The Carilion Health System, headquartered in Roanoke, is betting its future on a new concept embraced by the Obama administration in the Accountable Care Act: Accountable Care Organizations (ACOs).
The idea is to shift the delivery paradigm from a fee-for-service system, which encourages excess utilization of health resources, to a paradigm that rewards Carilion for efficiently managing large populations of patients. In theory, Carilion will engage in more preventive care and will do a better job of coordinating care between hospitals and doctors, thus saving costs by reducing the number of complications and readmissions.
It’s a great theory. And it may work. As Alec MacGillis writes for the Washington Post:
To integrate care, Carilion spent $100 million on electronic medical records. Nurses provide immediate follow-up when patients are released from the hospital in an effort to prevent costly readmissions. And the clinic is turning its 37 primary-care practices toward the “medical home” model: “Care coordinators” reach out to people with diabetes, hypertension and other chronic conditions who have gone too long without a checkup; and physicians meet nightly with nurses to review the next day’s appointments to ensure the visits are productive.
Carilion’s grand experiment will bear watching. As Carilion goes, so goes the U.S. health care system under Obamacare. Carilion dominates the health care market in the Roanoke region and surrounding counties. Although it does have some competition, most notably by the HCA hospital in Salem, by any definition it owns a monopoly share of the marketplace. Which brings me to the subject of my latest post on the “Boomergeddon” blog, “Evidence from England: Competition in Health Care Works.” To quote myself in full:
When the Labour government in the United Kingdom introduced a reform in 2006 that promoted competition between state-owned hospitals, it created a the kind of social scientific experiment that economists dream of. By maintaining the same administrative pricing mechanisms for its hospitals, the National Health System (NHS) ensured that price variations would not muddy the equation. Measuring the quality of health care before and after the introduction of competition — in effect isolating a single variable — would yield answers to the much-contested question of how much competition matters.
Admittedly, the competition wasn’t the all-out, balls-to-the-wall competition one might expect of a market-driven economy. The profit motive never came into play as a motivator. But the NHS did hold hospital managers accountable for results, and their pay and career prospects could be affected by the outcome. So, the competitive pressures were real, even if less than if the hospitals were for-profit entities.
Now the results are in. Competition leads to superior patient outcomes, according to a paper published by Martin Gaynor, Rodrigo Morena-Serra and Carol Propper by the National Bureau of Economic Research, “Death by Market Power: Reform, Competition and Patient Outcomes in the National Health Service.”
Within two years of implementation the NHS reforms resulted in significant improvements in mortality and reduction in length-of-stay without changes in total expenditure or increases in expenditure per patient. Our back-of-the-envelope estimates suggest that the immediate net benefit of this policy is about £277. While this is small compared to the annual cost of the NHS of £100 billion, we have only calculated the value from decreases in death rates.
While the UK is introducing more competition into its health care system, the U.S. is strangling competition. Provisions in the Affordable Care Act will severely curtail the expansion of physician-owned hospitals, which provide much-needed competition in many markets. Indeed, Obamacare threatens the ability of existing physician-owned hospitals to compete at all over the long haul. Obamacare will lead to the cartelization of the health care industry around large health care systems that dominate their markets with little to fear from interlopers.
While Obama’s academic gurus expect wonderful things to arise from nifty ideas like Accountable Care Organizations, the ossifying structure of the health care industry, I predict, will nullify the gains from such innovations as hospitals gain increased pricing power in the marketplace.
(Photo credit: Washington Post.)
