The Health Reform (Almost) Everyone Loves

Come with me to the land of happy health reform. It is a place where Republicans and Democrats find common ground, a place where physicians, hospitals and health insurers sit together as partners, a place where criticism is respectful, not rancorous. It is the world of Accountable Care Organizations (ACOs).

What are ACOs, and why have they escaped the general onslaught of opprobrium from Obamacare opponents?

The term Accountable Care Organization was originated by Elliott Fisher of the Dartmouth Center for the Evaluative Clinical Sciences, picked up by the Medicare Payment Advisory Commission and then enshrined in Section 3022 of the Patient Protection and Affordable Care Act (otherwise known as health care reform). The language is explicitly designed to use financial incentives to change the health care delivery system.

ACOs are defined less by form than by function. A group of physicians, possibly with a hospital, agrees to manage the full spectrum of care for a defined population of at least 5,000 Medicare beneficiaries for a minimum of three years. If the ACO meets certain targets for quality and cost-effectiveness, it gets to keep part of the savings.

In theory, everyone wins under this arrangement; that is, efficient and effective providers are rewarded, the government saves money and patients are healthier.  Whether the ACO theory will work in practice is an important question, but not as intriguing at the moment as the political one: why aren’t politicians and special interests screaming invectives at each other? I think there are three characteristics that explain the ACO love fest and speak to whether it might be replicated in other areas.

Perhaps the most important ACO characteristic is that its theoretical underpinnings have broad and deep bipartisan support. The idea of using financial incentives to organize care delivery more efficiently is not new. During the 1980s, however, proponents began to believe we could actually measure high-quality, cost-effective care and reward those who practiced it.

Over the years, a steady stream of books, journal articles and white papers has turned what was controversial into conventional wisdom. For example, in April, a bipartisan group of House members announced the formation of the Quality Care Coalition, “to provide Members of Congress a forum to transform the health care system to reward value in care and make evidence-based, quality care the standard.”  It also helps that ACOs address how we organize care for the already insured, rather than the redistributive hot button of coverage for the uninsured.

The second advantage of ACOs, nearly as important, is that the concept promises to put money in the pockets of a broad range of stakeholders. Doctor groups and hospitals around the country are scrambling to form ACOs in an effort to extricate themselves from the Medicare fee-for-service squeeze. For example, 19 health systems affiliated with the Premier healthcare launched two collaboratives designed to create ACOs responsible for the health of more than 1.2 million patients.

The complex challenges inherent in setting up and running a successful ACO also means most aspirants will be seeking some sort of help. They’ll need state-of-the-art information systems, ongoing legal advice and maybe even some help from an experienced insurer in taking on risk. Given all the unknowns, consultants and vendors of every stripe are sure to flourish.

Which brings up the third reason why ACOs are popular: ACOs are “government light,” at least for now. There are no mandates; providers can choose whether or not to form an ACO. There’s also plenty of room for innovation in accomplishing the ACO’s legislative mission. “Virtual ACOs” involving independent physicians in private practice are just as acceptable as the large, integrated systems repeatedly rolled out as role models.

Moreover, while HHS must launch the ACO program by Jan. 1, 2012, detailed regulations are not required until year-end. In their absence, no stakeholder can squawk that the government has gotten it wrong. And, of course, until the program begins, there are no complaining losers, only potential winners.

Unfortunately, the replicability of the ACO reprieve from partisan bickering may be limited. There are other delivery system reforms, and even some insurance reforms, that have bipartisan support similar to that enjoyed by ACOs, but there are few that can promise to put money in providers’ pockets while soothingly assuring them that those who want to ignore the new ways of practice and continue to practice as usual will be able to do so. Indeed, some skeptics question whether the blessing of providers for ACOS was obtained at the cost of weakening their ability to make a cost and quality difference; the details of final regulations and cost-quality standards will be the test that argument.

In its 2001 report, Crossing the Quality Chasm, the Institute of Medicine famously called for a fundamental change in the way delivery of care is organized. “Trying harder will not work,” said the IOM. “Changing systems of care will.”

ACOs, bringing together providers to take responsibility for meeting specific quality and cost goals related to care across the spectrum, unquestionably symbolize the kind of change the IOM was asking. Whether the enthusiasm for the concept in theory will be justified by the ACOs in practice is the larger question remaining to be answered.

This article first appeared on Kaiser Health News.

