Why ACOs Won’t Work

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.

68 replies »

  1. 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”?

  2. Great read. Of course, at the core, ACOs are embedded in healthcare reform and referred to in one of the most controversial laws in America, enacted just over a year ago on March 30, 2010, the Patient Protection and Affordable Care Act (PPACA). The controversy is partly because of the tension and low level of trust between private practice doctors and hospital administrators. Here’s another perspective. http://www.concerro.com/blog/?p=162

  3. ACOs and Actual Health Care Reform Submitted to NEJM

    Fuchs and Milstein1 wonder if U. S. physicians are “sufficiently visionary, public minded, and well led” to save $640 billion in our illness care system? Judging from the failure to build on sound initiatives2,3 that should have started us down that path, the answer is no. Discouragingly, Brooks’ salient essay3, which should have become a building block to meaningful reform, is not cited in subsequent commentaries on comparative effectiveness research.

    But, enter the Accountable Care Organization (ACO). My prediction has been that the ACO movement will accomplish little except generate a lot of heat and smoke, exhaust well-meaning physicians trying to engage with the movement, and generate an industry of consultants and a society or two, complete with their own bureaucracies.

    But it occurs to me that ACOs, incentivised by shared savings, could be the catalyst to true reform. ACOs could band together under an umbrella organization and transform the American illness care system by: 1) acknowledging the regional variability in frequency of services provided without outcomes advantage4; 2) insisting that every specialty society produce their own “Top Five List5” and incorporate these best practices into their ACO. (the model theorized for oncology6 is inspiring); 3) insisting that insurance companies standardize to save another $200 billion1,7; 4) agreeing with my7 et al 1 essays, to insist that physicians use absolute risk reduction in describing to patients the effectiveness of alternative treatment programs, thus revealing that often there are only marginal clinical outcome differences between approaches, but orders of magnitude differences in cost; 5) adopting the “Great Expectation7” that the patient is expected to take responsibility for their own health, citing but one example, of how through life style modifications, the diabetic glacier which is sweeping the country into bankruptcy could be tamed . The AMA could fight marginalization in regard to health care reform, seize the moment and be that umbrella organization to midwife the above, actually transforming our illness care system into a viable, effective health care system.

    1. The $640 Billion Dollar Question —Why Does Cost-Effective Care Diffuse So Slowly? Fuchs, Victor R., PhD and Arnold Milstein, M.D., M.P.H., N Engl J Med 2011; 364: 1985 – 1987.

    2. Cost Shifting Does Not Reduce the Cost of Health Care Victor R. Fuchs, PhD JAMA. 2009; 302(9): 999-1000.

    3.Assessing the Appropriateness of Care—Its Time Has Come. Robert H. Brook, MD, ScD. JAMA. 2009;302(9):997-998.

    4. Gawande, Atul. The Cost Conundrum What a Texas town can teach us about health care. The New Yorker, June 1, 2009.

    5. Medicine’s Ethical Responsibility for Health Care Reform — The Top Five List
    Brody, Howard, M.D., PhD, N Engl J Med 2011; 362: 283 – 285 .

    6. Bending the Cost Curve in Cancer Care, Smith, Thomas J., M.D. and Hillner, Bruce E., M.D. N Engl J Med 2011; 364: 2060 – 2065.

    7. Great Expectations: How to Actually Transform the American Health Care System and Avoid Squandering a Trillion Dollars, Hirons, Larry W., M.D., personal communication, Jan 2010.

  4. Great Expectations: How to Actually Transform the American Health Care System and Avoid Squandering a Trillion Dollars
    Larry W Hirons, M D

    This is a defining moment when change has (to) come to America. . But these are Hard Times for politicians. As I told the Oregon Medical Association 25 years ago, “Pity the poor politician. Medicare is going to bankrupt the nation. Politicians have three choices, all likely to lose them votes: 1) Reduce provider payments (which will not meaningfully reduce the financial problem but will hasten provider flight to retirement and cause hospital insolvencies); 2) Reduce plan benefits; or 3) Increase taxes. Stakeholders’ interests and political expediency, not the common good, forge current reform proposals being debated along with 360 offered amendments. Cost shifting masquerades as cost reduction. The task at hand is to save billions of dollars by actually reforming elements of our current system while saving even more billions by bridging the chasm of expectation of us patients as we welcome fifty million new insureds. This is how:

