Why ACOs Won’t Work

Why ACOs Won’t Work

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First, I think Accountable Care Organizations (ACOs) are a great idea. Just like I thought HMOs were a good idea in 1988 and I thought IPAs were a good idea in 1994.

The whole notion of making providers accountable for balancing cost, medical necessity, appropriateness of care, and quality just has to be the answer.

But here’s the problem with ACOs: They are a tool in a big tool box of care and cost management tools but, like all of the other tools over the years like HMOs and IPAs, they won’t be used as they were intended because everybody—providers and insurers—can make more money in the existing so far limitless fee-for-service system.

I see the $2.5 trillion American health care system as a giant health care industrial complex. It just grows on itself and sucks in more and more money. Why not? The bigger it gets the more money we give it.

How do you make it efficient? You change the game. You can’t let it any longer make money just getting bigger. The new game has to be one that only pays out a profit for results—better care for a budget the country can live with. There are lots of tools available to do that. ACOs, capitated HMOs, IPAs, disease management, enormous data mines, Electronic Patient Data Systems, and so on.

But, here’s the rub. There isn’t a lot of incentive for payers and providers to do more than talk about these things and actually make these tools work. Right now they can just make lots more money off the fee-for-service system. They demand more money and employers and government and consumers are willing to just dump more money into the system. Sure they complain about it but they just keep doing it.

On the heels of the “Patients Rights Rebellion” (or maybe better titled the Provider Rights Rebellion) in the late 1990s, a CEO of one of the biggest health plans told me, “We’ve had it. We tried to manage care. Actually got results. Then consumers and employers and the politicians all sawed the limb off on us. Screw it. Back to fee-for-service. We can make more money doing that and not take all of this heat. They won’t admit it but that is what they [patients, employers, and politicians] really want.”

ACOs won’t succeed in the near term any more than capitated HMOs and IPAs accomplished anything in their day because there is no reason—no imperative—for the health care industrial complex to want them to succeed.

Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?

Oh, there will be some providers—particularly hospital administrators—who can’t wait to build an ACO but probably more because they want another excuse to corner the primary care docs as a marketing channel for their growing system. But spend millions to develop an ACO so they can get less money? Only in the policy wonk netherland does that compute.

The only people on the ball when it comes to this ACO idea are the anti-trust lawyers and with good reason.

In my next post, I will talk more about how we might change the game so that these tools can work.

Robert Laszweski has been a fixture in Washington health policy circles for the better part of three decades. He currently serves as the president of Health Policy and Strategy Associates of Alexandria, Virginia. Before forming HPSA in 1992, Robert served as the COO, Group Markets, for the Liberty Mutual Insurance Company. You can read more of his thoughtful analyses at The Health Policy and Marketplace Blog, where this post first appeared.

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68 Comments on "Why ACOs Won’t Work"


Guest
Apr 7, 2011

“Here’s a flash for the policy wonks pushing ACOs: They only work if the provider gets paid less for the same patient population. Why would they be dumb enough to voluntarily accept that outcome?”
___

Well, while I’m not one “pushing ACOs,” I would say that the assertion and question perhaps assume that providers will have to do the same (or more) work per patient.

I look forward to your next post on this topic. The contentious hypercomplexity of all of this gets to be pretty dismaying.

Guest

I agree that ACOs, the way they seem to be defined now, are probably going to fail, and I agree that the math does not compute, but math in general seems to have gone from an exact science to a liberal arts discipline, as exemplified by Mr. Ryan’s recent budget proposal.

I don’t agree that fee-for-service is the root of all evil though. We pay fee-for-service for almost everything we purchase without the dire consequences occurring in health care. Why? Because if I call a plumber to fix my overflowing sink and he makes a mess out of it, and/or charges me a fortune for the “service”, chances are I will never call that plumber again.
When it comes to health care, most of the time I have no idea if the “plumber” did a good job and I have no clue if the fee he charged is too much, or too little, or just about right.
Just like I don’t need anybody managing my plumbing needs, I do not need, or want, anybody managing my health care needs, particularly those who get to pocket the difference.
The holy grail of quality care management, Kaiser, is not passing down any savings to subscribers (they just build bigger and fancier buildings) so what makes you think that for-profit insurers, when allowed to “manage care”, will be any different?
What I need is knowledge, and, unlike plumbing, knowledge is in very short supply when it comes to health care quality and pricing.

