CMS needs to halt the march to health care gigantism

From a major speech by Sen. Elizabeth Warren to a recent report from the President’s Council of Economic Advisers, there has been a renewed interest by Democrats in monopolies and market consolidation. From tech to airlines, they argue, too many sectors of the economy are being dominated by a few big players.

In American health care, this is not only the case, but has been the default preferred stance. In health care, there is an almost Darwinian belief that the evolution to bigger is better. This is why last year saw 112 hospital mergers (up 18 percent from 2014), and the percentage of physician practices owned by hospitals doubled between 2004 and 2011. 

{mosads}Yet, there is no evidence that consolidation of hospitals and physician practices leads to better clinical outcomes or cost reductions. In fact, recent studies suggest that small, physician-owned practices have a lower average cost per patient, fewer preventable hospital admissions, and lower readmission rates than hospital-owned practices.

That is why it is so unfortunate that, as part of the largest rewriting of doctor payment rules in a generation, the Centers for Medicare and Medicaid Services (CMS) unwittingly has drafted regulations that—as currently proposed—further neglect the power of physician independence and create strong incentives for further consolidation in health care.

Since the passage of the Affordable Care Act (ACA), the Obama Administration has moved aggressively to create a health care system in which doctors are reimbursed not for volume (i.e. more tests and treatment), but for value (i.e. keeping a patient as healthy as possible). This has led to a proliferation of innovative payment arrangements such Accountable Care Organizations (ACO).

In ACOs, primary care doctors are responsible for a patient’s overall health and health spending. In such a world, the independence of primary care physicians is important since any pressure to serve a larger health care system could run counter to these goals. In fact, the most rigorous independent evaluation of the ACO program found that the ACOs that can produce savings for the taxpayer are those ACOs formed of independent physician practices, not those ACOs owned by hospitals or large physician groups.

Yet in the 1000 pages of regulations put out by CMS last April to implement the landmark Medicare Access and CHIP Reauthorization Act  (MACRA); there is a surprising blind spot to this fact. The only ACO models officials recognized for higher incentives placed so much risk on ACOs that a primary care practice could end up owing the government more than 100 percent of the payments they received from Medicare. The administrative burden on smaller practices is so great that by the regulation’s own accounting, 87 percent of solo practices would lose money, while 82 percent of large health care systems with 100 or more physicians would earn a bonus. Simply, as written, these regulations would hurt independent practices and put a thumb on the scale toward consolidation.

In response to tough questions about this from Members of Congress this spring, Acting CMS Administrator Andy Slavitt responded that he would work to improve the rule so that small practices are not harmed. Indeed, there are a few changes they could easily make to improve the program.  

First, CMS can preserve the financial viability of small practices by allowing them to join together in virtual networks that could jointly report on their quality, use of information technology, and clinical practice improvements undertaken, thus reducing the administrative burden.

Second, CMS could compare “like to like” so that small practices are not judged based on the performance of larger ones.

Third and most importantly, CMS can decrease the downside risk that small practices are exposed to by capping their losses as a percentage of practice revenue received. If not, no small practice would risk its entire business if one bad year can wipe the practice out. The result will be more pressure to consolidate.

I do not believe that CMS or the Administration wants to make it harder for small practices to deliver care, or to lead to a less competitive health care marketplace. Yet, I also know how difficult it can be to get it right. There are always unintended consequences to what seems expedient or easiest to administer. What’s important is to recognize them quickly and correct them. That is what CMS needs to do in order to halt the march to health care gigantism, preserve the personal care that independent doctors can deliver, and to have a health care system that delivers value — and values patients.

Farzad Mostashari, MD was the National Coordinator for Information Technology at HHS and is the founder and CEO of Aledade, Inc., which provides independent practices with resources to form and operate ACOs..

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