Doctors Groups Fail Because They Don't Understand Risk

The October 7, 2010 New England Journal of Medicine has two interesting articles, one by Harold S. Luft, Ph.D.  titled "Becoming Accountable - Opportunities and Obstacles for ACOs" and the other "The Effects of the Affordable Care Act on Workers' Heath Insurance Coverage" by Christine Eibner, Ph.D. and others. Like the Affordable Care Act, neither of the articles discusses an issue which my experience tells me has played a major role in the failure of a number of physicians' practices to survive managed care and other forms of contracted health care relationships.

Insurance companies understand risk: they hire skilled actuaries to analyze underwriting risk and to tell them about it and how to shuffle it off to others.  The Federal Government understands risk, and as one plows through the 900+ pages of the Affordable Care Act, there are many references to the requirement that highly sophisticated actuarial studies be done to guide future policies and actions  But individual doctors don't have the financial means to hire actuaries (or attorneys)  to tell them about the risks that they blithely assume, and even if they did, their fracturing into relatively small business entities makes the per-doctor cost of securing actuarial advice prohibitive.  And then there are antitrust issues when groups of physicians combine resources to strengthen their ability to negotiate with employers, government and insurers.  So insurers, government and business shift risk to physicians who bite off more than they can chew - and choke.

The current proposals for health reform is not going to solve that problem. As physicians learn that the emphasis on "efficiency" and driving down the cost of services leaves their bank accounts empty, I expect them to resort to their experience-tested means of generating income: see more patients, do more procedures, order more tests and ramp up the billing. In this era of "evidence-based care," ironically it is the physicians who lack evidence about the business risks they are asked to undertake by insurers, government and businesses.

Acountable care organizations will not survive in that environment.