NCPA - National Center for Policy Analysis

Modern Medicine Is Undergoing Industrialization

December 27, 2011

Medicine is undergoing industrialization where doctors who previously operated in small offices with relative autonomy are becoming owned commodities of large hospitals and health plans.  This model was made largely inevitable years ago with the passage in 1997 of the Balanced Budget Act.  Under the Obama health care plan, it's become the standard for the entire system.  Even aside from policy-specific changes that Patient Protection and Affordable Care Act (PPACA) will make, it will also greatly impact the method by which medicine is delivered, says Scott Gottlieb, a resident fellow at the American Enterprise Institute.

  • Because the 1997 Balanced Budget Act and the PPACA introduce price controls that limit returns to doctors, health care providers are forced to maximize volume of patients, as opposed to patient care optimization, in order to increase revenues.
  • Additionally, doctors are being consolidated into large, care-providing institutions, with 2011 as the last year that a majority of America's physicians will own their own medical practices and operate their own offices or clinics.
  • This gradual consolidation and "industrialization" of care causes cursory appointments in which doctors measure extra time spent with the patient as revenue losses.

At the core of the PPACA is the creation of Accountable Care Organizations (ACOs): large institutions that accept responsibility for substantial swathes of Medicare patients with the overall goal of minimizing costs and maximizing treatment.  ACOs are rewarded for their fastidiousness, giving them incentives to maintain efficiency and drive down expenditures in the program.

However, ACOs and the entirety of the PPACA perpetuate a system of price controls and limits on program expenses that have increasingly plagued the health care sector in recent decades.  By placing caps on payouts for certain types of treatment, these initiatives have the perverse effect of diverting potential investment in health care technology away from the sector.  Venture capitalists, who would seek to modernize the practice and introduce new methods, are wary of involving themselves in the health sector because of the proliferation of regulations and the growth of price controls that limit the potential return on investment.  This causes efforts to modernize medicine to dwindle, as government attempts to improve care have the opposite effect.

Source: Scott Gottlieb, "Modern Medicine is Undergoing Industrialization," American Enterprise Institute, December 14, 2011.

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