ACOs, Consolidation & The Cost of Healthcare

There was a good article in Becker's Hospital Review the other day pointing out 8 key issues that hospitals and health systems are facing in 2013. In it, Tom Carson, a partner at Welsh, Carson, Anderson & Stowe talks about how ACOs are shifting more power to hospitals:

The biggest flaw with ACOs is that they are driving more power to hospitals — not to doctors. Very scary, and I am a hospital guy. The goal of ACOs was to organize doctors to focus more on patients and keep the patients out of hospitals. Instead, doctors are selling practices to hospitals in droves.

The start-up cost of a real ACO is probably $30 million and up in a midsize market — and doctors don't have that capital. So hospitals are pitching that they will be ACOs, and buying up practices. Ever meet a hospital administrator who wants to work to empty his beds? This means more power in expensive institutions, more consolidation of those giants — and more bricks and mortar and more costs. And with zero antitrust enforcement in the last 30 years in the hospital world, we are cruising for regional hospital-based oligopolies — not good for doctors, patients or our hopes for a more efficient system. And the well-intentioned concept of ACOs is feeding that fire.

This leads to a super interesting question. That is, will the regional pricing power that comes from the consolidation that is required to form an effective ACO actually offset the cost reduction that was intended when the model was formed? In other words, will ACOs actually increase, instead of decrease, the cost of healthcare?