Legal scholar Kevin Werbach once observed that the internet has been centripetal , “pull[ing] itself together as a coherent whole.” For Werbach, network formation theory both explains these centripetal tendencies, and some of “the pressures threatening to pull the Internet apart” into balkanized units. Werbach counsels that governments need to “catalyz[e] network formation, and moderat[e] the forces that push towards excessive concentration of power.” These recommendations should also govern new efforts to create “virtual networks” of care in the wake of the new health reform legislation (the ACA).
Critics of the ACA have frequently complained that the legislation does not do enough to improve quality or to cut costs. However, the act did create incentives for new alliances of hospitals and doctors, known as “Accountable Care Organizations.” Now provider lobbies are demanding some pretty dramatic changes to health care regulation in order to implement ACOs . In this post, I want to explain what ACOs are , and why they challenge traditional health care regulatory models.
What’s an ACO?
Elliott Fisher, director of the Center for Health Policy Research at Dartmouth Medical School, describes the “three key attributes” of ACOs: “organized care, performance measurement, and payment reform.” Fisher has argued that insurers are not well-positioned to improve the quality of health care because they “have largely focused on negotiating favorable prices within relatively open networks of providers” instead of trying to improve the health care their members received. (Private insurers have little incentive to keep current subscribers healthy over the long term, since at least half of subscribers on average churn into different plans within three years of signing up with a given plan.) He believes that a “virtual network” of physicians could do a better job, if they teamed up with hospitals. ACO refers to this legal alliance, which would be entitled to receive payments in exchange for cutting costs or improving quality.
In an ACO, an “extended hospital medical staff” (or “a hospital-associated multi-specialty group practice”) can join forces with a hospital and agree to be compensated via a lump sum payment. If the group manages to keep overall costs beneath the lump sum payment, it can share the gains among its members. Each part of the team also has an incentive to work together to keep those they care for healthy. In an ideal world, the ACO responds to the concerns about fragmentation discussed in last month’s symposium on the Elhauge-edited volume recently released by Oxford University Press.
But there are skeptics . Jeff Fisher worries about shadowy new pressures on providers that patients won’t be aware of:
Gail Wilensky believes that hospitals may dominate ACOs, predicting that “if they are the only entities receiving the payment, it will have a bad imbalance between groups of physicians and the hospitals.”
Robert Pear has also reported that a “frenzy of mergers involving hospitals, clinics and doctor groups eager to share costs and savings” worries consumer advocates and antitrust scholars.
Why do ACOs implicate fraud, abuse and antitrust laws? At a recent government workshop on ACOs , participants addressed “circumstances under which collaboration among independent health care providers in an ACO permits ACO providers to engage in joint price negotiations with private payers without running the risk of engaging in illegal price fixing under the antitrust laws.” HHS also explored “the different ways in which the Secretary may exercise waiver authority or create new exceptions and safe-harbors related to the physician self-referral law, the Anti-kickback statute and the CMP law in order to encourage the creation and development of ACOs.” The AMA has pushed for “explicit exceptions to the antitrust laws” for participating doctors. And, as Pear reports, the president of the Federation of American Hospitals says “the fraud and abuse laws should be waived altogether.”
Evolving Fraud, Abuse, and Antitrust Laws
What is one to make of all this? Many health law scholars have been skeptical of fraud and abuse laws for some time. For a taste of the scholarship, consider this excerpt from Mark A. Hall’s 1988 article in the Journal of Health Politics, Policy, & Law:
Over the past 20 years, regulation of fraud and abuse has waxed and waned. In 1996, James F. Blumstein concluded that “the modern American healthcare industry is akin to a speakeasyconduct that is illegal is rampant and countenanced by law enforcement officials because the law is so out of sync with the conventional norms and realities of the marketplace.” Nevertheless, as Joan Krause has shown , there are important public purposes behind these laws, and it’s troubling to see a hospital leader simply advocate for them to be swept away tout court in the case of ACO’s.
Antitrust issues are also complex here, and perhaps help demonstrate the wisdom of delaying the implementation of at least this part of the ACA for a few years. As Tim Greaney has demonstrated time and again, providers have had little to fear from antitrust laws over the past decade. His 2007 article on physician cartels memorably summarizes the situation for doctors:
It’s hard to read Greaney’s work on the topic without concluding that a toxic mix of “doctrinal shortcomings, political pressures, and institutional constraints” have severely compromised antitrust enforcement already. Greaney’s 2004 article on antitrust in health care, Chicago’s Procrustean Bed, also suggests that health care antitrust has, for years, been biased “strongly [in] favor defendants” due to the persistent failures of Chicago-inspired doctrine to reflect “market imperfections” in health care.
Reduced Regulation Should Be Conditioned on Better Calibrated Payments
One could draw two lessons from these trends. Perhaps policymakers should be cautious about granting overly broad antitrust exemptions to ACO’s in a field where competition law’s prerogatives have already been whittled away.
Or one could call health care antitrust a largely failed project, and start regulating dominant ACO’s as veritable health care utilities, as critical to regional infrastructure as roads, electricity, or water. The logic of concentration seems inevitable in the field: insurers and providers have long been in an arms race for bargaining power. Joe White has explained the dynamic:
What can be done in a health care marketplace that’s increasingly looking like the “clash of the titans?” Perhaps inspired by the utility model, Maryland has implemented a hospital payment system where “all payerspublic and private pay the same rates .” If ACO’s deliver a coup de grace to insurers’ efforts to control provider prices, it’s only fair that the same governmental authorities behind the ACO movement condition its rewards on the responsibility to provide affordable care.
ACA stands for Affordable Care Act, not Accountable Care Organizations Above All Else. ACOs may work, but only if policymakers can replace classic instruments of health care regulation with calibrated financing decisions that reflect new industry realities.