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Will new ACO regulations help with health care costs?

While waiting for a patient, Jackson Health System primary care Doctor Merja Clegg watches a video of President Barack Obama on her computer in Miami, Florida.

Bob Moon: Just yesterday, the White House released regulations
aimed at getting those health care costs under control. It's a move to establish something called Accountable Care Organizations, which would fundamentally change how doctors and hospitals get paid.

These 696 pages of fresh regulations
just landed on the Marketplace Health Desk,
and I know our own Gregory Warner has spent the last 24 hours reading every one of them, right Gregory?

Gregory Warner: Every word.

Moon: Uh huh. Lots of rules, but they really lay out the future of health care as the Obama administration has imagined it. Right?

Warner: That's right. And this future, I would say, looks a lot like the Cleveland Clinic or the Mayo Clinic or lots of places around the country where care is highly coordinated. So if you need a specialist or if you need lab work or drugs, it all comes from the same treatment team. And this is more efficient, it saves money, it's safer, there are fewer errors. It's also more popular with patients because you get more face time with doctors and less shuffling between offices filling out forms. But in this country that model is the exception. These new regulations issued yesterday create basically this huge incentive program to encourage hospitals and doctors and pharmacists and nursing homes and other providers to work together to coordinate care.

Moon: So that's where this idea of Accountable Care Organizations come in. How does this work?

Warner: So right now the way Medicare is set up is doctors are paid by procedure. Hospitals are paid by the bed basically. Pharmacists are paid by prescription. Everyone down the chain has an economic incentive to do more. This model says Medicare will just pay one lump sum to, say, treat a person with lung cancer. And then out of that sum, the care providers have to divvy up to pay for surgery or chemo or nutrition counseling, or whatever they think is needed. That, of course, rewards hospitals for making us healthier instead of just paying for more treatments, which sounds great in theory. The White House issued its first draft of these rules a few months ago. The health care industry issued a collective no way and they said it was too much regulation. This is the White House's second try, it's much more favorable to industry.

I called Alex Hunter, he's a consultant who wrote a book about ACOs, and he says what's also interesting is how this changes things for doctors, who are historically used to working solo.

Alex Hunter: Five years ago, if we had gone to the average cardiologist and said, you realize that in five years you'd be working for the local hospital, he would have thought you were a Communist or at best had given up on the Hippocratic Oath.

Now that cardiologist might be more willing. The private market's already bringing doctors and hospitals together and he says these ACO regulations will accelerate that trend.

Moon: OK, so everybody's coming together. Hospitals are happy. But what does this do about the cost of health care?

Warner: So some people think this is a terrible idea to bring doctors and hospitals together economically because to combine they'll have too much power, they'll jack up prices, and we've seen large hospital networks do this. Insurance companies are worried. On the other hand, this model could definitely cut back on the excess tests and the procedures, which don't do anybody any good and are by some estimates a trillion-dollar drain on the system. And if patients show that they like these new setups, then we could see a fundamental change to the broken business model of American health care.

Moon: We'll be watching. Marketplace's Gregory Warner, thank you.

Warner: Thanks Bob.

Moon: And finally on the health front, lawmakers in the House plan to investigate what caused a deadly food poisoning outbreak in cantaloupes from a Colorado farm. That outbreak of listeria has killed 25 people and sickened 123 others.

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