Obamacare and the Theory of the Firm
Obamacare and the Theory of the Firm
This chapter discusses the fragmented nature of the US health care system and how it raises costs and worsens health outcomes. Fragmentation occurs when there is a failure to coordinate among various health care providers. The economic theory of the firm suggests that allowing greater integration should improve these results. However, organizations adopt the permissible forms of integration that are the most profitable, and our payment system rewards fragmentation rather than medical efficiency. In addition, current law stands in the way. Regulatory laws restrict how hospitals and physicians can work together, while payment laws require disaggregated payments for specific services. Furthermore, hospitals cannot afford to organize themselves in a way that does not comply with Medicare. Obamacare contains a number of provisions that could lift legal obstacles to efficient health care integration: the creation of Accountable Care Organizations, the Center for Medicare and Medicaid Innovation, and the Independent Payment Advisory Board. This approach lowers health care costs, increases quality, has bipartisan appeal, and can be done through executive action.
Keywords: health care, Obamacare, Affordable Care Act, fragmentation, integration, health care reform, Medicare
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