Michael Millenson is a Highland Park, IL-based consultant, a visiting scholar at the Kellogg School of Management and the author of “Demanding Medical Excellence: Doctors and Accountability in the Information Age”.

32 replies »

  1. The ACO is just a reprisal of the old HMO model that died because it deprived patients of any choice of doctors. The ACO model has MANY flaws: 1. The cost savings will come from limiting serices to patients, not by “capping charges” and still providing the same services. 2. Not only will patients not have doctor choice, but doctors employed in these systems will not have control over their treatment of patients–an ethical bind, nor over their choice of specialists to refer to, also an ethical bind. 3. This ethical dilemma will keep the best doctors out of these organizations as long as they can affort to stay out, feeding the possibility of a serious two tier system in which those who can afford it will get excellent care, vs those forced into the ACO’s. 4. Again, the cost contraints will lead to serious rationing of care. 5. The beneficiaries of these systems will be the corporations and shareholders who own them.

  2. Honestly, I get a bit suspicious whenever “everybody wins’ is marketed. Yes, sometimes there are win-win situations, but they are rare.
    Our healthcare system is bloated and we spend more as a percentage of our GDP as compared to any other country in the world – that is a given fact. So, it goes without saying, there is wastage in the system. And any solution needs to target the wastage, which will create some losers.
    when the regulations/details are announced, watch out for fireworks.
    I may not agree with ExhaustedMD that Health care reform is a total nightmare, but I do agree that for this system to improve, everybody will have to pitch in.
    Both Democrats and Republicans missed the opportunity to make this happen and really solve the problem. As a result, the bill gave something to everybody but didn’t solve the fundamental problems.

  3. I think I have to agree with Mr. Bryon’s post – haven’t we been here before? During the 90’s there were widespread efforts to shift risk to provider organizations, usually with some shared savings and often with some quality incentives. While some of these arrangements still exist, many fell by the wayside as the provider organizations found that managing risk was not as easy as they expected. What is different now?
    I am always amazed how even educated people seem to forget that “savings” mean loss of income for some entity. If ACOs are going to be successful, the question is whose pockets they are taking the money from. That is not necessarily a bad thing, but don’t expect those parties to take it lying down.

  4. “He got a 80% reduction just in coding.”
    So this was either a coding error or coding fraud? That’s a lot different from you saying the patient can get their provider to reduce what the provider says are “legitimate” charges.
    So you refusing to pay charges that you consider too high is not capping charges? Can’t have it both ways Nate.

  5. Do you really think the provider is going to sit down with the patient and justify their bill.
    I love how liberals argue on their experience and facts and not what is feed to them via the propoganda machines.
    To answer your question Peter since I see it every day yes I do. Just this morning I had a meeting where we discussed a claim where the member went back to the provider three times to have it recoded and reduced. He got a 80% reduction just in coding.
    Hospitals and providers spend millions trying to market an image. Poor sally going on the evening news crying she is going to lose her house because Big Local ACO charged her $100,000 for a normal delivery cuases sever damage to that image. Its not nearly as common as the insuranc company didn’t pay sob story but they happen. ACOs rather insurance companies look like the bad guys then the news turn on them.
    Have I ever looked at an EOB, couple hundred thousand a year, how many have you looked at?
    “Single-pay countries actually do cap what they pay”
    Not that you could grasp the difference Peter but they usually cap what is charged. Capping payment would create liability which you claim doesn’t exist in those perfect systems.

  6. “If a provider has abusive pricing in a free market I as the payor just cap what I reimburse, the provider then needs to justify their charge to the patient.”
    I love this one Nate. Single-pay countries actually do cap what they pay but they don’t unload the extra costs to the patient. Do you really think the provider is going to sit down with the patient and justify their bill. Ever looked at an EOB – “This is what we billed, this is what the insurance paid, this is what you owe.” “Pay or we send this to our collections department.”

  7. Margalit you might have some interesting conversations if you ever dropped the sound bites and preconceived notions. I deal with self funded plans, my profit margin has ZERO relation to claims paid or loss ratio.
    PCP would the ACO have the option to contract? The alternative is my employer doesn’t have an agreement and we say we are going to pay X anyways. They can’t refuse to treat the patient so they are in the same place either way. Its been a battle we have faught many many times in rural communities. You can have an employer that is 20-40% of the towns labor force and the community hospital holding guns to each other’s head just waiting for one to flinch and take it to the media and refuse to work with the other….mutual distruction. as long as you don’t have some politician tipping the scales. Before governemnt “fixes” it these things tend to work them selves out. ACO with the highest reimbursement in the world doesn’t do any good with no patients.