Guest
MD as HELL
Apr 8, 2011

Congratulations, Margalit!! You got it! You have a value assigned to plumbing because you pay for it. You have no idea in healthcare because you do not pay for it.

That should end the discussion about government healthcare and third party payors and emploer-based healthcare…they should all go away! The patient should hold the money and buy the care they value.

Guest

Not so fast….. Let me turn this around a bit: How come you don’t know the price either?
If I call a plumber, he’ll tell me that it’s going to be $75 to come out to my house and look at the sink, and if it’s just the trap that is clogged it will be another $50, but if he needs to go all the way to the street it will be $100, etc.. Even if the plumber is paid by my house insurance, the price is still the same and still provided in advance of any repairs.
If I call a medical establishment, they’ll say they have no clue how much anything is. Do you not know what your service is worth? Or do you not want me to know? Are you going to be more transparent if I hold the money? Or are you just going to charge me quadruple of what you charge my insurer, as everybody who holds the money now is being charged?
Finally, if I don’t have money for a plumber, I can fumble around and fix the sink myself. What do I do if I don’t have money for you? Use a steak knife to take my own appendix out?

Guest
Cordelia
Apr 7, 2011

The Dartmouth research on small area variations implies that areas that spend more per patient do so by 1) diagnosing more conditions that require treatment, 2) bringing in multiple specialists to treat these conditions, 3) specialists relying on higher-profit procedural based treatment. This seems to have an obvious implication; the only way to save substantial amounts within ACO will be to encourage treatment in lower cost settings, to restrict/discourage access to specialists, place some limits on high-cost procedures. How does this offer anything novel over the strategies of the 1990s? If patients did not like it then, they will not like it now! Why should the top specialists participate? But if only lower-tier providers choose to participate, then ACOs will be seen as second-class care.

Guest
Gary O.
Apr 7, 2011

Robert Laszewski: “ACOs won’t succeed in the near term any more than capitated HMOs and IPAs accomplished anything in their day because there is no reason—no imperative—for the health care industrial complex to want them to succeed.”

ACOs seem to be succeeding in California. “ACOs in California care for 15.7 million prepaid enrollees. …Approximately 56% of individuals with commercial insurance, 45% of Medicare beneficiaries, and 52% of Medicaid beneficiaries receive their care from an ACO…; collectively these account for 54% of all persons with health insurance in the state.” (Robinson and Dolan. Accountable Care Organizations in California: Lessons for the National Debate on Delivery System Reform, 2010, p. 6.)

“A key differentiator of the California experience is the prevalence of capitation as a payment method, whereas other geographies use mostly fee-for-service even for large multispecialty medical groups.” (p.12)

“Many aspects of the policy and regulatory environment in California have been favorable to ACOs, compared to the political culture in states that have sought to protect the cottage industry against the incursion of managed care. The supportive aspects of California’s policy framework have been due to the historically strong presence of Kaiser Permanente, as well as the embrace of managed care principles by prominent public purchasers such as CalPERS and private purchasers such as the Pacific Business Group on Health (PBGH).” (p. 20)

Margalit Gur-Arie: “…Kaiser is not passing down any savings to subscribers (they just build bigger and fancier buildings)….”

…And, completing a 5 to 6 billion dollar EMR system. Undoubtedly they could lower prices, but what incentive to they have?

Guest
Apr 7, 2011

Well, at least you realize that in order to make money we (providers) will have to be paid less or work more. And no, we aren’t that dumb to accept that type of situation, it just gets crammed down our throats by the insurance companies and the government. Since we aren’t able to organize in any way to collectively bargain, we have little or no clout….unless we just stop seeing those types of patients.

Guest
Esteban1968
Mar 30, 2015

Bingo! Why would I take on complicated, non-compliant patients if it’s going o increase my workload AND I’m going to get dinged because they don’t have “better outcomes”?

Guest

Gary,
I didn’t think Kaiser would need incentives to lower prices, being a not for profit entity, but I guess I was wrong.

On the California ACOs, is health care in California cheaper than the rest of the country due to this proliferation of ACOs and capitated IPAS? Are people paying lower premiums? Are individual services cheaper? Is health care quality better, by objective standards? I think we should look at these things before we attempt to spread the ACO model to the rest of country, shouldn’t we?