    A just America will have universal health insurance for all Americans. Such insurance should be made available through a two-tiered health insurance system. Everyone gets the single payer “Chevy,” NO questions asked. Benefit inclusions will be actuarially determined based on the amount of money we are willing to devote for the number of lives needing to be covered, aka The Oregon Health Plan. Setting an upside limit on total expenditures will save billions. Additional billions will be saved in administrative costs and having but one plan to comprehend would be a refreshing. The other tier, the “Cadillac” would be any number of supplemental plans with expanded benefit packages, designed, sold and administered by the private sector to be bought by, and at the option of, the individual purchaser
    Medical providers’ practices need reform. It may not be so much that doctors are paid too much for each service we do but rather that we do too many services. The indefensible disparity in services provided and costs generated, from one locale to another, to the same kinds of patients with the same kinds of problems must end. Or maybe it is that we invoke unproved services. New, always expensive, technologies should enter the market place only after their cost-effectiveness is proven. Physicians must eliminate “relative risk difference” as an argument to the patient for suggesting a therapeutic option. We know that absolute risk differences between therapeutic options for any given condition often can be modest while the cost differences between the compared options can be substantial. Finally, the time has come to implement the “appropriateness of care” strategy using available and rapidly deployable tools to compare alternatives for care for a given condition, especially since, for a given condition, there are radically different price tags between options which have fairly similar outcomes.
    Tort reform, liberating for providers yet just for injured patients, is imperative. Patients should have the expectation that providers will practice the science and art of medicine avoiding defensive medicine. Faced with a patient with a likely benign headache, providers need confidence to spend the necessary time to evaluate and explain to the patient our diagnosis and plan vs experiencing ten seconds of paranoia about a possible lawsuit going on to order a $1,500 cranial M R I that only rarely will find an explanation for the headache. Billions would be saved.
    Ethical pharmaceutical companies should focus on discovery of novel drugs vs “me too” drugs. Exposure to physicians should be in the educational arena and direct marketing to the public should cease.

    Plunderers of Medicare, fraudulently stealing from us taxpayers, should be crucified.
    Addressing the above key elements of our system while saving billions of dollars leaves a major element unaddressed, a chasm uncrossed, namely the role the individual must play to control the cost of medical care, aka the elephant in the room. The title, “America’s Healthy Future Act of 2009,” perpetuates the myth that having health insurance equates to having good health. The proponents hope we infer that reduction in health care expenditures will result. Absent my proposed changes, universal coverage will in fact aggravate our financial situation since it will increase by millions the number of us wasteful consumers of illness care resources. That is because the American Healthcare System, while superb if one is sick, is really a cost-inefficient “illness care system,” where, compared to other industrialized nations, an embarrassing gap exists between record dollars spent per capita and the comparatively poor health status and outcomes statistics purchased with those dollars. While no stakeholder is entirely satisfied with our system, one stakeholder (the elephant) passively observes while critics assign responsibility to all the other stakeholders for solving this paradox. That stakeholder is the “illness care” consumer who, having been endowed with good health at birth, proceeds to indulge in extraordinarily damaging habits such as overeating, a sedentary lifestyle, smoking, drinking alcohol to excess and use of illegal drugs, resulting in breathtakingly expensive services to salvage their health. Having resisted their physician’s advice as to life-style modification, the patient emerges from the shadows, usually during a crisis, to claim dependency on everything but themselves for remedies, seeking the “best” of illness care to restore their health. For instance, we know that overeating and inactivity lead to boarding of an obesity, sedentary lifestyle train called pre-diabetes, traveling to join, in time, the dramatically costly diabetic glacier that is sweeping the country. (Diabetics consume three times as much illness care money as compared to non-diabetics).
    Among the multitude of reform solutions offered, it is rare to find articulation of the expectation that the consumer play their part to reduce billions in expenditures. Remarkably, patients elude notice as being a most potent agent for part of cost savings. How guilt-ridden providers seem to be to state the expectation that patients shoulder responsibility for solutions. Self-improvement to avoid becoming diabetic would save billions of dollars for the system and untold suffering. The universally available brisk daily walk is free and effective. Eating less to achieve weight loss, the other primary diabetes preventive measure, reduces food costs; a bonus for the patient’s budget. Instead, the solution du jour makes this patient stakeholder an ever more comfortable guest in the medical home where the provider team showers them with comprehensive service, not really challenging them with the expectation that, for their benefit, they must change. Measuring personal responsibility for change is not a scorecard criteria for grading that medical home.
    The defining moment when change has (to) come to America will occur when we cross the expectation chasm to a “health care system” in which patient accountability is a sine qua non. How revitalizing if my patients said “Thank you for showing me the prediction model of me becoming diabetic in the next eight years, ” and “for showing me how weight loss of seven percent and serious daily exercise can reduce my risk of becoming diabetic by 58 percent. How exhilarating to hear, “I am convinced! I am taking responsibility for my health. I want to be the driver of my own ‘medical home train.’ I accept these expectations of me.” Our financial calamity can be averted if expectation of personal responsibility would join all these other stakeholder strategies to participate in actually reforming our system.

