ADVISORY e-ALERT     May 29, 2010
Advisory Law Group, a Professional Corporation
In his 1961 farewell speech to the nation, President Eisenhower warned of the dangers of an unwarranted expansion of the government through its relationship with the arms industry, the "military-industrial complex."
Today, we have a growing encroachment of government into healthcare which is fostering a looming government-hospital complex, the alignment of regulatory power and tax funding in favor of facilities, at the cost of physicians.
The newly enacted healthcare "reform" law, the Patient Protection and Affordable Care Act (a wondrous bit of propagandistic nomenclature) unleashes the latest, and perhaps final, round in the hospitals' war against physician owned specialty hospitals - no, against all physician owned hospitals - by capping existing levels of physician investment, and prohibiting future physician investment, in hospitals participating in federally funded healthcare programs.
It also reinvigorates the tried and tired PHO - "Physician-Hospital Organization" - model of the mid-1980s and early 1990's, through the anointment of a new control model, the "Accountable Care Organization," or ACO.
Been There.  Done That.  But We're Doing It To You Again.
In the mid-1980's into the early 1990's, hospitals needed a way to assure that they, and not their competitors, other hospitals and the then nascent ambulatory surgery centers, would capture referrals from primary care doctors both directly to their facility and to the specialists within the hospital's "world." 
At that time, the other significant healthcare trend was managed care's growing market penetration.  As a result, these same hospitals needed to assure their position in managed care networks. 
The PHO model appeared as a viable solution for both of those hospital concerns.  In the PHO model, the hospital sponsored the creation of a linkage between primary care, as well as limited specialty, physician practices and the hospital.  In some instances, this included the acquisition of physician practices, either directly by the hospital or indirectly via related tax-exempt foundations.  In other instances, it included MSO-like arrangements in which the PHO provided a broad range of space, equipment and personnel support.  In all instances, it included a participating provider structure such that the PHO could bind the physicians to the terms of managed care deals.
In other words, the PHO became a one stop shop under the de facto, if not de jure, control of the hospital, for managed care contracting with the physicians and the hospital.
Many of the PHOs formed during the heyday of the growth of managed care failed, especially those that embraced an employed physician model.  The formerly independent practitioners who had built successful practices through focused work and entrepreneurial skill were frustrated by the hospital's multiple levels of bureaucracy and mind-numbing internal politics; they quickly understood how to game that system:  just enough work, not more.
Now, along comes the newest cure for the ills of the healthcare market, the ACO. 
Disraeli commented that there are lies, damned lies and statistics.  It's time to add acronyms to the list.
We all want accountability, right?  We all want "care," don't we?  After all, isn't that what healthcare is all about?
But accountability to whom?  And for what care, exactly?  Lastly, and most importantly, who runs the organization?
The fact is, the ACO is simply a model for hospital control of physician practices, cloaked in the respectability of quality of care.  Tied to the focus given to the notion of paying for quality of care as opposed to simply the volume of care, pundits suggested that organizations linking hospitals, physicians and other providers can be used to contract together, take risk based in part on achieving quality (however quality is defined), and distribute the income.  Ah, distribute the income.
The problem is, that no one knows exactly what an ACO is, even though the healthcare reform bill grants authority to the Secretary of Health and Human Services to utilize "innovative payment mechanisms and policies" including ACOs.  The new law even includes a pilot program for the payment of care through those organizations.  But, again, the bill contains no set definition of an ACO - it does state that an ACO is an organization to provide, in part, physician services and may include a hospital and other providers.
The Golden Rule
The reality is that there is only one acronym at play here:  PCN -- Power, Control and Naiveté.  Issues of power and control underscore all levels of healthcare.  As to the "N" for naiveté, it's yours that they are counting on.
An ACO is about power and control over physician services rendered and, importantly, power and control over physicians' incomes.  ACOs are the intended funnel of payor funds - they serve as a mechanism to distribute those funds and, as such, invoke the Golden Rule:  He who has the gold makes the rules. 
As an physician, if you think that it's difficult to negotiate with third party payors or to obtain stipend support from the hospital to shore up declining reimbursement, think what it will be like when there is one real payor in town, the hospital-controlled ACO.
Physicians long ago abdicated the power of controlling the future of healthcare in favor of other tradeoffs.  The AMA's sponsorship of Obamacare and even many specialty organizations' incredibly naïve support of the House version of the healthcare reform bill, are leading physicians down the path of less control than before. 
Hospitals and their associations are scrambling to build ACO networks.  Don't for a minute think they have your interest at heart.  Although the Patient Protection and Affordable Care Act caps existing physician investment, and prohibits future physician investment, in hospitals, ownership is generally not the key:  control of the cash is.  And, there's no rule that ACOs must be controlled by hospitals - they might as well be controlled by physicians.
Difficult, yes.  But what's the real alternative? 
For help in developing and implementing your ACO strategy, contact me now. 


Are You Headed To The Anesthesia Factory?, published in the May 2010 issue of Anesthesiology News.


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