Reader “Chris”, a physical therapist in private practice in New York, pinged me about Obamacare and rising health care costs in general.

Chris writes ….

Hello Mish

I wanted to comment on your recent posts regarding Obamacare. Most of the criticism from you, and others, has focused on the issues and difficulties surrounding the website, dropped coverage, legal disputes, and rising costs you called “Obamashock!

As a healthcare provider, I would like to point out a seldom heard critique regarding competition and hospital consolidation.

A cornerstone of ACA (Obamacare) is promotion of Accountable Care Organizations (ACOs) intended to be fully integrated systems, capable of taking patients through a complete continuum of care.

Allegedly, ACOs would reduce price.

However, a recent study on the Impact of Hospital Consolidation by the Robert Wood Johnson Foundation found the opposite was true.

Providers and the specialty groups remain in isolated silos. The hospitals merge simply to increase their market share and ability to leverage higher fees from insurers, which they have done.

Four Points From the Study

  1. “The Patient Protection and Affordable Care Act (ACA) promotes Accountable Care Organizations (ACOs) and the bundling of payments across providers for an episode of care (bundled payments), both of which encourage consolidation between hospitals and physician practices.”

  3. “Hospital consolidation generally results in higher prices. This is true across geographic markets and different data sources. When hospitals merge in already concentrated markets, the price increase can be dramatic, often exceeding 20 percent.”

  5. “Hospital competition improves quality of care. This is true under both administered price systems, such as Medicare and the English National Health Service, and market determined pricing such as the private health insurance market. The evidence is more mixed from studies of market determined systems, however.”

  7. “Physician-hospital consolidation has not led to either improved quality or reduced costs. Studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers, and hence did not lead to true integration. Consolidation without integration does not lead to enhanced performance.”

Contrary to the success of these hospital systems in raising their rates, private practice physical therapy, the sector that I work in, has seen inflation adjusted reimbursement down 40% between 1992 and 2012.

Medicare has cut physical therapy reimbursement an additional 16% more since 2012. 

Private payers (insurers) also continue to cut our reimbursement each year. The difference between private practice and these large hospital systems remains the relative leverage they each have in negotiating for higher reimbursement rates.

Private practice has no leverage and major systems have an unreasonable amount of leverage. This is why physicians across the US have migrated in record numbers towards hospital systems.

Competition of private practitioners and smaller hospital systems has historically kept prices lower. That competition is now being done away with by Obamacare in the name of cost savings, but it is having the opposite effect.

Obamacare is a disaster on so many levels its frightening.


Mike “Mish” Shedlock