    1Obama, Barrak. Repeatedly stated during presidential campaign 2007 – 2008.

    2 Cost Shifting Does Not Reduce the Cost of Health Care Victor R. Fuchs, PhD JAMA. 2009; 302(9): 999-1000.

    3 Gawande, Atul. The Cost Conundrum What a Texas town can teach us about health care. The
    New Yorker, June 1, 2009.

    4 Redberg, R F and Walsh, J. Pay Now, Benefits May Follow – The Case of Cardiac Computed
    Tomographic Angiography, N Engl J Med 2008; 359: 2309-2311.

    5 Assessing the Appropriateness of Care—Its Time Has Come. Robert H. Brook, MD, ScD. JAMA. 2009;302(9):997-998.

    6 Projecting the Future Diabetes Population Size and Related Costs for the U.S. Diabetes Care vol 32 no. 12: 2225-2229, Dec 2009

    7 Yates T et al. Effectiveness of a pragmatic education program designed to promote walking activity in individuals with impaired glucose tolerance: A randomized controlled trial. Diabetes Care 2009 Aug; 32:1404.

    8 Wilson, Peter W F, Prediction of Incident Diabetes Mellitus in Middle-aged Adults; The
    Framingham Offspring Study. Arch Intern Med 2007; 167: 1068 –1074

    9 Tuomilehto, J, et al; Prevention of Type 2 Diabetes Mellitus by Changes in Lifestyle Among
    Subjects with Impaired Glucose Tolerance. N Engl J Med 2001; 344: 1343 – 1350

  5. As it happens, the CABG occurred at age 53 and was covered by my employer provided commercial insurance policy. The problem with hospital chargemaster rates, though, is that they are arbitrary and bear no relationship to the cost of providing service even after factoring in the issue of uncompensated care. Maryland uses an all payer system which at least ensures that all payers, including Medicare and Medicaid, pay a given hospital the same rate for the same service. At the other extreme, a CFO of a well known health system that includes an AMC told a small group recently that the price they collect for a typical procedure from the large Blue plan in the market is about half of what they get from the other commercial insurers because of the big difference in market power. In Switzerland, by contrast, where there are no public payers even for the elderly, the private (non-profit) insurers in each canton negotiate as a group so they all pay providers the same rate for the same service, test or procedure in that canton. While it would require an anti-trust exemption for insurers to try something similar here, maybe policymakers should consider it.

  6. Sorry to hear you had to have a CABG, but what makes you think your balance wasn’t paid? It was, by cost shifting from people who had much higher than necessary premiums because of Medicare’s price controls. How is that fair? The working person pays their Medicare tax, which paid the $35K, and the premium which paid the rest. Why can’t private insurance take on the balance billing? At least then the Medicare population would contribute a fair share to their medical care expenses.

  7. While I agree that wealthier Medicare patients should be able to spend some of their own money to buy more of a doctor’s time and attention, I’m not a fan of balance billing. It may look like a reasonable concept to a PCP but what about surgeons’ fees and hospital charges? Suppose I get a CABG, which I’ve had, at a list price of $100K but Medicare only pays $35K. The hospital comes after me for the other $65K using aggressive collection tactics and threatens to ruin my credit rating if I don’t pay the balance of the bill or at least a good portion of it. What’s the point of having insurance if I’m going to be exposed to that much financial risk?

