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ACOs - the New HMOs?

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Opinion Zone,James A. Bacon

Republicans would have the public believe that the Obama administration plans to control runaway health care costs by means of rationing and death panels. Such drastic remedies may be a logical outgrowth of Obama's bureaucratic, top-down approach to health reform if and when it fails sometime in the future. But right now the technocrats re-engineering America's health care system are optimistic that they have found the solution, or at least a big piece of it. The future, they say, belongs to ACOs -- accountable care organizations.

The premise behind ACOs is that the delivery of health care in the United States is too fragmented. Patients bounce between hospitals, doctors and a host of other players, most of whom do not know what the other is doing. As a consequence, there are too many tests and diagnostic procedures, too little critical information communicated from one provider to another, and too little timely follow-up.

The proffered remedy is more collaboration between providers.  As organizations encompassing tertiary care facilities, community hospitals, clinics, physicians and testing facilities, ACOs provide a cohesive approach to caring for patients. By managing groups of 5,000 patients on more, they can afford to do things like integrate electronic health records, track cost and quality measures and adopt best medical practices. They can coordinate care between different access points in the system, and they can monitor patients to make sure no one slips between the cracks.

It all sounds great in theory. But some Americans may wonder if we've been down this road before. Twenty years ago, Health Maintenance Organizations made similarly grandiose claims. Indeed, Hillary Clinton was so enthralled with the potential of HMOs that she made them the centerpiece of her aborted health care reform package. Even without Hillarycare, HMOs did restrain the increase in health care costs for a time -- but they also inspired a patient backlash that led them to fall out of favor.

The main concern expressed about ACOs is that they may lead to further consolidation of the health care sector, which could give the surviving providers more pricing power in the marketplace and insulate them from the need to drive down costs. Republicans, rather than nurturing the distracting narrative that Obamacare will lead to rationing at some vague point in the future, need to focus on the potential perils of what Obama is actually doing in the real world... right now.

A half year after enactment of the Patient Protection and Affordable Care Act, reports the Wall Street Journal, hospitals and doctors are beginning to set up ACOs. Obamacare will reward ACOs that succeed in reducing the cost of caring for patient populations by giving them a share of the savings. There is reason to believe that this new way of delivering health care can generate real efficiencies. The existing health care system is fragmented and wasteful. There have been some positive, if inconclusive, indications from early ACO-like experiments suggesting that coordinated care can slow the increase in Medicare expenditures.

ACOs may yield positive results, just like HMOs did. But they also may have a dark side... just like HMOs did.

Here is what I worry about. The move to ACOs will accelerate the consolidation of the health care industry into a handful of powerful health care "systems" that include hospitals, clinics and physician practices. In many instances, these systems will create regional monopolies; even when they don't, they still will restrict competition by keeping patients within the system. As monopolies (or mere oligopolies), they will have more power to resist cost-cutting pressures imposed by Medicare, Medicaid and private insurers. While ACOs may save costs in some areas, bigger, bureaucratic organizations will add to costs in other areas. One possible outcome: more layers of administration and more red tape.

Perhaps even more worrisome, the evolution of the health care sector into regional monopolies will stifle experimentation by entrepreneurs with new ideas. A body of thought associated with Harvard business professor Regina Herzlinger contends that the health care industry needs to organize around "focused factories," multi-disciplinary teams that concentrate on treating a narrow set of medical conditions very, very well. The existence of monolithic health care providers, buttressed by protective rules and regulations, will make it very difficult for entrepreneurs to break into protected markets with new business models.

I have yet to hear Republican lawmakers express concern about Obamacare's impact on health care competition. Apparently, the tactic of scaring voters with death-panels was so successful that the GOP plans to stick with the game plan. Obama's heavy-handed approach to health care cries out for oversight, but as long as Republicans are chasing the "rationing" phantasm, they won't be the ones to provide it.

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