  8. I don’t think a powerful ACO would contract with a payor that only covers a percentage of their “global fee” for an “episode of care” (whatever that is), requiring them to chase after the patient for the balance.

  9. “I as the payor just cap what I reimburse, the provider then needs to justify their charge to the patient”
    And what exactly do you expect the patient to do now that you figured out how to maintain your profit margin?
    If the ACO is big enough, there’s no other choice in town anyway. If you (the payor) limits my choice to your network in order to pay up to cap, then between you and the provider, this is highway robbery. Not very American after all.

  10. Mike,
    They use a FT equivalant formula that not only counts part timers but seasonal. A broker I work with has a client that makes Candy that has no idea how they will stay in business. their labor force goes up 10 fold during 5-6 holidays each year. I suspect this will have drastic consuqiences on part time and seasonal help. Small business just wont be able to hire them.
    “It seems to me that in your particular line of business, dealing with a corporate, and most likely monopolistic entity, would present certain difficulties. Will it not?”
    Sure does, ideally speaking just of self serving natire I wish every doctor and hospital was stand alone, then the market could really drive down their prices. What is in my best interest isn’t always in everyone elses. Seldom when speaking on here will I speak out of self interest. I’m american before I’m a business owner.
    “2. Won’t the largest ACOs have tremendous bargaining strength that will allow them to demand higher (not lower) payments?”
    Depends if congress will stay out iof it or not. If a provider has abusive pricing in a free market I as the payor just cap what I reimburse, the provider then needs to justify their charge to the patient. This works very well until congress starts playing sides.

  11. “Killing Marcus Welby”
    You mean Doctor Pay-Me-Later Welby who always spent endless time with patients?

  12. 1. Is there any evidence that patients will be more willing to accept rigid limits on choice of hospitals and docs that they were in the early 90s?
    2. Won’t the largest ACOs have tremendous bargaining strength that will allow them to demand higher (not lower) payments?

  13. Nate, the problems you describe do exist, but there are other possible solutions short of corporatization of health care delivery, such as medical homes and virtual medical homes.
    It seems to me that in your particular line of business, dealing with a corporate, and most likely monopolistic entity, would present certain difficulties. Will it not?

  14. In respect to Employer mandates, it appears from http://www.BenefitsManager.net and http://www.AHealthInsuranceQuote.com analysis that employers nationwide will be assessed a $2,000 penalty for every employee not offered group health insurance or commonly referred to employer sponsored health insurance. Does this include part time employees that traditionally didn’t qualify or buy health insurance in the first place because of the cost vrs. Hours worked? How in the world is an employer going to absorb this cost? So if an employee doesn’t want to participate in paying their share, the employer is penalized $2,000?

  15. “The extinction of small private practice and aggregation of providers into corporations, IMHO, cannot possibly lead to better care and/or cheaper care.”
    Right now if your sick outside of M-F 9-4:30 instead of seeing “your” doctor you are forced to go to Urgent care, ER, or Take Care type clinic were they know nothing about you.
    Assumed in the ACO concept is better sharing and collection of electronic data. You can’t help but receive better care when your treating provider on sunday knows medically as much about you as “your” doctor.
    In regards to cheaper care your average solo Doc’s office is empty 16 hours M-F and 48 hours over the weekend. At the same time hospitals and drug store chains spend millions to build additional offices. All the equipement in your solo docs office sits unused most of its life. Consolidation of doctor offices would save a fortune and most likly have substantially better care

  16. When I was studying Health care in my Health MBA program I was weary about the way care is administered in this country and thought something must be done to correct it. I love this ACO concept and I am excited to here that one of their goal is to focus on how care is given to the already insured.