    Perhaps an alternative approach would be to stop taking Medicare or all insurance altogether. Post your charges or your hourly rate prominently in your office and make it clear that you will work with patients of more modest means on a sliding scale basis. This approach, of course, would not work if most of your patients were in the lower half of the income distribution curve. If you’re serving a more upscale demographic, it probably would work OK. A wealthier market might support a concierge practice though I question how many patients, even if they can afford it, would pay up for that.

  8. without disparaties why go to school for 8 years? Why work 12+ hour days? Why take the risk of opening a pratice? This country was built on people earning what they wanted not entitlements to what someone else earned.

  9. That all depends on the choices available. That is going to vary a great deal from place to place, and one health care policy will not fit all.

  10. Touché, Margalit, although I doubt many spouses of PCPs are driving Lexuses (Lexi?). I agree that disparities in available care are inevitable in an affordable health care system in this country. It is absurd that a wealthier Medicare patient cannot buy more time with the doctor without the doctor being guilty of fraud. That is why I advocate balance billing. Policymakers need to stop denying that the disparities must be accepted and managed.

  11. Dan Urbach, MD –

    I can appreciate the importance and relevance of the intangibles and nuances in referral selection that you cited. I wonder, though, out of every 100 referrals that you need to make, how many times would you send your own family member to the specialist, hospital or imaging center that happened to be the most cost-effective assuming you had the price and quality data that you deem relevant?

  12. ….. and the PCP, if honest, would have to say “Well, no. I would take my wife to that nice Hospital across the street because I golf with a couple of docs that work in that department and they are extremely good, and the place is very nice, but then again my wife drives a Lexus and yours drives an 87′ Dodge, so that’s life, and really that other place is very good too.”

    For some reason, automobile and other goods disparities are acceptable, but when it comes to medical care, particularly for one’s children and spouse, same disparities are not acceptable, and I don’t think they should be either.

  13. Here’s your prior statement: “If lower income people can’t afford the higher coinsurance for the higher cost provider, I have no sympathy. They shouldn’t be going there in the first place. Even though I can easily afford the higher coinsurance, I wouldn’t go to the higher cost provider either if I knew the quality was no better than the more cost-effective alternative.”

    I suppose I should put it less viscerally than I did in my last post: quality is not simply an outcome measure. The PCP is a doctor, dealing with a patient who is an ill person. Each ill person has a concerned family (usually) if the illness is serious. The doctor has usually dealt with a large number of specialists (or radiology clinics, etc) and has had good and bad experiences with them. The patient is relying on the doctor to make the best choices for them, and trusts the doctor to do that. If we are talking about choices amongst providers, then the specialists who are terrible at the bedside, or the radiology clinics who are poor at getting patients seen in a reasonable time, or who are slow at getting results transcribed and send them by snail mail; these and many more local and mostly unmeasured factors are important in the PCP’s decision of where to send the patient. These things are as important as any outcome measure. And if the PCP says, as it seems you would have them say, “The most cost effective choice for you is…,” the patient will respond, “Yes, doctor, but what do you think is best? What would you recommend for your wife, if she were in my position?”

    I do think that patients should have financial risk that influence their decisions, and they will often choose cheaper over more convenient, and I think this is OK as long as quality is adequate. No I don’t think the taxpayer should be on the hook for arbitrarily high prices. However, I do not see how policy makers can determine quality or prices in a vacuum, which they have so far done, to our cost.

  14. Dan Urbach, MD –

    Do you practice in a rural area with only one hospital for miles around or in a city or well populated suburban area with numerous hospitals in close proximity?

    Why should premium payers or taxpayers pay for patients to get a non-emergency MRI at a hospital owned facility when they could get one of equal quality at a non-hospital owned facility for 40%-50% less cost to their insurer? Why should they be able to get an expensive brand name drug for the same co-pay when a much cheaper generic equivalent is available? Why should they be able to go to the expensive, big name AMC for routine care that any nearby community hospital could provide just as well for much lower cost? Even if people got all or most of their care in the most cost-effective good quality settings, we would probably still have a problem with healthcare cost growth. Charging higher coinsurance to access care in higher cost settings that could be provided just as well in a lower cost setting is not a matter of sympathy or lack of it. It’s a matter of trying to efficiently allocate finite resources so we don’t go broke trying to provide people with the care they need. PCP’s are in the best position to be helpful here. I don’t think it’s too much to ask of them once we have easy to access price and quality transparency tools.

