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John C. Goodman / Aug. 23, 2013

ObamaCare Pushes Big Medical Practice Changes

The Affordable Care Act will have a profound influence on how doctors practice medicine; and the way hospitals care for patients. The clearest explanation of the Obama administration's vision for health care reform comes from Harvard Medical School Professor Atul Gawande, who says medicine should be more like engineering, with all doctors following the same script rather than exercising their individual judgments.

The Affordable Care Act will have a profound influence on how doctors practice medicine; and the way hospitals care for patients.

The clearest explanation of the Obama administration’s vision for health care reform comes from Harvard Medical School Professor Atul Gawande, who says medicine should be more like engineering, with all doctors following the same script rather than exercising their individual judgments. Gawande argues:

“This can no longer be a profession of craftsmen individually brewing plans for whatever patient comes through the door. We have to be more like engineers building a mechanism whose parts actually fit together, whose workings are ever more finely tuned and tweaked for even better performance in providing aid and comfort to human beings.”

Another strong proponent of the Obama administration viewpoint is Commonwealth Fund President Karen Davis. She explains what this will mean for the organization of medical practice:

“The legislation also includes physician payment reforms that encourage physicians, hospitals, and other providers to join together to form accountable care organizations [ACOs] to gain efficiencies and improve quality of care. Those that meet quality-of-care targets and reduce costs relative to a spending benchmark can share in the savings they generate for Medicare.”

To assist in this effort, millions of dollars have been spent on pilot programs and demonstration projects to find out “what works” so the ACOs can copy them. We’ve had demonstration projects for coordinated care, integrated care, medical homes, electronic medical records, pay-for-performance, and just about every other faddish idea.

Unfortunately, the Congressional Budget Office has found in three separate reports that that none of this is working.

Demand-Side Emphasis

When I say that none of these techniques work, what I really mean is that projects designed, approved, and paid for by the demand side for the market aren’t working. As I’ve said on many occasions, many of these techniques actually do work when they are instituted by entrepreneurs on the supply side. But supply-side innovations have nothing to do with ObamaCare. They are happening in spite of ObamaCare.

Indeed, most of what the administration wanted to happen is not happening. But unintended things are happening – some good and some bad. (As an aside, the secretary of Health and Human Services seems to ignore adverse effects but quickly credits the ACA for trends perceived as positive.)

What does this mean for the way doctors practice medicine? On the negative side, hospitals are merging and they are acquiring doctors. In the process, they are making the market less competitive, gaming third-party payment formulas, and doing other things that make our health insurance premiums and our taxes higher than they otherwise would be.

Consolidation and Monopolization

More than half the doctors are now working for hospitals and other institutions, rather than in private practice. Hospitals are using their new doctor employees to get more money out of Medicare. Even the Medicare Payment Advisory Commission (MedPac), the federal agency responsible for overseeing Medicare fees, has noticed – although belatedly – that hospitals can charge Medicare more for the same services than doctors can charge if they bill Medicare as independent practitioners.

As reported in The New York Times:

“Medicare pays $58 for a 15-minute visit to a doctor’s office and 70 percent more – $98.70 – for the same consultation in the outpatient department of a hospital. The patient also pays more: $24.68, rather than $14.50.

"Likewise, the commission said, when a Medicare beneficiary receives a certain type of echocardiogram in a doctor’s office, the government and the patient together pay a total of $188. They pay more than twice as much – $452 – for the same test in the outpatient department of a hospital. (The test is used to evaluate the functioning of the heart.)

”… From 2010 to 2011, the commission said, the number of echocardiograms provided to Medicare beneficiaries in doctors’ offices declined by 6 percent, but the number in hospital outpatient clinics increased by nearly 18 percent.“

HSAs, Walk-In Clinics on the Rise

The other major unintended consequence is the boost to consumer-directed health care. In the health insurance exchanges, the cheapest plans are going to have deductibles of $5,000 or more. And lots and lots of people are going to choose the cheapest plans.

On the plus side, consumer-driven health care has been given a boost and entrepreneurs are responding with products that seem to be far removed from the accountable care model the administration is pushing. The Manhattan Institute’s Avik Roy reports employers are going for Health Savings Accounts (or Health Reimbursement Arrangements) in a big way. Bottom line: millions of patients are going to be buying care with their own money, rather than with a third-party payer’s money.

This development is viewed as an opportunity by health care entrepreneurs. A study by the consulting firm Accenture predicts the number of walk-in clinics is going to double in the next few years. The Obama administration doesn’ t like them because they are not part of integrated care/coordinated care/medical homes/etc. Even so, they are doing what the ACOs are unlikely to do: lowering costs, increasing quality, and improving access to care.

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