Big Medicine

President Barack Obama’s Affordable Care Act was enacted in 2010 with the promise of bringing down the cost of health care, which currently consumes more than 17 percent of U.S. gross domestic product. But unintended consequences of the law—particularly more rapid hospital consolidation—are likely to drive costs even higher, writes Margot Sanger-Katz, a correspondent for National Journal.

The law includes scores of provisions designed to make the nation’s sclerotic health care system more effective. Hospitals accepting Medicare will be required to use electronic medical record systems by 2014 and to participate in efforts to track care quality. But such systems are costly—“up to $50 million for a mid-size facility,” Sanger-Katz says.

To meet the costs of the new law, hospitals and doctors are banding together. One study reported that the number of hospital mergers and acquisitions has increased 50 percent since 2010. The Medical Group Management Association found that the number of physician practices owned by hospitals grew 35 percent from 2010 to 2011. Medical practice mergers are on the rise, too.

Consolidation is a problem because bigger hospital organizations and practices have much stronger leverage when negotiating with insurance companies, especially as the number of competitors shrinks. In 2008, The Boston Globe reported that the medical system Partners HealthCare, which includes Massachusetts General Hospital and Brigham and Women’s Hospital, received 15 to 60 percent more than its competitors for various services. These costs eventually are felt in the average Jane’s pocketbook in the form of higher insurance premiums.

The 2010 law also aims to cut costs by reducing Medicare reimbursement rates to doctors and hospitals. The federal program already pays substantially less than private insurers do, and health care providers (who usually lose money on Medicare patients, according to Sanger-Katz) respond by charging private insurers more. Such “cost shifting” is likely to increase.

What’s to be done? The Federal Trade Commission has begun challenging hospital mergers that it views as a threat to competition. Some specialists believe that “accountable care” organizations that bring all services under one hospital roof will ultimately yield economies. So may experimental payment systems that pay flat rates for bundles of services rather than individual ones. And health care optimists opine that prices can’t keep rising forever. But Sanger-Katz is skeptical, saying that none of this will help much if the law keeps encouraging consolidation.

THE SOURCE: “The New Goliaths” by Margot Sanger-Katz, National Journal, Feb. 18, 2012.

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