  15. Let’s hope people with “no sympathy” are left out of the boardrooms where policy is made. Your own construct does not make sense outside of your theory. A patient who sees a surgeon who expresses “no sympathy” but has good surgical outcomes will never see them again. The internist who has “no sympathy” but gets blood pressures under control is a poor doctor. There are more things in health care than are dreamt of in your philosophy.

  16. Margalit –

    I think tiering was an important factor driving the increased use of generic drugs and the same concept could be used to steer patients toward more cost effective hospitals, doctors, imaging centers and labs. If people insist on accessing the more expensive option because they think, incorrectly, that it’s better, then they should at least pay more out of pocket for the privilege and take some of the cost pressure off taxpayers and premium payers. If lower income people can’t afford the higher coinsurance for the higher cost provider, I have no sympathy. They shouldn’t be going there in the first place. Even though I can easily afford the higher coinsurance, I wouldn’t go to the higher cost provider either if I knew the quality was no better than the more cost-effective alternative.

    With respect to marble vs. vinyl floors in hospitals, while they cost more to build, they don’t usually cost more to operate once they are built. Besides, amenities like that are often financed with considerable help from philanthropy. Labor costs are the same. So is the cost of medical supplies, utilities, liability insurance, etc. One trend that does add to both construction and operating costs is more private rooms. However, medical safety experts tell us that private rooms lower infection risk, reduce the possibility of medication errors and give patients a chance to get more rest and sleep which promotes healing.

    I agree that we have quite a way to go before patients are better informed about costs vs. quality in healthcare. Good price and quality transparency tools available to both patients and referring doctors would speed the education process.

  17. Barry, I don’t disagree with the premise that equally good, or even better care, can be obtained at less expensive venues.
    However, the average customer does not know that and until enough information is disseminated to change customers’ perception, referring patients to “cheap” places will be viewed as withholding care.
    It took a long time for the public to become comfortable with generics, and those could be easily and accurately compared to brand name drugs. It is going to be much more difficult to convince people that they can get the same level of care on vinyl floors as they get in marble palaces, and those who keep building palaces even today, at an alarming rate, have no interest to dispel this common perception.
    It’s an uphill battle, made difficult by much anecdotal evidence and by fierce opposition from the “big” guys.
    Just look at the new Taj Mahal Kaiser put up right next to where laws are made. Probably could have built 100 clinics in low income areas with that non-taxable money. What do you think is the statement they are really making in full view of Congress?

  18. “The customer in health care is not seeking a “good enough” cheap product, because the perception is that cheap products will kill you. Nobody looking for a doctor for their child will be willing to compromise perceived quality to save 10%.”

    Margalit – The perception is wrong and we’re not talking about “cheap” care. We’re talking about more cost-effective care comparable in quality to that offered at the more expensive hospitals. It’s well known that there are hospitals, especially famous Academic Medical Centers, which command high prices because of their local or regional market power, NOT the quality of their care. There are plenty of local community hospitals that can perform a wide array of standard and routine procedures just as well as the AMC’s for considerably less money. I, for one, don’t want to pay for patients to go to AMC’s for routine care just because they think, incorrectly, that they’re getting better care when they aren’t. In Massachusetts, the AG’s study noted one case of an interventional cardiologist that did the exact same procedure in the same way with the same equipment in two different hospitals in Boston, one of which was part of the Partners system. The episode commanded a significantly higher price when it was performed at the Partners hospital because of their market power. The outcomes were the same in both places.

    If I need a colonoscopy, it can be done perfectly well at my local community hospital. If I need an MRI, the local non-hospital owned imaging center will do it for 40%-50% less than the hospital owned facility on comparable state of the art equipment. If I need a statin or a hypertension drug, there are generics that are just as effective as the brands and cost far less. Patients who need hip replacements or back surgery and are given full information about the risks and benefits of the procedure opt to not go through with the procedure at least for the time being and will try physical therapy instead about 20% of the time.

    Several years back, I saw an assessment of the outcomes for 54 cardiothoracic surgeons in Boston. They were rated one, two or three stars with one star meaning results were worse than expected, two meant as expected and three meant better than expected. Of the 54 surgeons, 52 received two stars yet the price variance paid to the hospitals they practiced in varied widely depending on their market power.

