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Navigating Health Care Coordination and Industry Consolidation

The Bipartisan Policy Center (BPC) recently released A Bipartisan Rx for Patient-Centered Care and System-Wide Cost Containment, an effort led by former Senators Tom Daschle, Bill Frist, Pete Domenici, and former OMB and CBO Director Dr. Alice Rivlin, that calls for a comprehensive approach to system-wide health care improvement and cost containment. As policymakers consider changes to federal health programs and the tax code, versions of many of the proposals included in our report have entered the national discussion. In a series of posts, we will provide a deeper dive into some of our proposals, along with comparisons to similar proposals, and, very importantly, how they fit into broader efforts for reform. Read the first, second and third entries in the series.

Our last post in this series discussed Medicare Accountable Care Organizations (ACOs), which are organized systems of care delivery that reward providers for delivering high quality, cost effective care and better coordinating patient care needs. In our recent report, BPC offered a strategy for strengthening the current Medicare ACO project (the Medicare Shared Savings Program or “MSSP”) and engaging patients and providers in ACO formation and growth. To ensure high quality care and control high and rising spending across the entire health care system, BPC hopes to encourage all providers and payers to move toward organized systems of payment and delivery that are accountable for outcomes and value. Over time, organized systems of care will replace the dominant model of health care delivery and payment ? fee-for-service.

Fee-for-service reimbursement does not encourage providers to communicate and collaborate when they deliver care to patients. BPC’s report on health care cost drivers noted that fee-for-service reimbursement can encourage fragmentation in care delivery and drive up overall health spending. Fragmentation in care occurs when providers fail to share important information about patient health needs or status. This can lead to a variety of consequences that increase medical costs without helping patients, such as unnecessary spending on multiple, costly imaging tests. Fragmentation can also contribute to preventable medical errors that jeopardize patient safety, such as health care acquired infections. The solution to fragmented care is coordination and payment systems that are set up to reward providers for working together.

While greater financial and clinical integration of providers can bring about higher quality care at a lower overall cost, increasing provider consolidation does pose certain risks. Growing consolidation has been an ongoing trend in the current health care landscape, much of it unrelated to payment and delivery system reforms as part of a transition from fee-for-service and toward more coordinated and accountable care models. For example, the chart below from the New England Journal of Medicine illustrates the increasing trend of hospitals acquiring physician practices. Additionally, insurers interested in ensuring access to primary care services for their members and more directly controlling delivery costs are increasingly acquiring physician practices.

Percentages of U.S. Physician Practices Owned by Physicians and by Hospitals, 2002?2008

Physician Practices Ownership

Source: Kocher R and Sahni NR. Hospitals’ Race to Employ Physicians ? The Logic behind a Money-Losing Proposition. N Engl J Med 2011; 364:1790-1793 May 12, 2011; Data from the Physician Compensation and Production Survey, Medical Group Management Association, 2003?2009.

While consolidation can facilitate investment in systems that promote coordination and quality, such as health information technology and enhanced primary care, it does not necessarily achieve this. In particular, acquisition of physician practices by hospitals has been driven largely by financial considerations, such as establishing a steady stream of referrals and increasing negotiating leverage with payers. Combined with fee-for-service payment, consolidation can limit consumer choice and decrease the incentives for providers to innovate and strive for cost efficiency. Given that consolidation is happening already, the key challenge is to change financial incentives to encourage quality and value, which can be driven by payer leadership from both Medicare and the private sector, such shared savings ACOs, payment bundles, and tiered networks.

Balancing the need for flexibility to allow innovative, high-quality care delivery models with the need to prevent potential anti-competitive behavior and, at the same time, reduce the risk of fraud and abuse, is a complex task for state and federal regulators. When overseeing entities working to coordinate care, regulators need to make careful judgments about whether, for example, a group of physicians are sharing in the savings associated with reducing costs and improving patient care, or if they are denying patients needed treatments and services to increase profits.

This uncertainty can also present a barrier to providers who are considering moving toward greater clinical and financial integration but are concerned about violating fraud and abuse or antitrust laws. To help providers interested in forming ACOs for the Medicare program via the MSSP, the Centers for Medicare and Medicaid Services (CMS), the Department of Health and Human Services (HHS) Office of the Inspector General, the Federal Trade Commission, the Department of Justice, and the Internal Revenue Service worked together to release guidance that provided relatively clear expectations for providers participating in the MSSP. This guidance addressed fraud and abuse, antitrust, and tax status. In our report, BPC calls for comparable guidance for providers who are interested in forming an ACO in the private sector, separate from the Medicare program. Clinically integrated, private-sector entities should be able to safely assume ? within reason ? that they are behaving legally if they follow this federal regulatory guidance. Offering private sector providers and payers more clarity should help streamline and accelerate the transition to more coordinated and accountable systems of care across the entire health care system, while maintaining regulatory oversight.

Encouraging the formation of private sector ACOs through regulatory reform may help to slow the trend of consolidation through outright mergers. By promoting a framework in which independent providers (such as physicians and hospitals) can form financial and clinical relationships short of corporate integration, ACOs could enable the quality and cost benefits of consolidation while maintaining a diversity of independent providers in the market.

While guidance for private-sector ACOs is needed in the near term, BPC also calls for a comprehensive review of current fraud and abuse laws. In brief, violations of federal fraud and abuse laws can include arrangements that: encourage providers to reduce or limit services to patients, offer rewards for certain patient referrals, or allow physicians to refer patients to providers in which they have a financial stake. The fraud and abuse laws in place today were created several decades ago to address physician behavior and reimbursement in a fragmented, volume-driven, fee-for-service environment and do not necessarily support the goals of new payment models and coordinated, high-performing systems of health care delivery. Additionally, these laws do not account for the growing integration of quality metrics into provider reimbursement models.

As the nation transitions away from fee-for-service, a continual focus on historic patterns of provider behavior within this inefficient payment structure will become increasingly less relevant and less useful, and may even impede the transition toward a value-driven health care system. HHS and other relevant agencies should conduct a comprehensive review of the role and effectiveness of the fraud and abuse laws to decide whether they should be replaced or revised substantially.

BPC supports improved tools for regulators responsible for market and antitrust oversight. Though many coordinated delivery systems will form with the primary goal of providing better care to patients and consumers, ACOs and other consolidated provider entities are likely to hold considerable power over local markets. As more systems with the potential to exercise significant market power emerge, regulating these entities effectively without stifling innovation will require the development of knowledge and resources. Instead of focusing myopically on slowing or limiting clinical and financial integration, the nation should strengthen tools to address potential antitrust abuses in a manner that can facilitate an improved health care practice structure. One possible strategy is to provide additional information resources to the FTC, by authorizing the agency to gather market data on a more proactive and routine, rather than case-by-case, basis.

Accelerating the formation of integrated systems of payment and health care delivery is important to creating a sustainable future for our health care system. BPC supports strategies that ensure responsible regulatory oversight of health care market competition and consolidation during this transition period and beyond.

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