensive. Why? Because consolidating providers gives them more market power. That makes it easier for them to negotiate higher reimbursements. Here’s what The New York Times reported last November:

Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.

“The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,” said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. “The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.”

...They face a delicate task: balancing the potential benefits of clinical cooperation with the need to enforce fraud, abuse, and antitrust laws.

In the past, as S.M. Oliva reported for Reason last November, the Federal Trade Commission has gone after doctors who’ve tried to organize across practices, charging them with antitrust violations for coordinating care and payment. But ObamaCare is now pushing doctors to, well, band together to coordinate care and payment. The federal government’s regulatory enforcers and health policy bureauwonks can’t seem to coordinate their own positions. They should stop trying to decide at all. In a saner world, antitrust regulators wouldn’t be attacking doctors for working together, and health bureaucrats wouldn't be telling providers of any stripe how and whether to coordinate their practices.

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  • prolefeed||

    the idea that doctors are “independent craftsmen is anachronistic.

    As someone who is married to a doctor, I'm gonna call bullshit on this. Medical care isn't run by committees, it's run by individuals with differing levels of skill. It's not a fucking assembly line.

  • Peter Suderman||

    No, it's not an assembly line. But I think the point is that given the complexity of medicine and the proliferation of ever-narrower specialties, a lot of ailments really do seem to require teams, working in tandem, to treat effectively. That wasn't always the case. But these days, when thinking about how best to deliver care, it's useful to keep in mind.

  • ||

    I think you misread what was described. Primary care doctors have a system of specialists that they can and do refer patients to when the issue may exceed their comfort zone of diagnosis. Coordinating that knowledge to streamline patients to the right specialists and/or being able to bring in the appropriate specialists quickly is a noble goal, if not one best handled by bureaucrats.

  • Vermont Gun Owner||

    Prolefeed, please hold your comments until we get to the important matters. Like the lack of alt-text.

  • PharmerJ||

    No, it most certainly is anachronistic. As a fellow health care provider, the "independence" was maintained as a policy position by the AMA. The AMA is incredibly protectionist, as seen today within Medicare, relative value update committees, and their control over the billing system. The licensing system set in place has allowed them to essentially ignore consumer preferences, otherwise known as customer service. Ever notice how few physician comparison sites there are? Ever notice how people really do not spend much time selective a specific doctor? It's because they don't see much of a difference. There is little differentiation, as Sunderman mentions.

  • Gomer Pyle||

    Instead of freeing medical providers from the constraints of government regulations and payment systems, [ACOs] add more requirements.

    Surprise, surprise, surprise!

  • Au H20||

    I am shocked, shocked, to find gambling in this institution!

  • Fist of Etiquette||

    Some day they will craft that one perfect regulation, and then... utopia.

  • Old Mexican||

    These rules, according to Donald Berwick, the health policy superwonk now running the Centers for Medicare and Medicaid Services, "will define how physicians, hospitals, and other key constituents can adopt this new organizational form."


    Never mind individual choice or direct provider-customer relationships. Central Planning will work this time!

  • Old Mexican||

    [T]he Federal Trade Commission has gone after doctors who’ve tried to organize across practices, charging them with antitrust violations for coordinating care and payment. But ObamaCare is now pushing doctors to, well, band together to coordinate care and payment. The federal government's regulatory enforcers and health policy bureauwonks can't seem to coordinate their own positions.


    That's because they will always be conflicting positions. That's how government departments work: like fiefdoms, playing Santa Paravia en Fiumacchio, with OUR MONEY.

  • Angel of Fiscal Responsibility||

    Medicare wastes almost four times what private health insurers make in profit each year.

    This cannot be overemphasized. Until people who commit such fraud are required to devote the rest of their lives to extreme medical experimentation required to pay huge fines this crap will continue.

  • Fraudster||

    devote the rest of their lives to extreme medical experimentation

    Dear Sir/Madame: I thought that's what I was doing.

  • Old Bull Lee||

    That's all we need, fucking project managers for medical treatment.