    It’s not helpful to keep suggesting that the more expensive hospital or the more expensive doctor must be providing better care. There are, of course, sophisticated procedures like organ transplants and treatment of rare cancers that only the elite institutions can handle. I’ll bet, though, that the revenue accounted for by those procedures is comparatively small for those hospitals. For most procedures, comparable quality is available at non-teaching hospitals for significantly lower prices even for Medicare and Medicaid patients. With better price and quality transparency tools, referring doctors can help to steer more patients to the most cost-effective, good quality providers.

  19. Barry, the comments order seems out of whack, but I assume you were talking about the risks of under treatment as opposed to over treatment.

    I don’t quite agree with Mr. Christensen’s views on how health care should function and with the fragmentation of care in a pattern that is different than what we see today, but nevertheless it seems much more dysfunctional than what we have, even if we assume that the “instructions travel with the part”.
    Anyway, people that want to change a particular market, or disrupt it, need to first understand the customer. The customer in health care is not seeking a “good enough” cheap product, because the perception is that cheap products will kill you. Nobody looking for a doctor for their child will be willing to compromise perceived quality to save 10%. Nobody is looking for buy-one-get-one-free and nobody can shop end of season sales.
    You can argue that this is a result of insurance, and “no skin in the game”, but I think folks were searching for quality doctors before insurance was invented, and people have plenty of skin and other organs too in this game. And that’s precisely the problem.
    When you buy a cheap T-shirt at Walmart, or a cheap ticket from Southwest, the worst possible consequences are that you’ll need to buy another T-shirt in two weeks, or suffer through some inconveniences for the few hours that you fly. If you buy cheap care, you could kill or harm your child forever.
    So before you have any expectations for price-based competition in health care, you would have to establish an exact equivalency between cheap and expensive services. I guarantee that nobody would go to Walmart for $4 meds if they were some crappy Made in China brand. People go to Walmart because the drugs are the exact same ones they get at the pharmacy for more money. If Walmart can offer a Harvard trained, NEJM published, physician consultation for $4, I’ll be the first one to stand in line, otherwise don’t bother. It won’t work.
    So yes, talk to patients, let them make the tough decisions and then abide by whatever decision they made. It may reduce the volume of services, particularly at end of life, but don’t expect them to choose to see an NP behind the canned goods aisle and call it health care.

  20. I agree that low out of pocket exposure is part of the problem. A couple of practices in my area have systematically reduced their prices for people who are uninsured (although in practice most doctors that I know will do that on a case by case basis). I only refer my uninsured cases to the one radiology clinic I know does that, and their prices are far below the hospitals’. There is a GI practice in town that sent letters out saying they would do colonoscopies for lower rates for those without coverage. They have followed up to tell us that they’ve found some cancers in patients who didn’t get the scopes soon enough because of expense. If they were closer to my office, I’d send them every colonoscopy I could, not just because of the lower price, but also because they are good citizens for doing that.

    But how do you increase out of pocket without hurting a lot of people? I think that’s the intention of the benefit voucher idea, but I don’t think the voucher system would work for this. I’d suggest that balance billing should be allowed, and that providers of all kinds should make their prices known. That will certainly not solve everything, and some people could not afford to pay the bill. That’s why I advocate means testing. I suggest that people with less than some amount of wealth be protected to some extent, or that there be an out of pocket maximum amount calculated for their economic status (not the same for all).

    There is a lot of talk about people with high OOP (e.g., on high deductible plans) failing to get needed services. I have seen this myself. However, I don’t think this is a good argument against increasing out of pocket. People need to take responsibility for themselves. I do think it probably increases expenses in the end (because of higher degree of illness later), but I don’t think we know how much, and one could incentivize people in this regard. E.g., maybe premiums could drop for each year that a diabetic gets his/her hgbA1c done, and even more if it’s controlled.

    I’m sure there are many arrangements for incentivizing good preventive practices that we could think up. Most importantly, creative problem-solving should be encouraged and rewarded.

  21. “Perhaps we just need to agree what type of risk is more acceptable in health care: withholding needed care, or bestowing more care than necessary.”