Guest
Robert Laszewski
Apr 7, 2011

Where in the Calif study does it say ACOs have saved any money?

In fact, from the same study:

“ACOs are not a panacea for health care spending control

“Some of California’s provider organizations have been able to use their market clout to extract high payments from health plans, as the plans’ ability to exclude providers from their networks is limited by consumer demand and regulatory network adequacy requirements. Higher-cost and inefficient providers have not faced enrollment penalties because the current California market does not incentivize purchasers or consumers to choose lower-cost or more cost-efficient providers.”

Guest
Apr 7, 2011

“ACOs are not a panacea for health care spending control

Guest
Apr 7, 2011

I would agree with that,with two caveats. [1] Rewrite to say “ACOs are not LIKELY to be a panacea for health care spending control,” given that none exist yet per the new law, and, [2] Anyone waiting around for a panacea to emerge is going to be waiting a LONG time.

Guest
Barry Carol
Apr 7, 2011

Suppose an ACO established a goal to become the low cost, high quality healthcare provider in its market and, hopefully, be rewarded with more patients and market share. Teaming up with insurers, it might work something like this:

1. Primary care doctors will have the potential to earn bonuses that account for a very significant percentage of their compensation not by withholding care but by referring patients to the most cost-effective providers. PCP’s could earn much more than they do now.

2. Assuming user friendly price and quality transparency tools were available to the PCP’s, they would refer patients to hospitals that could do a good job for less money and, where possible, avoid those that command high prices because of their local or regional market power and not their care quality.

3. They would choose capable, Board certified surgeons who believe in shared decision making, especially for hip and knee replacement and back surgery.

4. Insurers would pay for palliative care counseling at the end of life whether Medicare covers it or not and the ACO would ensure that patients’ end of life preferences were stored on a registry so they were available to providers anywhere when needed.

5. If the patient needed to be referred to an oncologist, PCP’s would only use those who work closely with palliative care specialists.

6. If the patient suffers from kidney failure, PCP’s will use nephrologists who will take the time to explain to an elderly patient with multiple co-morbidities that dialysis may not extend their life and the treatment can be grueling. He or she might be better off, from a quality of life standpoint, to opt for medical management without dialysis.

7. Insurers could agree to pay these specialists who practice cost-effectively and the rest of the care team a somewhat higher bundled payment rate per procedure / episode that they perform in exchange for minimizing unnecessary and/or futile care. Hospitals could also be rewarded with bonuses if they meet agreed upon goals for minimizing infection rates and for having good discharge planning programs that minimize readmission rates.

8. To the extent that ACO’s can drive down costs by squeezing out unnecessary care and avoidable harm, patients should be rewarded with lower premiums and/or co-pays and deductibles if they get their care within these networks. If they want to go outside the network, they should pay significantly more for the privilege.

The bottom line is that incentives matter. We have a long way to go to get them right.

Guest

Virginia Mason in Seattle ran an interesting experiment that illustrate #1 and #3.

The dominant paradigm in medicine for lower back pain is this: primary care, NSAID, x-ray, abnormal lumbar image. Oops! Better see the neurosurgeon. Get an MRI. Bulging disc (may be indistinguishable from normal aging).

Neurosurgery and imaging don’t improve functional outcomes but do drive higher rates of complex, instrumented spinal fusion, especially in the aforementioned high-cost areas (eg: Miami, Florida or McAllen, Texas).

But, Virginia Mason turned that paradigm around. Patients with back pain were seen by primary care and given NSAIDs. They were then sent to physical therapists for one month for exercise training.

After the month, they went back to their primary care doc. But, whaddyaknow? Ninety percent of them were better and didn’t need a further work-up.

Patients won and payers won. The only one that didn’t win was Virginia Mason because imaging and neurosurgical admissions are big revenue sources for the hospital.

A model for ACOs?

Physical therapists will do well but the question is this. How can we encourage neurosurgeons to participate?

Guest
Apr 7, 2011

That’s very interesting.

But what’s the “expected value” of one missed tumor (from a medical liability perspective)?

Guest
MD as HELL
Apr 8, 2011

Translation: Do it cheap. Blow sunshine up the patient’s gown. Tell him death is the new “in” thing to do.

