eWeek reported back in 2005. Why did Intermountain and Kaiser -- which put $1.8 billion into a 10-year transformation of its IT infrastructure a decade ago, as Health Data Management reported -- do what they did? It was because they had vertical integration, as Intermountain's own insurance arm, Select Health, explains on its Web site. The same hands collecting insurance dollars were delivering the care. This gave them a financial incentive to do health maintenance, just as owning your own car gives you an incentive to take it to the shop for regular oil changes. One of the great ironies of American health care is that the highest-risk groups actually cost the least to serve, thanks to vertical integration. The Veterans Administration -- a single-payer system -- is the leader in this. Medicaid and Medicare also have limits on their budgets that create incentives to do the easy things first, with a minimum of fuss. Insurers have approached this opportunity first by buying health care organizations with Medicare Advantage expertise, a process described last year in HealthLeaders Media. As UnitedHealth ( UNH - Get Report) explained when buying XL Health last year, "managed care plans have integrated disease and case management programs that can materially lower cost of care," Bloomberg reported. In other words, medical groups that can deal with Medicare and Medicaid today know things that insurers need to know, and by buying that expertise they can lower their costs and prepare for the incentives for cost control that are coming to the larger market through the Affordable Care Act. Where does this lead? It leads to more consolidation. To control their costs, insurers are slowly buying our health care system. I predict it even leads to purchases of hospital chains by big insurers, once those hospitals adapt to the fee-per-patient model and bring their costs in line.
Now you may notice something missing from all this: doctors. Vertical integration requires scale to work. Doctors don't work at scale, and they rightly fear becoming just cogs in a bigger machine under health reform. They're right to fear it. Avik Roy of the Manhattan Institute writes in Forbes of doctors being "driven out" of Medicare by benefit cuts and lower reimbursement rates. That's not the half of it. They will also be driven out of the insured care market by vertical integration. If you want to do fee-for-service in the year 2020, it will be outside the current payment networks. But this is not about politics. It's really a story as old as the Industrial Revolution. Individual workers are becoming part of larger systems, rather than practicing a trade autonomously. It's the old story of John Henry, who was one man with a hammer against a steam-powered machine, as Wikipedia puts it. Now it's one man with a stethescope against a computerized system. Doctors are the John Henrys of our time. Insurers are the railroads, and vertical integration is the steam hammer. It's called progress. Buy progress and you will profit. Fight progress and you will be hammered down. At the time of publication, the author had no investments in the companies mentioned here.. This article is commentary by an independent contributor, separate from TheStreet's regular news coverage.