Health Care Efficiencies
Authors: King Michael W. 
Published: February 2018

Despite the U.S. substantially outspending peer high income nations with almost 18% of GDP dedicated to health care, on any number of statistical measurements from life expectancy to birth rates to chronic disease,1 the U.S. achieves inferior health outcomes. In short, Americans receive a very disappointing return on investment on their health care dollars, causing economic and social strain.2 Accordingly, the debates rage on: what is the top driver of health care spending? Among the culprits: poor communication and coordination among disparate providers, paperwork required by payors and regulations, well-intentioned physicians overprescribing treatments, drugs and devices, outright fraud and abuse, and medical malpractice litigation.

Fundamentally, what is the best way to reduce U.S. health care spending, while improving the patient experience of care in terms of quality and satisfaction, and driving better patient health outcomes? Mergers, partnerships, and consolidation in the health care industry, new care delivery models like Accountable Care Organizations and integrated care systems, bundled payments, information technology, innovation through new drugs and new medical devices, or some combination of the foregoing? More importantly, recent ambitious reform efforts fall short of a cohesive approach, leaving fundamental internal inconsistencies across divergent arms of the federal government, raising the issue of whether the U.S. health care system can drive sufficient efficiencies within the current health care and antitrust regulatory environments.

While debate rages on Capitol Hill over “repeal and replace,” only limited attention has been directed toward reforming the current “fee-for-service” model pursuant to which providers are paid for volume of care rather than quality or outcomes. Indeed, both the Patient Protection and Affordable Care Act (“ACA”)3 and proposals for its replacement focus primarily on the reach and cost of providing coverage for health care, rather than specifics for the delivery of health care.4 With the U.S. expenditures on health care producing inferior results, experts see consolidation and alternatives to fee-for-service as fundamental to reducing costs.5 Integrating care coordination and delivery and increasing scale to drive efficiencies allows organizations to benefit from shared savings and relationships with payors and vendors.6 Deloitte forecasts that, by 2024, the current health system landscape—which includes roughly 80 national health systems, 275 regional systems, 130 academic medical centers, and 1,300 small community systems—will morph into just over 900 multi-hospital systems.7

Even though health care market and payment reforms encourage organizations to consolidate and integrate, innovators must proceed with extreme caution. Health care organizations attempting to drive efficiencies and bring down costs through mergers may run afoul of numerous federal and state laws and regulations.8 Calls for updates or leniency in these laws are growing, including the possible recognition of an “Obamacare defense” to antitrust restrictions9 and speculation that laws restricting physicians from having financial relationships will be repealed, ostensibly to allow sharing of the rewards reaped from coordinated care.10 In the meantime, however, absent specific waivers or exemptions, all the usual rules and regulations apply, including antitrust constraints,11 physician self-referral12 and anti-kickback laws and regulations,13 state fraud and abuse restrictions,14 and more. In short, a maelstrom of conflicting political prescriptions, health care regulations, and antitrust restrictions undermine the ability of innovators to achieve efficiencies through joint ventures, transactions, innovative models, and other structures.

This article first considers the conflicting positions taken by the United States government with respect to achieving efficiencies in health care under the ACA and alternative delivery models, on the one hand, and health care regulatory enforcement and antitrust enforcement, on the other. At almost a fifth of the U.S. economy,15 health care arguably has grown ungovernable, exceeding the ability of any one law or branch of government to create or implement coherent reform. Indeed, the article posits that although the ACA reformed and expanded access to health care, it failed to transform the way health care is delivered beyond limited “demonstration projects”, leaving fee-for-service intact. Nonetheless, even with limited rather than revolutionary goals, the ACA still lacks sufficient authority across disparate branches of government to achieve its stated goals. The article then examines the conflicting positions of the various United States regulatory schemes and enforcement agencies governing health care, and whether they can be reconciled with the stated goal of the government, often referred to as the “Triple Aim”:16 improving quality of care, improving population health, and lowering health care costs. It examines fundamental, systemic challenges to achieving the “Triple Aim”: longstanding health care regulatory laws that impede adoption of innovative delivery systems beyond their current “demonstration project” status, and antitrust enforcement that promotes waste and duplication in densely populated areas, while preventing necessary consolidation to more efficiently reach rural areas. The article concludes with recommendations for promoting efficiency through modest reconciliation of the conflicting goals and regulations in health care.