    Margalit – I don’t think that’s the issue. If I go to a hospital ER complaining of vague stomach, chest or back pain, tests need to be run to determine what’s wrong with me as numerous conditions have similar symptoms. The hospital in this case is functioning as what Clayton Christensen in his book, “The Innovator’s Prescription,” calls a “solution shop.” Fee for service payment is appropriate in this context. If it is definitively determined that the patient needs a CABG or hip replacement or back surgery, then we get into what Christensen calls a “value added process shop.” Here, a bundled or episode payment is appropriate. Capitation could work in primary care if it is backstopped by either outlier payments for complex cases or reinsurance beyond a certain claims threshold either at the specific patient level or the aggregate panel level.

    To determine what care is “necessary,” patients should have something to say about this but some doctors don’t try to find out what patients want and don’t want. This is why I emphasize the need for shared decision making for surgical procedures, palliative care counseling at the end of life, and oncologists who are willing to work closely with palliative care specialists instead of just pushing ahead with aggressive (and expensive) treatment whether the patient wants it or not. Once patients have articulated their end of life preferences, it’s important to store that information on a registry so it’s available to providers anywhere when needed. I think the opportunities to save money are quite significant if we make more effort to help patients to make informed choices about their care so we can withhold unwanted care rather than bestow more care than necessary which fattens the bottom line of providers and drives up insurance premiums and taxes needed to pay for Medicare and Medicaid.

  22. Wow, Nate. I actually agree with you about FFS. In my world, there are two types of project contracts: fixed price and time & materials. The former being akin to capitation and the later similar to FFS (to a certain degree).
    Fixed price contracts are used for rather simple things with little to no potential for surprises. Many corners are cut during these types of projects.
    T&M is not always more expensive, but it certainly can be, and it is usually reserved for complex and important projects involving lots of expertise.
    Depending on the contractor, both types of contracts can be, grossly abused or equitably discharged.
    Perhaps we just need to agree what type of risk is more acceptable in health care: withholding needed care, or bestowing more care than necessary.

  23. I would say that was the transition from 50% OOP to under 13% OOP. If we moved OOP back up to a more reasonable amount then we would be more likly to have a functioning market. Consumers paying out of pocket for routine care with their own money is more likly to create a balanced market then having it paid by insurance or rationed by a captiated provider.

  24. “Use a steak knife to take my own appendix out?”

    Margalit that’s just being ridiculous, use a fillet knife, are you trying to leave a worse scar?

  25. Nate,
    I don’t think there’s a simple answer to your question. Under price controls, fee for service works reasonably well as long as the fees keep the supply of health care adequate to the demand. But that’s the problem. The price controls have failed to evolve that way.

  26. Consider some of the work of Joe Flower:

    “Build from primary care upward”

    “Every healthcare system worldwide that delivers healthcare better and cheaper than the U.S. system has a stronger primary care sector. This is by design. Specifics in the policies of other governments support the primary physician.

    Our primary physicians have been left to languish. The difference in income between primary care physicians (PCPs) and specialists is huge: The average PCP earns 55 percent of what the average specialist earns, and a mere 30 percent of what (for instance) an orthopedic surgeon does. Only 27 percent of PCPs describe their practice as “robust” and satisfactory. PCPs are flocking to sign on with hospitals; hospital employment is rapidly becoming the norm, with an estimated 40 percent of active PCPs to be on hospital payrolls by 2012.

    Every year the medical schools produce fewer doctors who elect to go into primary care, at the very time when demographic shifts and the reform act mean we are facing a massive shortage of primary care docs. But the money, relatively poor as it is, is not actually the main thing burning docs out of primary care. It’s the burden of the work.

    Medicine is becoming increasingly complex. The average Medicare beneficiary sees seven physicians across four practices in a year; which means the average PCP is trying to coordinate care with 229 other physicians across 117 practices.

