Risks Feared as Health Law

Consumer Risks Feared as Health Law Spurs Mergers
By ROBERT PEAR
WASHINGTON — When Congress passed the health care law, it envisioned doctors and hospitals joining forces, coordinating care and holding down costs, with the prospect of earning government bonuses for controlling costs.

Now, eight months into the new law there is a growing frenzy of mergers involving hospitals, clinics and doctor groups eager to share costs and savings, and cash in on the incentives. They, in turn, have deployed a small army of lawyers and lobbyists trying to persuade the Obama administration to relax or waive a body of older laws intended to thwart health care monopolies, and to protect against shoddy care and fraudulent billing of patients or Medicare.

Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.

“The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry,” said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. “The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater.”

Lobbyists and industry groups are bearing down on the Federal Trade Commission and the Justice Department, which enforce the antitrust laws, and the inspector general’s office at the Department of Health and Human Services, which ferrets out Medicare fraud.

Those agencies are writing regulations to govern the new entities, known as accountable care organizations. They face a delicate task: balancing the potential benefits of clinical cooperation with the need to enforce fraud, abuse and antitrust laws.

“If accountable care organizations end up stifling rather than unleashing competition,” said Jon Leibowitz, the chairman of the trade commission, “we will have let one of the great opportunities for health care reform slip away.”

Congress’s purpose was to foster cooperation in a health care system that is notoriously fragmented. The hope was that the new law would push doctors, hospitals and other health care providers to come together and jointly take responsibility for the cost and quality of care of patients, especially Medicare beneficiaries.

Experts say patients can benefit from a network of care and greater coordination between doctors and hospitals.

On Tuesday, the Obama administration established a Center for Medicare and Medicaid Innovation, to test new ways of coordinating and paying for services, in addition to the accountable care organizations.

Hospitals have taken the lead in forming these new entities.

Johns Hopkins Medicine, which operates a hospital in Baltimore and 25 clinics in Maryland, has just acquired Sibley Memorial Hospital in Washington, 16 months after acquiring Suburban Hospital in Bethesda, Md.

“This is being driven largely by health care reform, which demands an integrated regional network,” said Gary M. Stephenson, a Johns Hopkins spokesman.

In Kentucky, three of the largest hospital networks are negotiating a merger, prompted in part by the new law. In upstate New York, three regional health care systems are seeking federal permission to merge their operations, which include hospitals, clinics and nursing homes in Albany and surrounding counties.

With potential efficiencies come incentives for doctors and hospitals to control costs, and a potential for abuse. Judith A. Stein, director of the nonprofit Center for Medicare Advocacy, said she was concerned that some care organizations would try to hold down costs by “cherry-picking healthier patients and denying care when it’s needed.”

Under the law, Medicare can penalize organizations that avoid high-risk, high-cost patients.

Peter W. Thomas, a lawyer for the Consortium for Citizens with Disabilities, a national advocacy group, expressed concern about the impact on patients.

“In an environment where health care providers are financially rewarded for keeping costs down,” he said, “anyone who has a disability or a chronic condition, anyone who requires specialized or complex care, needs to worry about getting access to appropriate technology, medical devices and rehabilitation. You don’t want to save money on the backs of people with disabilities and chronic conditions.”

Nearly one-fourth of Medicare beneficiaries have five or more chronic conditions. They account for two-thirds of the program’s spending.

Elizabeth B. Gilbertson, chief strategist of a union health plan for hotel and restaurant employees, also worries that the consolidation of health care providers could lead to higher prices.

“In some markets,” Ms. Gilbertson said, “the dominant hospital is like the sun at the center of the solar system. It owns physician groups, surgery centers, labs and pharmacies. Accountable care organizations bring more planets into the system and strengthen the bonds between them, making the whole entity more powerful, with a commensurate ability to raise prices.”

She added, “That is a terrible threat.”

Doctors and hospitals say the promise of these organizations cannot be fully realized unless they get broad waivers and exemptions from the government.

The American Medical Association has urged federal officials to “provide explicit exceptions to the antitrust laws” for doctors who participate in the new entities. The F.T.C. has accused doctors in many parts of the country of trying to fix prices by collectively negotiating fees — even though the doctors do not share financial risk and are supposedly competing with one another.

Hospitals and doctors have also asked the administration to waive laws intended to prevent fraud and abuse in Medicare.

In a recent letter to federal officials, Charles N. Kahn III, president of the Federation of American Hospitals, said, “To provide a fertile field to develop truly innovative, coordinated-care models, the fraud and abuse laws should be waived altogether.”

These laws are an impediment and, in some cases, “a total barrier” to creation of accountable care organizations, Mr. Kahn said, making it difficult for hospitals to reward doctors for cutting costs or following best practices.

Similar legal concerns arise when health care providers want to divide up a lump sum of money provided for an episode of care. The new law encourages such “bundled payments,” which may cover the services of hospitals and doctors, as well as nursing homes and home care agencies.

One of the laws, intended to protect consumers, says that a hospital cannot knowingly make a payment to a doctor “as an inducement to reduce or limit services” to Medicare or Medicaid patients. Hospitals that do so, and doctors who accept them, are subject to civil fines up to $2,000 per patient and can be barred from Medicare and Medicaid.

Other laws broadly restrict financial relationships between hospitals and doctors. With some exceptions, it is a crime to pay “any remuneration” intended to induce or reward the referral of Medicare and Medicaid patients to a particular care provider.

A major purpose of accountable care organizations is to encourage doctors to work closely with selected hospitals, and the rewards paid to doctors — typically, a percentage of the money saved — could run afoul of this law, hospitals and doctors say.

Dr. Donald M. Berwick, the administrator of the Centers for Medicare and Medicaid Services, hails the benefits of “integrated care.” But, Dr. Berwick said, “we need to assure both patients and society at large that destructive, exploitative and costly forms of collusion and monopolistic behaviors do not emerge and thrive, disguised as cooperation.”