Health Provider Survival Strategy: Get Bigger

This blog first appeared on Zócalo Public Square.

Lots of federal money fuels the Affordable Care Act. But along with it comes new imperatives that effectively put local health plans and providers in a Darwinian struggle for solvency. And like many such struggles, getting bigger may be the fastest solution.

My dermatologist is an example. After he burned some unwelcome cells off my head, he complained to me that federal electronic health record requirements may force him to merge with a local hospital, which can more readily afford to install and manage such systems.

The hospital, in turn, is trying to stave off Medicare penalties for too many readmissions, and is dealing with relentless pressure from both Medicare and private insurers to cut costs.

The answer for both of them may be another creation of acronym-laden Obamacare, an Accountable Care Organization (ACO). As foreseen by the legislation, providers in an ACO would be paid by the government and insurers on quality of care measures, not fee-for- service, and would control costs by increasing preventative care while reducing patients’ emergency room and specialist visits.

To work right, ACOs themselves need to be big. They must gather a huge population of patients to attract insurers, and enough doctors and hospitals to achieve economies of scale.

The move towards ACOs seems inevitable. Using its massive leverage, Medicare is already making ACO deals, and insurance companies are right behind it. As the move gains momentum, some hospitals and doctors could be left behind.

Daniel J. Stone, medical director of the Cedars-Sinai Medical Group, told me that ACOs will spread rapidly for the same reason that commercial airplane manufacturing narrowed to two main competitors, Boeing and Airbus. “We are being tested by the wind tunnel of efficiency,” he said.

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