Health Reform's Competition Crushers

Liberal consumer groups are aghast to learn that the Obama health team are really monopolists at heart, bent on handing hospitals a cartel in their local markets.

Sunday's New York Times report on this horror confirms what I wrote about in these pages weeks ago ("Killing Marcus Welby," PostOpinion, Oct. 18). I warned that the creation of "accountable care organizations," which put hospitals in control of all the doctors in their outlying areas, would lead to concentrated power over the provision of medical care--turning physicians into salaried employees and reducing consumer choices.

ACOs were invented as a way to cut costs in Medicare. But the administration plainly means to use them as the tools for vastly greater government control of the health-care system, by having them displace traditional health plans.

In anticipation of this, the marketplace is already consolidating. The resulting ACO monopolies will solidify the effects of ObamaCare. Even if the "reform" law is repealed in a few years, it may be too late.

The ACOs will offer coverage directly via the insurance exchanges that the ObamaCare law orders into being in 2014. These exchanges are where most Americans will eventually buy their "private" insurance--and the White House is working to give the ACOs privileges that will let them undersell normal health insurers.

The Obama team is now writing regulations that are likely to exempt ACOs from some of the costly rules that private providers have to play by. For example, the "Stark" rules bar health-care providers from owning the facilities that they refer patients to--so that doctors won't have a financial incentive to prescribe treatments simply because they'll get a cut. But ACOs may escape these restrictions.

The ACO concept aims to copy groups such as Kaiser Permanente, where providers are salaried employees of a large (preferably not-for-profit) entity.

The Obama team may also release the ACOs from key anti-trust provisions. Medicare recently discussed such exemptions with the Federal Trade Commission, so that an ACO can control all the doctors and health-care facilities in its local marketplace. But these antitrust provisions exist precisely because of fear that a consolidated medical provider could drive up regional health-care costs and/or lower the quality of medical care.

The ACO concept aims to copy groups such as Kaiser Permanente, where providers are salaried employees of a large (preferably not-for-profit) entity. The assumption is that insurers are just costly middlemen and doctors financially conflicted unless they are given a salary rather than a fee for each service they provide.

But ACOs are no miracle cure. If they squeeze out insurers, that will invariably limit the choice that patients have on the new exchanges. People will be tied to their local community for most if not all their health care. Going "out of network" will be hard if not impossible.

Since the ACOs will have local monopolies, they'll also have little incentive to compete for more patients in an open marketplace. Yet this is the only incentive that would spur an ACO to truly innovate and improve its delivery of medical care and offer better services.

Private health plans vie to contract with the best doctors and hospitals, creating market prices for services and competition to improve outcomes. If the ACOs squeeze out this competition, the result will be a de facto "single payer": Every market will be controlled by a single ACO, which will in turn answer directly to the feds, with government regulators setting the prices and all the terms of care.

There's nothing inherently wrong with the concept of giving providers a financial incentive to band together and coordinate patient care. The problem isn't the ACOs, but the government rules that will anoint hospitals as the stewards and then tilt the marketplace in their favor, helping them to prevail over private health plans regardless of the quality and efficiency of the care that the ACOs deliver.

Congress must use its oversight powers to ensure that the ACOs have to play by the same rules as other providers. Restrictions on local monopolization and self-dealing grew out of corruption that harmed patients. The ACOs shouldn't get a pass on these rules so that the White House can erect the edifice for a nationalized health-care system.

Dr. Scott Gottlieb is a resident fellow at AEI.

Photo Credit: iStockphoto/Bluberries

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About the Author


  • Scott Gottlieb, M.D., a practicing physician, has served in various capacities at the Food and Drug Administration, including senior adviser for medical technology; director of medical policy development; and, most recently, deputy commissioner for medical and scientific affairs. Dr. Gottlieb has also served as a senior policy adviser at the Centers for Medicare & Medicaid Services. 

    Click here to read Scott’s Medical Innovation blog.

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