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Of Commodities and Conglomerates

by Timothy Dudley, MD

As an independent physician in a small group practice, I was intrigued by two recent posts shared on the athenahealth blog: This year’s Physician Sentiment Index results and Professor Amy Edmondson’s “For ACOs, No Magic Wand: Leadership Needed.”

First, the Physician Sentiment Index was quite arresting. I admit to finding myself among the 20% of physicians who are still optimistic about surviving as an independent practice. I also believe I can acquire the tools I need to improve the quality of my practice and my EHR is one of those tools.

Amy Edmondson’s post on leadership was equally illuminating. Citing initial data on the 32 pilot accountable care organizations (ACOs), she noted that all of them were able to improve the quality of their care in the first two years. Over half of them were able to improve quality and reduce costs! Keep in mind that as ACOs, they were paid up front to do the additional work required to accomplish these goals. This means they were able to improve quality, save costs to the system and make more money. Not a bad deal.

So what does this have to do with commodities and conglomerates in the health care world?

One of the reasons physicians are pessimistic is that they believe the only way to survive is to sell their practice to a hospital. This is certainly a very popular trend in Colorado right now where I reside. But, as someone who has practiced medicine for more than 30 years, I have watched hospitals buy physician practices in two previous waves, once in the 1980s and again in the 90s, and most of those acquisitions unraveled. I believe that will happen again.

Hospitals currently make money via physician practices by charging “facility fees” for outpatient departments, including physician offices. Those fees are unsustainable and I believe they will soon be denied by most payers. Hospitals are also hoping to vertically integrate their markets: If they form ACOs with physicians, then they can take on risk, and share gains and losses with those physicians. They might even decide to self-insure and cut the insurance companies out of the market.

Unfortunately, the hospitals’ motivation for this approach is to protect their profits, which will inevitably decline as evidence-based medicine marches on, cutting out all the unnecessary procedures performed in hospitals and reducing hospital admissions. Physicians will take note of this conflict of interest and increasingly form physician-led ACOs. Already, physician-led ACOs now outnumber hospital-led ACOs.

This is similar to the time when a wave of conglomerates were formed because money was cheap and all investors needed to see was that the acquired companies’ cash flow was more than enough to pay for the debt required to gobble them up. The expected synergies of the combined companies never materialized and, ultimately, many conglomerates were dismantled.

Another reason for physician pessimism? What doctors see as the commoditization of health care.

Commodities come in many shapes and sizes but, according to Wikipedia, they share the following similarities:

A commodity has full or partial fungibility; that is, the market treats its instances as equivalent or nearly so with no regard to who produced them… Commoditization occurs as a goods and services market loses differentiation across its supply base, often by the diffusion of the intellectual capital necessary to acquire or produce it efficiently.

As a primary care physician, I have watched the “simplest” instances of care move to small clinics housed in big box retailers, urgent care centers and emergency rooms. Consumers may now choose to receive fragmented care in multiple locations, based on convenience and the perceived notion that this type of care is indeed a commodity.

That said, I believe that an effective and efficient health care system has a well-functioning primary care base where even simple instances of care build the relationships that ultimately provide the necessary insight to motivate healthy behavior and diagnose slowly emerging chronic disease. My relationships with my more specialized colleagues enable the communication that fosters efficient use of resources and appropriate collaborative care. It is up to me to prove to my patients and the market that I am correct.

How will I prove that? As an athenahealth client, I use a cloud-based EHR with integrated services for practice management , care coordination, patient communications, and financial and population analytics. With the integration and insight these tools provide, I don’t have to look to business methods that don’t fit with my beliefs. I can become my own virtual ACO without losing my independence. I can deliver cost-effective, comprehensive, patient-centered care with robust and satisfying relationships. Not a bad deal.

Dr. Dudley is an athenahealth client and a family physician in Denver, Colorado.

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