Rising Healthcare Costs May be Impervious to Courts, Regulators

We learned this week that yet another court has ruled in favor of the individual mandate component of the Patient Protection and Accountable Care Act, but we also know that we are far from finished as this issue works its way through the courts. Score one for those who understand that the whole system created by the law will collapse if people are not required to obtain health insurance.

We also see withering interest from hospitals, physician practices, and even the heads of big health systems in the proposed rules surrounding the Centers for Medicare and Medicaid Services' accountable care organizations. Score one for those who think government ought to stay out of this arena.

These are all interesting stories to follow, and I am not suggesting that they're not important. Whether the individual mandate survives certainly will have a large bearing on healthcare costs going forward for obvious reasons. Everyone needs healthcare, but not everyone pays their fair share, if they are able. The proposed Medicare ACO program, given its restrictions, seems more like a demonstration given the small number of organizations that are likely to want to participate. That will be worked out, in time. 

But these narratives are not catching as much of my attention lately as they once did. New business alliances and mergers are much more intriguing.

Many outside observers are largely focusing on the wrong things when they try to get a big picture view of how healthcare is changing. The truth is, none of the legal and rule-making wrangling tells you nearly as much about how all this is going to turn out as the almost daily drumbeat of unorthodox—and previously even unthinkable—business unions that are now taking place largely not because of government pressure of one kind or another, but because the commercial market is demanding value and quality.

The pressure to improve those metrics starts with employers, which have finally decided that value and quality are the way to judge health insurance coverage for their employees. Employees themselves, footing more of the bill, are turning a more critical eye on their consumption of healthcare services.

Meanwhile, the oddfellows unions in healthcare continue to pop up. It's early in the game, so it remains to be seen whether any of these unorthodox tie ups that amount to vertical realignment—between hospitals and health plans, physician practices and hospitals, and even for-profit and nonprofit hospital companies joining together—will be successful at improving value or cutting costs.

But you can bet many of them will be successful from a business point of view. Does that mean they will ultimately drive down costs? Maybe not. In other industries, size and scale have become important not only for cost savings, but for negotiating healthy price increases as well.

All of which leads me to whether any of this is going to be enough to overcome the annual double digit increases in healthcare costs. That's still a long way from being decided, but I'd put a lot more of my chips behind it now that value has finally become important in shopping for healthcare—whether you're an individual, an employer, a hospital, physician group practice or health plan.