Guest

Barry,
Here is one problem I see right off the bat: ACOs will include PCPs, specialists of all stripes and hospitals. The referrals will go to specialists in the same ACO regardless of their inclination to use palliative care instead of therapy, and to hospitals in the same ACO, again regardless of their cost efficiency.
The payers do not decide which providers are in any given ACO, at least not under current rules. I think your suggestions are more in line with networks created by payers, or HMOs.

Guest
Apr 7, 2011

“ACOs will include PCPs, specialists of all stripes and hospitals. ”
___

Let us not forget that oft-repeated phrase (78 times, to be precise) in the ACO IFR: “assigned beneficiaries.”

Guest
Barry Carol
Apr 7, 2011

Margalit –

Someone has to lead in the formation of an ACO. If there were a group of hospitals and a critical mass of doctors who shared the general approach I outlined, there is no reason why they couldn’t form an ACO with a common mission and exclude providers who don’t share it. I will admit, however, that I haven’t read the lengthy proposed rule that governs ACO’s. If the rules as proposed don’t allow ACO’s to pick the providers they want and exclude those that they don’t want, then payers should focus on forming HMO’s and PPO’s with providers who believe in practicing high quality cost-effective care and, hopefully, they won’t have to deal with so-called any willing provider laws that force them to include any provider who will accept the reimbursement rates.

Guest

I read about half and skimmed through the rest, but I didn’t see anything about having to accept providers into an ACO.
I guess they could construct an ACO based on a common vision (specialists should be willing to take a major hit in income), but the current rules for Medicare don’t allow for charging patients more if they go outside the ACO. I doubt that Medicare will add such an unpopular clause any time soon.

Guest
Apr 7, 2011

See the recent JAMA paper on physician-led vs hospital-led ACOs.

(I have a copy, but it’s on my work laptop.)

Guest
MD as HELL
Apr 8, 2011

The loose cannon then remains the patient. Noncompliance factors into a huge percentage of ED visits in my hospital. Give me liability shielding and I can save some major money.

Guest
Jonathan
Apr 7, 2011

The first commenter (bobbyG) hit on an important point. It is more appealing in the current environment to participate in a coherent integrated system than in the fragmented, piecemeal, non-coordinated fee for service world.

Integrated delivery systems are swamped with many more applications from doctors than they can hire. Partly this is because young physicians don’t want to be small businessmen. Partly this is because they believe in the mission of coordinated, quality-focused care.

In an integrated system, volume will not be all-important and efficiencies can be pursued. Work life balance is more attainable.

Guest
Apr 7, 2011

One estimate I read last year argued that perhaps HALF or primary care outpatient visits are driven principally by the coding/billing imperative, that docs would give better care were they able to see only 8-10 patients per day (e.g., more like “concierge” writ large) rather than the 25 or more daily “treadmill medicine.” A lot of visits could/should be the 99211 equivalent, were you able to not take it out of the physicians’ compensation.

Guest
Apr 7, 2011

“Partly this is because they believe in the mission of coordinated, quality-focused care.”

See Toussaint and Gerard’s book “On The Mend” (just Google it). Read about their quite successful “Collaborative Care Model.” They hit the trifecta: better outcomes (and they were already atop the HEDIS measures going in), lower costs, higher patient (and care team) satisfaction. What more can you ask?

Not that it was universally beloved, by any means. They are frank to admit that a number of providers left.

Guest
Gary O.
Apr 7, 2011

Mr. Laszewski asks, “[w]here in the Calif study does it say ACOs have saved any money?”

“For many years, costs were lower in California than in other major states and, within California, costs were lower in the HMO products that relied on ACOs than in the PPO products that relied on non-integrated small physician practices. In recent years, however, this cost advantage has narrowed, resulting in a trend in commercial insurance enrollment away from the ACOs.” (p.27) The report also states that at one time “ACOs and their partner HMOs” had an “important cost advantage… relative to the cottage industry of small physician practices and PPO insurance products.” (p. 12) And, “cost reductions achieved by the Permanente Medical Group are directly reflected in lower premiums to the insurer (the Kaiser Foundation Health Plan), in turn attracting more enrollees…. Most of the non-Permanente medical groups in California emerged in response to the challenge posed by Kaiser.” (p.14)