    "Okay guys, I'll send out an Outlook meeting invitation to set up the conference call so we can just get a feel for the situation with Mr. Lee's appendix and exchange contact information. Now I'm going to make the appendectomy date Friday, but that's just a placeholder date until we can get a conference call going with his insurance company. Once we talk to the insurance people we'll go from there. I'm going to be out Wednesday, and then next week is a shot week, so how does Monday sound? We can review the project implementation worksheet and go from there, maybe hammer out the specifics later?"

  • PharmerJ||

    This scenario only happens under government regulation. If there was a greater response to consumer demands and preferences, this would not happen.

  • ayyy-non no mus||

    I'm a licensed health care provider in a highly regulated specialty. I spend a great deal of time complying with regulations that add no value to the patient's care. I don't like to waste time and money but regulatory bureaucracies leave me no choice. It's not just that I won't get paid. If I don't comply with many of their demands I will disciplined, even possibly subjected to a licensectomy. So I comply along with my co-workers.
    Many regulations are made using worst case scenarios in which the bureaucrats making the regs want to be sure that no one can blame them if a low probability adverse event occurs. They want to be able to show that they made a regulation against the known risk factors for that low probability event. This means that massive amounts of money get wasted in order to comply with regs that have been made for CYA reasons.
    It's not that the regulatory bureaucrats are bad people. It's just that in our "Fix the blame, not the problem." culture the regulatory bureaucrats are very foolish if they don't play CYA games with health care dollars.
    More regulations will not cure a sick culture.

  • mad libertarian guy||

    It's not that the regulatory bureaucrats are bad people.

    Citation needed.

  • ||

    A good concept but obviously the devil is in the bureaucratic details. My additional concern is that the highly resourced (and therefore dominant) player in an ACO will be the hospital/hospital system. They've not demonstrated either an ability to understand multi-disciplinary management across the care spectrum or an ability to provide service in the lowest cost venue (i.e. NOT IN THE HOSPITAL)

  • ||

    I've read the ACO rules. They are not well drafted at all. As I told my CEO, they are cumbersome, micromanaging, and at times incoherent. Pretty much what you would write if you wanted to deter as many people from forming an ACO as you could.

    Space prohibits me from detailing how bad these are, but this one tidbit gives the flavor: All marketing communications from an ACO (which include the mandatory letter from the ACO to a patient who has been assigned to it) must be approved by CMS.

    The FTC is on record that they will apply the same standards to providers joint venturing in an ACO as always. Those standards have meant that there are virtually no provider joint ventures of this kind in the country.

  • Vermont Gun Owner||

    We have plenty of free space. And it's not even "government" free. It's as much as you want.

  • ||

    Ok, so before, we were incentivizing doctors to provide more services. Now, we'll incentivize them to perform fewer services! Doctors will make more money, the less they care for their patients. What could go wrong with that?

    It sounds like just another attempt at capitated health plans. Been there, done that.

  • ||

    It sounds like just another attempt at capitated health plans.

    That's exactly what it is. A stepping stone back-to-the-future HMOs, this time slathered in even more useless paperwork.

    Fortunately, I make my living on useless paperwork. I'll be in monocles and tophats until I either quit or SCOTUS throws the whole thing out.

  • alan||

    That's exactly what it is. A stepping stone back-to-the-future HMOs, this time slathered in even more useless paperwork.

    Ah, that is where that feeling of deja vu was coming from!

  • ||

    Medicare wastes almost four times what private health insurers make in profit each year.

    WHAT THE FUCK!??!

    Isn't this the whole argument of why we need medicare?? That it will be cheaper because there is not profit??

  • mad libertarian guy||

    Seriously.

  • Hugh Akston||

    I'm a little late on this thread, but I will say that the second pic is the most heinous case of alt-text fail I have ever witnessed on this blog.

    Shame on you, Suderman.

  • PharmerJ||

    The often ignored problem in health care these days is the deadly combination of insurance and the hospital monopoly. In many areas of the country, hospital systems are buying out local doctors and other less regulated profit streams. Many times they are nonprofit, so they are often ignored by antitrusters. The ACO is only going to accelerate this process, as there is much more horizontal integration instead of vertical integration. It's been easy to blame the insurers, but the insurers hands are tied when they have little negotiating power with the few hospital systems in the state. See Massachusetts.

