ACOs May Cause Healthcare Cost Inflation Rather than Savings

Rather than save money, some experts argue accountable care organizations will further inflate prices, as hospitals unite with physicians and other providers against private insurers, according to a report by the Washington Post.

In an article on the effect of hospital mergers on healthcare inflation, the Post referred to a study in the February issue of Health Affairs examining an alliance in California similar to an ACO. The study concluded that if ACOs are able to exert more market power in negotiations, "private insurers could wind up paying more, even if care is delivered more efficiently."

Under the reform law, an ACO would organize hospitals, physician and other providers into loose federations whose goal would be lowering costs, not raising them. Participating providers would receive a portion of any Medicare savings they created. However, ACOs could also negotiate deals with private payors, who typically allow higher rates to larger organizations with greater leverage.

Normally, agreements between independent providers are illegal under federal laws, but federal enforcers are developing safe harbors for ACOs. The Federal Trade Commission and CMS sought input from hospitals, physicians and others on how ACOs should be accommodated in an information-gathering meeting in Baltimore on Oct. 5.

The Health Affairs article, written by researchers at the Urban Institute and the Centers for Studying Health System Change, was published before the healthcare reform law was passed and argued for a different strategy than ACOs, based on the study's findings. "Because antitrust policy has proved ineffective in curbing most provider strategies that capitalize on providers’ market power to win higher payments," it stated, "policy makers need to consider approaches including price caps and all-payer rate setting."

The Washington Post article focused on the effects of past and current hospital mergers on healthcare prices. Hospital mergers allow better access to capital for new services or equipment, such as electronic medical records, and a chance to prepare for ACOs. But the FTC has reported that some mergers caused prices to rise in some markets. After a 2000 merger of two Chicago-area hospitals, the federal agency in 2008 forced the two to negotiate with insurers separately.

Read the Washington Post report on hospital mergers.

Read an abstract of the Health Affairs article here.

Read more coverage on ACOs:

- Details on October Meeting About Legal Issues For ACOs Provided by Federal Enforcement Agencies

- ACO Panel to Discuss Competition Issues in Washington, D.C.

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