  17. Michael
    Perhaps this question is asked and answered somewhere in the comments above but:
    “Haven’t we tried this before?”
    I and my family have been under a healthcare insurance plan just like you describe since 1990. It’s insurance that sends you to a group of doctors with an affiliated hospital. They used to have an affiliated pharmacy but that’s now part of CVS.
    This 1994 article (http://www.highbeam.com/doc/1G1-15074060.html) explains the concept. In the beginning they were legally one entitiy as I understand it but subsequently split into separate companies. The legal changes have not been apparent to me however. When I sit in the examining room with the piece of paper I got in the reception area, it says CAPITATED beside my name in big letters.
    What’s the difference between what I have had for 20 years and this great new idea?
    Dennis Byron

  18. A very simple reality: much of post-reform healthcare depends on ACO-like arrangements; most docs currently practice in small practices; and the inevitable Medicare cuts will force small practices into other practice models. BUT – thus far, it is far too legally risky for doctors to organize ACOs (antitrust prohibitions); while hospitals are already, quite legally, assembling their pre-ACO teams. In other words, docs have near-zero control of their immediate destiny – besides to join a hospital-dominated network. The AMA is addressing this with the feds, but how much of a safe harbor can they reasonably assemble, de novo, ahead of the go-live date of 1/2012? Regardless, hospitals have a head start. Unless we are, as a nation, ready for medicine to become a corporate venture, physicians have some catching up to do – and quickly.

  19. “In theory, everyone wins under this arrangement”
    I don’t know about this one…. Patients are bound to see their choices restricted to ACO providers only. As to being healthier, that depends on who defines the “quality measures” and I’m pretty sure that at least on the private market it won’t be the patients or the doctors.
    Independent physicians may not win either. If the hospital is running the ACO, as it probably will be the case most often than not, and the hospital is in charge of distributing payments, I have no doubt that small practices, particularly primary care, will not see any major winnings. They’ll be lucky to stay alive, and many won’t.
    All those bi-partisan advocates of health care reorganization should be very careful of what they are wishing for. The extinction of small private practice and aggregation of providers into corporations, IMHO, cannot possibly lead to better care and/or cheaper care. It can however lead to better corporate profits.
    And this ACO thing is not safely limited to Medicare

  20. Gotta love these acronyms! I really wonder if they just come up with the letters first and then apply words to fit them later.
    below is yet another opinion of how UN-wonderful obamination care will really be in the end. I still ask and get no answer of confirmation admitting or denying such: how much the owners of this site and these authors of the posts will make out if Obamacare becomes a reality, or to me, a nightmare? Well, read this link and see what you think, and yes, the author has an agenda, ie a book to sell, but, even a broken clock is right twice a day:
    Well, enjoy the sales pitches! Here is mine, yet again:
    EVERYONE has to sacrifice to make health care effective, affordable, and responsible. And yet, the sellers of this snakeoil don’t tell you that, do they; while it sounds so easy and implementable (if a word), doesn’t it make you stop and think!?
    Oh, and why are our elected officials exempt from the legislation they so enthusiatically rammed through congress back in March? Hmmm, deeds not words can be deafening, eh?

  21. No question – health reform will change the landscape forever. And be assured that no seniors will be locked into anything, because Medicare “beneficiaries” (unlike Medicaid “recipients”) are folks that politicians take care not to alienate.

  22. Michael:
    Nice article, in theory. In practice, however, ACOs are untested and in their infancy. I do not believe ACOs will be as popular as you seem to think. Many will be stillbirths.
    Here is my reasoning as someone who has written a book on this subject, Sailing The Seven “Cs” of Hospital –Physician Relationships; Competence, Convenience, Clarity, Continuity, Competition, Control, and Cash (Practice Support Resources, 2006), I would like to point out tensions and potentially breakdowns are inevitable between doctors and hospitals.
    Why inevitable?
    • Hospitals and their medical staff compete for business, sometimes referred to as “lines of service.”
    • Over the last decade or more, much of this business has shifted outside hospital walls into the outpatient arena, where outpatient diagnostic and surgical centers now proliferate, some owned by hospitals, some owned by physician investors.
    • Improved technologies and less-invasive techniques make it possible to perform these procedures quickly during the day without a hospital stay with short recovery times.
    • Lower reimbursements, increased regulations , and higher expenses threaten the economic survival of both hospitals and doctors, who find themselves fighting over a smaller economic pie in a zero-sum game, meaning when one side wins, the other loses.
    • Hospitals and doctors have vastly different organizational structures and cultures. Hospitals are hierarchical corporate organizations, with one person and an executive team at the top. Physicians are more democratic structures, with each doctor having a potential veto vote. These differences make for awkward, time-consuming decision making.
    • The Affordable Care Act, often referred to as Obamacare, passed on March 23, 2010, at its core, will systematically decrease payments to hospitals and doctors over the next ten years, with Medicare payments projected to be less than Medicaid payments by 2019.
    Medicare and Medicaid now cover 110 million Americans and are the financial lifeblood of hospitals and some physician practices. Most hospitals and most physicians cannot simply “opt-out” of seeing government-subsidized patients. Hospitals and physicians must adjust.
    One of these “adjustments” is hospitals hiring more physicians and forming their own physician networks. This threatens the remaining “independent physicians,” who own their own practices and who do not have the marketing power or capital of hospitals.
    Another “adjustment ,” favored by the Obama administration, is the formation of “accountable care organizations.” In these organizations, hospitals and doctors theoretically collaborate to provide more “efficient care” with cost savings for Medicare patients. Hospitals and doctors share the savings.
    These organizations are in their infancy, and many obstacles – bureaucratic, anti-trust, legal, and power-struggles – lie in their path.
    Whatever happens as the result of new health reform law, it will change the landscape of medical and hospital practice forever, as I explain in my book Obama, Doctors, and Health Reform (2009).

