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A More Positive Outlook on Provider Consolidation

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You should read Dr. Scott Gottlieb’s (The Doctor Won’t See You Now. He’s Clocked Out) opinion piece in the Wall Street Journal. He argues that ObamaCare is making independent physician practices obsolete by forcing physicians to work for big hospitals as part of Accountable Care Organizations (ACO), is  imposing high costs for information technology on those who try to remain independent, and that the Administration’s policies will have the ironic consequence of driving up costs since employed physicians are less productive.

There’s a lot of truth in the article. As I have written recently, fees sometimes rise when hospitals buy physician practices and tack on facility fees. And in my prediction for 2013 published by InformationWeek I predicted that physicians will struggle to stay independent.

But although I mainly agree with Gottlieb’s observations, I’m more optimistic than he is, and less eager to point the finger at ObamaCare. In particular:

  • The trend toward hospital employment has been going on for a long while now, as Gottlieb acknowledges. One could say ObamaCare encourages this trend but from my perspective the bigger factors are the desire to join with a bigger entity to negotiate better rates with managed care, a generational shift as younger doctors decide they want balance between life and work (especially women, who now comprise the majority of medical students), and the rising overhead involved in running a practice. Ironically, physicians I’ve spoken with have cited the cost of health insurance for staff as a reason for joining up with the big boys!
  • ObamaCare does not require anyone to be in an ACO and does not require them to be run by hospitals. Physicians could organize their own ACOs and I hope in the future more do, even if that hasn’t been the way things have gone so far
  • Health IT is a drag on small office but also for big hospital based systems. Those inefficiencies will take a few years to work out but I’m optimistic that a new generation of systems will empower the small physician practice, the way technology has made it possible to operate smaller professional services firms in consulting, law and other fields
  • Costs are becoming a bigger and bigger focus, and the country just won’t tolerate health care prices that go up and up. The facility fee issue and Steven Brill’s article in Time on costs are two examples. It’s commercial health plans, not government programs, that have been tolerating higher costs. Buying up physician practices may help hospitals negotiate hard with commercial health plans but Medicare and Medicaid are not going to be impressed. In the long run –maybe 10 years– hospital systems that fail to generate greater efficiency from buying up practices will lose ground to new types of entities, especially those that are virtually integrated through technology. As Gottlieb pointed out, we’ve been through the cycle of physician acquisition by hospitals before, and it was reversed due to lagging productivity
  • ObamaCare represents a great big target to shoot at, and easy to criticize in a vacuum. But we have to compare it with what came before, which was hardly a panacea.
By David E. Williams of the Health Business Group.


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