Did Congress just kick off another wave of doc mergers?

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Things got quiet after a wave of hospital systems' acquiring physician practices swept through central Indiana from 2008 to 2011. But a new wave could start now that President Obama signed the "doc fix" last week.

In the short term, the new law heads off a 21-percent cut to Medicare payments to doctors. But in the long term, doctors will be exposed to lots more potential for lower Medicare payments.

That’s significant not only because the Medicare program for seniors is the largest health insurance plan in the nation, but also because private health insurers are highly likely to follow its lead on the reforms.

The provisions of the new Medicare law could force doctors to merge with, or enter close partnerships with, hospital systems, as James Capretta, a health policy scholar at the American Enterprise Institute, argued last week.

That would add to the already large stables of physicians built up by local hospital systems in the last wave of mergers. Indiana University Health employs 1,500 physicians; St. Vincent Medical Group has nearly 900; and Community Physician Network has 600.

But the bigger impacts could be indirect effects of the bill, House Resolution 2.

The fact that HR 2 was passed by overwhelming, bipartisan majorities in Congress essentially guarantees a long-term effort by the federal government to put physicians at risk of being paid less for subpar care, noted Lisa Bielamowicz, chief medical officer at The Advisory Board, a consulting firm for health care providers.

And since the computer systems and compliance personnel needed to get paid in that system will be more easily handled by hospital systems and large physician practices, smaller physician groups will be pressed to join the larger practices, she told The New York Times.

“This adds certainty for providers considering investments and initiatives designed to transform their business model for value-based payments,” Bielamowicz wrote in an April 15 blog post. She added, “This should help providers move forward with confidence that politics will not sink their transformation efforts.”

Dr. Ben Park, CEO of American Health Network, the largest independent physician practice in central Indiana, thinks there will be more consolidation of physicians—not necessarily with hospital systems—but into larger groups like his.

That’s because, even before HR 2, Medicare and private insurers were pushing doctors to sign contracts offering both bonuses and penalties based on quality and cost of care. The possibility of penalties—which Park calls “downside risk”—could be absorbed only by practices with significant economies of scale.

Park said American Health is about two years away from having potential penalties included in its contracts with private insurers and Medicare Advantage plans—which are private insurance plans for seniors, paid for by Medicare.

“It’s moving faster than anyone thought,” he said.

The Affordable Care Act, or Obamacare, created several new programs to make a portion of hospitals’ and doctors’ payments hinge on quality and efficiency—not just on sheer volume of services they perform.

The programs go under such names as accountable care organizations, bundled payments, value-based purchasing, and pay-for-performance. Also, the Medicare Advantage program, which pays physicians a set fee to care for each patient, has similar features.

About 25 percent of all physicians are involved in such programs. But that number will grow to 60 percent by 2019, according to a report by the Medicare actuary.

Physicians who do not join one of the bonus-penalty models would, beginning in 2019, be put into the Merit-Based Incentive Payment System. The MIPS system would increase overall payments to physicians 0.25 percent per year. Along the way, the best-performing doctors could earn bonuses of up to 9 percent, but the worst-performing doctors could be hit with a penalty of up to 9 percent.

But physicians who join accountable care organizations and similar programs would see their collective payments rise 0.75 percent each year—three times faster than those who don’t join such programs.

That difference would eventually lead 100 percent of physicians to join accountable care organizations (ACOs) or Medicare Advantage plans, according to the Medicare actuary.

“Physicians will have little choice but to join an ACO to get an extra 0.5-percentage-point bump in their payments every year,” wrote Capretta, the health policy scholar at the conservative American Enterprise Institute.

Medicare ACOs require a group of physicians to serve at least 5,000 Medicare patients, which almost requires a large group practice. And many ACOs, at least in central Indiana, were formed by hospitals employing the physicians involved.

Now Indianapolis-area hospital systems are forming their own insurance companies or entities to take risk and profit from the bonuses and penalties being advanced by Medicare and private insurers.

To make those insurance-like entities work well, hospitals need as many patients—“covered lives” or “attributable lives” in insurance parlance—in their orb as possible.

“All the hospitals aspire to be insurance companies. And the way you get covered lives is your primary care physicians,” said Park, the American Health Network CEO. “Everybody’s going after the attributable lives.”

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