  23. Accountable Care Organizations can be good but the ability of Federal bureaucrats to assign Medicare patients to them raises the question about whose has what Suplimentel Insurance and will it too be changed. Second question might be if the bureaucrats can assign Medicare patients will the next step be to assign the new masses Medicaid patients.These are the very same people the Doctors in the ACO refused to serve before because of low reinbursements or previously uninsured.
    ACO’s could be Federally directed Managed Care run ammuck and the consuming public revolted against that. Forced partial capitation could cause many ACO’s to go bankrupt because of their customer mix primarily assigned by Federal bureaucrats and healthcare utilization might be too high.
    AARP and others representing the senior community are strangely silent. Have they cut a side deal with HHS?
    There are also many Critical Access Hospitals located in areas next too potential ACO’s who either could lose many of their Medicare patients or be forced to give up their cost reimbursed protected status and join an ACO.
    These are the questions that need to be answers soon because the ACO train is already moving down the tracks.
    Kurt Hahn
    Hospital Board Member in California

  24. Peter, this is only for Medicare patients at the moment, but private insurers are talking about the same kind of arrangements, albeit under somewhat different rules. For example, it wouldn’t be surprising for privately insured patients to be told that they must stay within the ACO network or pay more. On the other hand, BCBSMA has an “alternative quality contract” that financially incentivizes providers, but leaves patients/members alone.
    Mark, the reason the hospitals, docs, etc. are willing to do this is that the alternative is not unrestricted fee-for-service but ever-more-restricted fee-for-service rules and payments. It’s cost containment with autonomy versus imposed cost containment. At least for now.

  25. “In theory, everyone wins under this arrangement; that is, efficient and effective providers are rewarded, the government saves money and patients are healthier.”
    “The second advantage of ACOs, nearly as important, is that the concept promises to put money in the pockets of a broad range of stakeholders.”
    Is this just a work-around for Medicare patients? If not then do private insurance premium payers/patients get money back also?

  26. The ACO is an interesting concept. However, it is a very, very expensive venture with very, very little in the way of predictable return on investment. It’s replicability in rural areas is questionable. There are no specific safe harbors from FTC on the anti-trust aspects of the ACO. Still, it is attractive to many providers, in that it provides for payments for quality. The model may be convertible to commercially insured and self-insured employers as well as having some possibilities in the exchanges. The development of an ACO is NOT for the faint of heart. . .

  27. It is true that fee for service leads to waste through overuse of services and it is probably true that there is an opportunity to save money by eliminating the waste.
    However, there seems to be a fundamental disconnect here. If ACOs are going to achieve savings, that means that the doctors, hospitals, labs, imaging centers will be receiving less money overall. They may receive bonuses for efficient care but the total amount paid must be less than they are receiving now if there is going to be any savings.
    I can only assume that the ACOs think that they can either game the system to receive more money and/or that they hope they will have a monopoly on these patients and their non-participating colleagues will take the brunt of the cuts.
    The fundamental problem is that we need to make the health care system as efficient as those in other developed countries which spend less than 10% of GDP on health care compared to our 16%+. This will require that doctors, hospitals, pharma, labs, etc. all take big pay cuts. The billions of dollars involved are a powerful incentive to avoid painful changes for those receiving the money.