Also relevant to any discussion about cost saving, the report notes:
“It is very difficult to obtain apples-to-apples comparisons of costs between ACOs and cottage industry physician practices, due to both the differences in patient populations (adverse selection, insurance benefits, urban versus rural geographic prevalence, and the importance of hospital costs that are not under physician control), and the different levels of consumer cost sharing in HMO versus PPO products. PPOs in California typically impose a deductible and coinsurance, both of which shift a much larger share of overall costs to the enrollee than does the benefit design of the HMO product. HMO products typically impose neither deductible nor coinsurance but, rather, rely on modest dollar copayments for office visits (e.g., $5-15). It is possible that the HMO would be cheaper than the PPO if it had similar levels of consumer cost sharing, but cost sharing differences are deeply embedded in the regulatory requirements facing the different insurance products. While cost comparisons are difficult, the bottom line is that trends in enrollment, which initially favored the HMO, now favor the PPO (and the cottage industry of small practices).” (p. 13)

The report corroborates Mr. Laszewski’s frustrations regarding the recent difficulties ACOs have experienced in California:
“ACOs have been challenged by the national and statewide enrollment trends away from HMO products. While many ACO leaders say their model requires investment in organizational capabilities and increased use of primary care services to restrain the use of specialty and hospital services, high deductibles penalize primary care and are permissive to the above-deductible specialty and hospital services. There have been efforts to facilitate deductible-based HMO products in California that could rely on existing ACOs for their provider networks, but these have not flourished. The greatest challenge and greatest opportunity facing ACOs in California and elsewhere is the potential for integrating the coordinated care programs developed originally for HMO and other narrow network insurance products into PPO and other broad network products.” (p. 18)

“ACOs in California continue to derive the vast majority of their patients and revenues from HMO products, despite the eroding reputation and market share of those products nationally. This is testimony to the difficulty in pursuing coordinated care in a choice context where the patient can change providers at any time, and in applying capitation or shared savings incentives to provider teams when they are not fully responsible for the patient’s care and costs.” (p.20)

“[California’s] DMHC vigorously enforces benefit mandates for the health plans (mostly HMOs) under its purview, whereas the regulatory authority of the California Department of Insurance (CDI) authorizes less rigorous oversight for the high-deductible PPO products under its purview. Some providers and thought leaders in California chafe at what they perceive to be excessive ACO regulation by DMHC, and argue that all health insurance types should be subject to the same oversight. In particular, they argue that PPO products should be subject to the same mandates concerning benefits, access, and quality reporting, and that disparate regulation likely has been one factor leading to the decline in market share of products that rely on ACOs.” (p.22)

Guest
Apr 7, 2011

Good stuff.

Guest

From Gary’s report:

“Due to the low payment rates offered by Medicaid and to the difficulty of providing a single standard of care to commercially insured and Medicaid patients where per-patient revenues are so different, Medicaid and commercial enrollment in integrated groups is often segregated between providers who see a high proportion of either Medicaid or commercial
patients. 67% of Medicaid patients served by integrated medical groups are in groups with between 80% and 100% Medicaid enrollees; conversely, 92% of integrated group commercial enrollees are in groups with between 0% and 20% Medicaid enrollment.”

And Kaiser has a total of 5% Medicaid in its population.

I assume that the “cottage industry” that cannot “segregate” Medicaid folks into a different standard of care (which I thought was illegal), would by definition be less efficient than those who can segregate or avoid Medicaid patients like the plague….
I also assume that unlike “cottage industry” doctors, segregationists are the same ones who “believe in the mission of coordinated, quality-focused care” and the same ones interested in attaining work-life balance.

Guest
Barry Carol
Apr 8, 2011

“but the current rules for Medicare don’t allow for charging patients more if they go outside the ACO. I doubt that Medicare will add such an unpopular clause any time soon.”

I doubt it too but Medicare Advantage HMO and network PPO offerings already do it.

The problem with standard Medicare is it doesn’t manage anything. It doesn’t differentiate payment rates based on quality and cost-effectiveness. It hasn’t even been able to follow through on subjecting durable medical equipment to competitive bidding. There is a lot of fraud, powerful lobbyists fight to protect the status quo, and innovation generally doesn’t happen until there is a crisis. The culture is one of a big dumb payer that tolerates fraud and then brags that its administrative costs are low as a percentage of spending. Even Medicare’s biggest strength, dictated prices, which insulate it from provider market power, wouldn’t work if there weren’t a large private sector to absorb cost shifting.