Accountable Care Organizations (ACOs) Grow/Massive Mergers in Hospital Sector

An additional change in health care delivery, since the passage of the Affordable Care Act, has been the growth of “accountable care organizations,” or ACOs. An ACO is a network of doctors, hospitals and other providers that take a coordinated approach to care for patients. The health care reform act offers financial rewards to ACOs that meet targets for quality of care and cost. The hope is that these networks will be able to eliminate duplicated or unnecessary tests and other procedures while developing more efficient electronic health records on their patients. The goal of the electronic records is to enable all caregivers involved in an individual's care to remain fully informed about that patient’s unique needs and medical history.

One of the most dramatic results of the health care reform act to date is consolidation within the hospital industry, with mergers creating massive organizations that in many cases have dominant market share in major markets. Hospital firms have been merging aggressively, while also making investments in outpatient clinics and acquiring physician practices at a rapid pace. This consolidation of care providers under one roof means greater pricing power for ever-larger hospital chains while creating an environment of lessened competition in the marketplace and fewer choices for consumers. The Federal Trade Commission (FTC) has been blocking a few of these hospital mergers over concerns that they stifle price competition, but the FTC’s response may have been too little and too late.

Meanwhile, post-ACA, physicians in private practice and smaller groups are concerned about their ability to meet increased regulatory scrutiny, successfully deploy electronic health records and continue earning the incomes that they have enjoyed in the past. As a result, large numbers have signed on as hospital employees, or joined massive, multi-office physician practices.

Doctors are going to find themselves in increasing demand. A study in 2015 by the Association of American Medical Colleges predicted that by 2025, the U.S. will have a shortage of between 46,000 and 90,000 physicians. Doctors’ practices will be forced to become more efficient in order to meet growing demand, and as a guard against potential reductions in the fees they are paid by insurers, Medicare and Medicaid. Extremely large practices, based within hospitals or within ACOs, may be able to achieve operating efficiencies unattainable by smaller offices.

Arguments for the Formation of Major Hospital and Physician Groups:

1) Large groups may have access to better, more effective technical support for digital health records.

2) Massive organizations are likely to have greater pricing power, leading to higher fees charged to insurers and higher profits for the groups, and thus potentially higher profits. They also should have better purchasing power, enabling them to obtain lower costs for supplies and services. At the same time, services and procedures provided by the hospitals, where the physicians are now full-time employees rather than third parties, are typically billed at much higher prices than non-hospital-based services.

3) The ACA provides additional payments to hospitals that meet requirements regarding patient outcomes, such as patient satisfaction and reduction in the amount of re-admission of patients to the hospital for a specific illness. Newly enlarged hospital groups may be able to develop best practices that will meet these goals.

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