This is the first in a series of articles on the rollout of Obamacare and how the law will change our health care system. Each Wednesday in September, we will publish two articles — one on the changes in medicine and medical care and one on changes in the insurance industry. We hope this series of articles will help you make better decisions when it comes to your health care and how you buy insurance.
Recently, there’s been an enormous shakeup in three traditionally stable professions — law, education, and medicine. But where law and education are moving towards decentralization and greater consumer control, medicine is moving in the opposite direction — towards greater centralization and less consumer (patient) control.
Why? Because the upheavals in law and education are being driven by market forces. In contrast, the upheaval in medicine is being driven by new government controls. Hence, Big Law and Big Education are struggling, while Big Medicine is growing.
This series of articles will discuss how the ObamaCare health law is fueling the rise of Big Medicine, what this will mean for patients, and how patients can respond to best protect their medical care.
There are three major components to Big Medicine. The first is a “remarkable” wave of hospital mergers, as recently reported by the New York Times.
These mergers are driven primarily by economic pressures, including declining reimbursements from Medicare (and from private insurers who typically peg their payments to Medicare rates) as well as costs of expensive, new, mandatory electronic medical record systems. Mergers give hospitals greater leverage in their negotiations with private insurers and increased efficiencies of scale with electronic record keeping, billing, and other administrative overhead.
According to the New York Times, the mergers are “transforming the economics of health care” by “creating giant hospital systems that could one day dominate American health care.”
The second component of Big Medicine is the shift of doctors away from independent private practice and towards becoming hospital employees. Doctors face many of the same pressures as hospitals. As eWeek reported, “Doctors are abandoning their private practices to join large health organizations so they can lower their costs and meet government mandates on electronic health records.”
By becoming hospital employees, doctors lose autonomy, but enjoy more regular hours and a more predictable salary. In return, hospitals gain access to a guaranteed supply of patients from their employee-physicians. Last year the Washington Post reported, “[T]he number of physicians who own their firms dropped from 57 percent in 2000 to 43 percent in 2009, and it’s projected to continue falling to 33 percent by 2013.” As oncologist Patrick Cobb recently told CNN, “We have a joke that there are two kinds of private practices left in America. Those that sold to hospitals and those that are about to be sold.”
The third component of Big Medicine will be Accountable Care Organizations (ACOs). ObamaCare encourages hospitals and doctor to band together into large ACOs to contain Medicare health costs. The ACOs would be paid according to how well they met government benchmarks for “outcomes” and “quality.” ACOs that spent less money on patients than the government deemed necessary would be financially rewarded; those that spend too much money would suffer. In essence, government will use financial carrots and sticks to reward ACOs for practicing medicine according to its guidelines.
It’s informative to contrast this growing consolidation of American medicine with the opposite trends in law and education.
Noam Scheiber recently described the ongoing shakeout in “Big Law” following the collapse of the housing bubble and the subsequent recession:
“Stable” is not the way anyone would describe a legal career today. In the past decade, twelve major firms with more than 1,000 partners between them have collapsed entirely. The surviving lawyers live in fear of suffering a similar fate, driving them to ever-more humiliating lengths to edge out rivals for business. “They were cold-calling,” says the lawyer whose firm once turned down no-name clients.
According to Scheiber, corporate clients previously willing to pay high legal bills started using alternatives like contract attorneys and “legal process outsourcers.” University of North Carolina law professor Bernard Burk has described this as a combination of “outsourcing, downsourcing and insourcing.”
The shakeout in higher education (“Big Ed”) is also being driven by unhappy consumers. Glenn Reynolds (aka “Instapundit“) has written extensively about the “higher education bubble“ of skyrocketing college tuitions outstripping any reasonable expected return:
As more young people see friends and relatives with degrees serving coffee and living in their parents’ basements, the idea of borrowing tens of thousands of dollars to attend a traditional university will become less appealing. More focused skills training will probably become more common, and growing numbers of students and parents will opt for less costly online classes…
With both Big Law and Big Ed, those paying the bills are frustrated and seeking alternatives to the status quo. And they are making their preferences known in the marketplace. Over time, some members of the “old guard” (the top law firms and the top universities) may survive, albeit leaner than before. Some new business models will likely also emerge, for instance inexpensive MOOC (massive open online courses) as a partial alternative to traditional colleges. There’s no way of knowing exactly how things will shake out. But this uncertainty is a natural feature of the marketplace — a process that economist Joseph Schumpeter calls “creative destruction.”
In contrast, the shakeup in health care is towards greater — not lesser — consolidation. This is because the government — not patients — will be increasingly in charge of the money. Under ObamaCare, government is projected to account for a whopping 66% of overall health spending. More centralized control of health spending will inevitably mean more centralized control of health care.
Nor is this centralization of health care some “unintended consequence” of ObamaCare. Rather, it is an explicitly desired goal. In 2010, Obama health advisor Nancy-Ann DeParle wrote in the Annals of Internal Medicine that the health law will “accelerate physician employment by hospitals and aggregation into larger physician groups” and that “physicians will need to embrace rather than resist change.”
This consolidation of American medicine is merely a continuation of a much older strategy. In his book Liberal Fascism, Jonah Goldberg described how the Roosevelt administration sought similar consolidations of American agriculture and business during the New Deal:
[I]f you… want to use business to implement your social agenda, then you should want businesses themselves to be as big as possible. What’s easier, strapping five thousand cats to a wagon or a couple of giant oxen?
Similarly, it will be much easier for the federal government to regulate 1,000 large hospital groups and ACOs than 10,000 small private practices and independent hospitals. The New York Times notes that after physicians become hospital employees, they become much more accepting of government controls than their counterparts in private practice.
And it’s no secret that many on the political left desire the ultimate form of “Big Medicine” — namely, a “single-payer” health system fully controlled by the government. (Nor is it a coincidence that the president’s proposed “fix” for the current education upheaval bears eerie similarities to ObamaCare.)
There’s nothing inherently wrong with “Big” organizations as such, provided they arise naturally from market forces. For a while, Apple was the largest company in the world, but it gained that status by selling products to willing consumers in the marketplace.
Likewise, when a physician freely chooses to become a hospital employee rather than enter private practice based on genuine personal and professional preferences, that can be a perfectly legitimate choice.
But when the government tilts the playing field to drive doctors out of independent private practices and into more easily regulated large entities, that’s a different matter altogether. As Dr. Jay Parkinson noted, this means “the business model of a doctor’s practice is determined by bureaucrats in Washington.”
So how will this affect doctors’ freedom to practice and patients’ freedom to receive medical care? Stay tuned. Future articles in this series will discuss how government-spawned Big Medicine will affect patients, the role of mandatory electronic medical records in Big Medicine, and how patients can best protect themselves from Big Medicine.
Also read “Obamacare and the Consolidation Wave” by Rich Baehr.
Next Week: “How Big Medicine will harm patients.”