    As a side note, I would like to point out that the health care system has regulated my profession (pharmacy) so much that it is not much more profitable for me to open up a drug supplement store to sell all the ineffective shit that is all natural and sellable to the rich hippies that are out spending the $7000 Chevy Volt subsidy. /end rant

    A naturally occurring monopoly is perfectly legitimate, but these are monopolistic businesses formed at the behest of the government. Prices would typically hit a ceiling with a regular monopoly, but with health insurance there is little to no price sensitivity so the sky is the limit for these hospital systems. I can only wait to see the villains the Democrats are going to call out when their plan doesn't go as intended. I always think they will run out of villains.

    In short, grab the lube and get ready to call Medicare your daddy.

  • ||

    In many areas of the country, hospital systems are buying out local doctors and other less regulated profit streams.

    Nobody but a fool buys doctor practices. This lesson was learned in the '90s.

    Hospitals may employ doctors directly or indirectly, but they don't make a profit on the doctor's practice. They probably lose money on that end, but try to make it up on the back end, through referrals.

    Many times they are nonprofit, so they are often ignored by antitrusters.

    Well, err, no. The FTC is famously and ferociously hostile to medical joint ventures and combinations. It makes no difference if nonprofits are involved or not.

    Take a look at the books of hospitals and health systems. You won't see monopoly profits. Seriously, look at the charts for the big for-profit chains: CYH is flat over the last year.

    Hospitals have huge fixed costs, cannot turn away any patients due to EMTALA, and are married to Medicare and Medicaid for a big chunk of their income, programs which do not cover out-of-pocket costs.

    That's not to say that there aren't hospitals with dominant market positions who squeeze the insurers, and plenty of waste and whatnot in big hospital systems. But rapacious predators abusing poor widdle Blue Cross? No.

  • air max france||

    maybe too tired

  • PharmerJ||

    If you do not agree with the trend that hospital systems are employing more doctors, then I suggest you do a simple literature search. I don't blame them. There is a less administrative burden and you are exactly right, hospitals gain business through referrals and funneling patients through whatever profit streams Medicare is pushing that year.

    Hospitals do have large fixed costs, which is why more are doing ambulatory surgery centers and bring in outpatient practices as inpatient care is declining. While it is commonly reported that there is a lot of bad debt associated with EMTALA, uncompensated care has not significantly restrained earnings growth of hospitals. The current accounting methods used to calculate bad debt overstates the true cost of treating charity care patients, typically up to 3x. Most hospitals let the charity burden fall more on the public hospitals that receive the DSH payments anyway, and then just abuse the tax exemptions by spending profits through regressive redistribution - equipment. New facilities and equipment provide greater security of market dominance. You won't see "monopoly profits" on the hospital sheets. You'll see it in higher premiums.

    The ACO rule is just going to accelerate the process even more. What will be interesting to see is if more non-profit insurers or hospitals go for-profit. I doubt they would due to public opinion executive, but who knows. All of this is essentially constructed to make sure that the "private market" fails and politicians can blame it again, despite the fact that Medicare/AMA buried the free health care market a long time ago.


    The FTC is typically against independent physician-owned facilities banding together, not hospitals, non-profit or otherwise. It is also important to note that hospital mergers have led to price increases of 40% in local markets. Between 1995 and 200 the federal courts consistently ruled in favor of nonprofit hospital mergers. For some reason it was assumed that nonprofit hospitals would not abuse their market power and raise prices following elimination of local competition. It hasn't been until recently that the FTC has taken a stronger stand, and only THAT was when there was convincing proof after the merger that there was substantial raising of prices.

    In MA, most of this is a little more apparent. Prices for health services are positive correlated with market power, with Partners mostly responsible for leveraging the market to extract the higher prices from insurers.

  • Robert D. FInney, Ph.D.||

    Original investigations exposing how Kaiser Permanente rigs its accountable care organization to ration and deny health care are posted on hmohardball.com.
    Robert D. Finney, Ph.D.

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