Obsolete law adds costs to the system at every turn. Instead of penalties for referrals, there needs to be greater incentive for collaboration.



We are on the brink of a huge shift in how we think about, deliver, and pay for health care in America. Philosophically, we are changing from our traditional focus on treating patients with truly urgent problems to preventing those conditions in the first place. On the financial side, the shift is a move away from paying based on the quantity of services rendered and more toward paying based on the quality of services. Unfortunately, some existing laws are a barrier to this necessary transformation.

Though Medicare became law almost half a century ago, its payment system is still essentially intact: a "fee-for-service" (FFS) reimbursement system that pays providers for each intervention they perform, without regard to whether the treatment improves patient health. Health spending has soared since then: National health expenditures were $27.1 billion in 1960; today they are over $2.6 trillion.

The FFS system cemented the practice of largely focusing on treating disease instead of on preventing patients from getting sick in the first place.

Solving the nation's most entrenched problems See full coverage

Around the turn of the 20th century, this treatment model was appropriate. Acute, infectious illness, such as tuberculosis or influenza, were major causes of death at this time. But today, chronic disease -- long-term conditions requiring careful management -- are far more prevalent and costly.

The cost burden on our health system today comes from managing and treating chronic conditions. In 2008, 616,000 people in the United States died of heart disease, while annually about 785,000 Americans had their first heart attack, and 470,000 had another heart attack. Heart disease represents an estimated yearly cost burden of about $108.9 billion in medications, care, and lost productivity.

Today, chronic disease accounts for about 75 percent of total health care spending. An acute disease-focused, per-intervention model of care delivery and payment cannot address America's current needs.

FFS encourages care fragmentation, poor coordination across different provider settings, and in some instances, unnecessary care that exposes patients to risk without providing any value to health.

Instead, we need to promote care coordination, higher quality, and lower costs. The ticket is more clinical integration, which means various types of health professionals coming together to care for a patient population. Clinical integration can include anything from a fully integrated, Kaiser Permanente-type system that employs professionals in a common facility, to collaborating across multiple settings to improve coordination around a single chronic condition. 

Transitioning to increased clinical integration is necessary, but won't be easy. In addition to cultural and financial barriers, legal barriers exist. It can seem daunting if not impossible to propose new models of care delivery with these laws as strong disincentives:

Antitrust: The Sherman Antitrust Act prohibits negotiations between providers that could result in excessive market power. Providers with unchecked leverage over a market can fix or raise prices excessively for their own gain. Unaffiliated health care professionals who form a new care organization to better coordinate care may represent a large share of the market that could be considered anticompetitive.

Anti-KickbackPayments to induce Medicare or Medicaid patient referrals -- or ordering covered goods or services -- are considered kickbacks. Incentives to refer patients for unnecessary services for financial gain are wasteful and potentially harmful to the patients. However, such incentives to encourage good physician behavior as adherence to guidelines for evidence-based practice should not be precluded by law.

Civil Monetary Penalties (CMP) Law: CMP mandates a penalty for payments from hospitals that directly or indirectly encourage physicians to reduce or limit services to Medicare or Medicaid patients. With health care spending out of control, some reduction in unnecessary and wasteful clinical services will be needed to reduce overall spending growth 

Stark Ethics in Patient Referral Act: Stark prohibits referrals of Medicare patients to institutions in which the physician has a financial interest. Integrated models of care link the financial fates of multiple care settings and, in some cases, reward doctors for referrals. The key here is not punishing referrals intended to improve or preserve patient health.

Regulators are making some progress in overcoming these barriers. One example of an innovative model of care delivery is an Accountable Care Organization (ACO). An ACO is a new legal structure involving a group of health care providers who agree to be held accountable for the cost and quality of care they deliver to a defined patient population. But this affiliation can place many ACOs at risk of running afoul of antitrust laws.

To address this, the Federal Trade Commission (FTC) and Department of Justice (DOJ) issued a joint policy statement in October 2011 describing the regulatory flexibility that the agencies will provide to organizations participating in the Medicare ACO program. The agencies propose, within reason, an antitrust "safety zone" for ACO participants with a combined market share of under 30 percent and a voluntary, expedited antitrust review.

The Patient Protection and Affordable Care Act (PPACA) relies on many of these new models of coordinated and integrated care to spur health care quality improvement and efficiency. During the last months of the development of PPACA, several freshman Democratic senators proposed a formal Government Accountability Office study of these legal barriers; however, the proposal was ultimately excluded from the final legislation.

Moving forward, health systems must be able to collaborate to improve care and lower cost.  And federal enforcement agencies must be able to differentiate between such collaboration and illegal collusion that makes unfair use of increased market power. To this end, we must update our obsolete approach to health care regulation and delivery, replacing rigidity with flexibility and laws from yesteryear with laws for today.

Meredith Hughes provided invaluable research for this piece.

We want to hear what you think about this article. Submit a letter to the editor or write to letters@theatlantic.com.