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CAPITOL PERSPECTIVES Spike In Doctors Employed By Hospitals Specialty physicians employed by hospitals jumped from 5% to 25% Primary care physicians employed by hospitals doubled to about 40% Source: The Advisory Board, "The power of joining a hospital network: Physician clinics raise rates," August 2012 and Congress's interest and ability to enact reforms, perhaps the more fundamental impact of this consolidation is on the commercial market. Hospitals are merging into megasystems and purchasing physician practices to eliminate competition and secure referrals. In a seminal synthesis report issued in June 2012, the Robert Wood Johnson Foundation made three key findings with respect to consolidation: 1. Hospital consolidation results in higher prices. 2. Hospital competition improves quality of care, whether under administered pricing or private insurance. 3. Hospital-physician consolidation has not led either to improved quality or reduced costs. Indeed, studies find that consolidation was primarily for the purpose of enhanced bargaining power with payers. Similarly, the basic economic principle of competition resulting in lower prices is also evident in Medicare's Part D prescription drug program. The Congressional Budget Office found lower bids were submitted in the Part D regions with more prescription drug plan sponsors. Between 2007 and 2010, each additional plan sponsor in a region correlated with a 0.5 percent reduction in the average bid for that region. Unfortunately, the Obama administration would exacerbate this consolidation phenomenon by advancing its proposal to prohibit physician practices from integrating so-called "ancillary services" — advanced medical imaging, radiation, and physical therapy — into their practices. The result is that these services would be provided primarily in hospitals, which are more expensive and less convenient for patients. More importantly, the proposal would undermine the independent physician practice, and many of these physicians would throw their hands in the air and conclude that staying independent of hospitals is economically unfeasible and join many of their colleagues as employees of mega-hospital systems. The reaction to this proposal of the House physician caucus (i.e. members of Congress who were physicians before they became Congressmen) has been unified and alarmed. The letter signed by 17 members of the caucus states, "We hope you will reject this unwise policy that will legislatively undermine the important counterbalance provided by integrated physician groups that provide ancillary services, which we believe is essential to America's patients and taxpayers alike." If MedPAC, the Robert Wood Johnson Foundation, and knowledgeable physician members of the House of Representatives are waving red flags about the negative implications of this health delivery consolidation, why is the Obama administration aggressively pursuing policies that accelerate this phenomenon? Answer: Centralization of fewer, powerful entities is easier for big government to regulate and control than thousands of independent, free-thinking physician practices with their own ideas about how best to deliver care to their patients. John McManus is president and founder of The McManus Group, a consulting firm specializing in strategic policy and political counsel and advocacy for healthcare clients with issues before Congress and the administration. Prior to founding his firm, McManus served Chairman Bill Thomas as the staff director of the Ways and Means Health Subcommittee, where he led the policy development, negotiations, and drafting of the Medicare Prescription Drug, Improvement and Modernization Act of 2003. Before working for Chairman Thomas, McManus worked for Eli Lilly & Company as a senior associate and for the Maryland House of Delegates as a research analyst. He earned his Master of Public Policy from Duke University and Bachelor of Arts from Washington and Lee University. He can be reached at jmcmanus@mcmanusgrp.com. 12 LifeScienceLeader.com August 2013