FMF hosts this week’s Cavalcade of Risk – be sure to check it out. The article I found most interesting come from Jaan over at Disease Management Care Blog, writing about the parallels between ACOs and CDOs (collateralized debt obligations). CDOs were a significant factor in the global financial meltdown of 2008, and the need for a government bailout for banks that were deemed “too big to fail”. Jaan also links to a four hour Frontline series about the global financial crisis (“Money, Power & Wall Street” – looks like it would be well worth watching).
Jaan delves deeper into the dynamics of how ACOs will be structured, and wonders if mistakes could lead to health care giants being “too big to fail” and having to be bailed out. It’s a very good question, and one that is hopefully being addressed as ACOs are created. I have to wonder however, whether some healthcare organizations – both health insurance carriers and hospital systems – are already “too big to fail”?
Here in Colorado, we have a pretty diversified health insurance market, with 70% of the market share held by 10 health insurance carriers. That’s not the case in all states though – in some areas there’s nearly a monopoly in terms of health insurance coverage. And although we have several strong hospital systems in Colorado, we’re also seeing more hospital mergers lately.
Given the large market share that some hospital systems and health insurance carriers have in other states, I wonder if those organizations might already be “too big to fail”, even before ACOs come into the picture? Would the financial collapse of one of those systems be too much of a destabilizing factor and require a government bailout in order to protect the communities served by the healthcare organizations?
So far, we haven’t seen such a scenario. In general, when a healthcare organization leaves the market, it is bought out by another organization that is more financially sound (for example, Celtic agreed to take over World and American Republic’s insureds last year when those companies left the market). This happens quite often with hospitals and small-ish health insurance carriers. But the titans of the financial industry that had to be bailed out in 2008 were not the “small-ish” banks – they were huge organizations that everyone thought were very sound. If something like that were to happen to healthcare organizations – either insurers or large hospital systems – would a bailout be necessary in order to stabilize the healthcare system?
I assume that ACOs are being crafted with a bit more care and transparency than what went into CDOs. And hopefully the lessons learned in the financial markets crisis will be well-remembered as healthcare market overhauls are created.