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InsiderOnline Blog: March 2012

Crony Capitalism in Health Care

Yes, there is crony capitalism in health care, it’s stifling innovation, and Obamacare has made the problem worse, reports David Hogberg (The New Individualist, March 7).

Back in 2010, the authors of Obamacare got the support of the big hospitals by agreeing to protect them from competition from smaller, more-focused physician-owned specialty hospitals (PSH). By specializing, these outfits could offer higher quality services than the bigger general hospitals, and that threatened the bigs business model. The writers of the law included a provision that essentially excluded new PSHs from serving Medicare patients and added new rules making it very difficult for existing PSHs to expand if they wanted to continue serving Medicare patients.

The big hospitals have long claimed that physicians who own shares in a hospital face a conflict of interest because they gain financially whenever they refer a patient to a hospital in which they have an ownership share. They also claim that these hospitals cherry-pick the most profitable patients. These practices, they say, put general hospitals at a disadvantage to PSHs.

Hogberg reports that the research on these questions is mixed, generally finding the incentives for such self-dealing to have small if any effects on physician behavior. These incentives, in any case, are certainly far smaller than the incentives every doctor already routinely faces for recommending his own services to his patients.

As health business guru Regina Herzlinger continually teaches us, increasing specialization has enabled just about every industry to discover better ways of doing things at lower costs. Hogberg’s report is a good reminder that the real incentive problem is our system of third-party payment, which Obamacare perpetuates. When the patient isn’t the payer, then his interests get defined for him by all the other players vying to influence the flow of dollars.

Posted on 03/20/12 06:16 PM by Alex Adrianson

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