    As health planner Andrea McKillop recently put it to me, “The primary care physicians I know are seriously bent out of shape, but it’s less about the money than about the burden of work. Scheduling patients in ten minute increments does not allow them to give the kind of care they want to…
    The job of primary care physician has become not only not very remunerative, it has become nearly impossible to perform. All of the changes that would make healthcare work better, faster, and cheaper begin with making the job of the primary care physician easier, more streamlined, and better connected both to the patient and to the rest of the healthcare world.” (and paying appropriately for it -BG)

    “An Opportunity And Survival Kit For Physicians And Medical Groups,
    Beyond Reform: Better Healthcare For Less: The Frameworks For the Future series, pp 58-59”

  27. “The incentives under capitation are destructive to both the patient and the doctor. ”

    Dr. Urbach, for all of its negative publicity do you think there is any system better than fee for service? It doesn’t have any sexy transformational promise but it gets the job done. The reimbursement amount might need raised and lowered here and there but as the basis of a sustainable system I don’t think it can be beat. It’s the fairest and most transparent way to pay for service.

    If I recall ERISA or some previous law needed amended to allow capitation way back when as the thought of paying doctors not to treat someone sounded illegal. Under treatment and neglect has always been a concern of capitated arrangements. For reasons some might consider more political then beneficial it was pushed forward though as the solution to the perceived problems at the time.

    It’s not FFS that is broken or doesn’t work it is the way we use it.

  28. Mr. Carol,

    While I’m grateful for your compliment, it seems to me that your image of medical practice is unrealistic. You seem assume patients are infinitely malleable, that PCPs have infinite choices of places to refer patients, that all they need do is choose. It works in a war room when you’ve created the field out of your imagination, but there are so many unrealistic choices that it will rarely, if ever, happen in the real world.

    With regard to how much PCPs need to be paid, I suggest you think about how prices work outside of a planned economy. Supply, prices and demand are data that you interpret. At best they are imperfectly under one’s control. Right now, the doctor who doesn’t take home anything from Medicare or Medicaid has to make money from another source. The incentives are strongly against accepting these patients. How much would those programs have to pay to get enough of those patients seen? Enough to push incentives far enough in that direction. Nobody knows how much that is, and it will vary according to multiple local variables.

  29. I don’t know how feasible it is to say 8 patients per day, but limiting each visit from below to 30 minutes, should be both fair and doable, and easily audited. Paying the current 99215 amount for such visit would exceed the amount you calculated, Barry, and would provide adequate reimbursement, I think.
    I am a bit uncomfortable with the suggestion that physicians should make decisions and referrals based on estimated costs down the road. If the assumption everybody is making, that quality care is cheaper care, is inherently correct (which I seriously doubt), then just practicing good medicine should take care of costs automatically.
    I do share Dr. Urbach’s concern with the terminology though. “Quality” has come to mean just plain “cheap”, and dressing it up with “value” and “effectiveness” doesn’t change my perception one bit.
    Dr. Urbach’s narrative is exactly what we are looking at next, when the “cottage industry” is all but gone and a different type of “productivity” emerges as the golden standard of care.
    I also don’t believe it should be the job of PCPs to police charges from hospitals and specialists. I don’t believe they have the tools, the authority, the time or the inclination to do so. I don’t know what the solution to that should be….

  30. “It may sound strange to policy theorists, but in the real world, doctors almost always just want to do a good job for the patient.”

    Well, I, for one, have not the slightest doubt of that.

    “The comment, above, that PCPs would do better if they saw only 8 or 10 patients a day was exactly right. However, that doesn’t pay the overhead nowadays. How do you make that happen? Pay PCPs enough to see fewer patients.”

    That was my comment, and I agree with your conclusion.

  31. Dan Urbach, MD –

    Thanks for the very interesting and informative comment. I would be interested in your view of how much it would take to pay PCP’s to see 8 patients a day and how it could be implemented. Let’s say, for example, that we wanted to raise PCP compensation to $250K per year while they see eight patients per day or one per hour. With normal practice expenses, they would need to gross, probably, $450K for a solo or a similar amount per doctor for a small group practice. If they work 230 days per year and see eight patients per day, that equates to 1,840 patient visits. To gross $450K, they would need to be paid $245 per visit to make the numbers work. Alternatively, if they worked for a large multi-specialty group or for a hospital and were paid a $250K salary and their job was to provide quality, cost-effective care as opposed to drive revenue through referrals for the larger entity, the employer would have to consciously accept PCP’s as what retailers call loss leaders.

    The model I describe above would be fine with me. In exchange, I expect the AMA and other physician interest groups to allow NP’s to practice at the top of their license and to support retail store clinics that can handle the easy cases more cheaply and easily over more extended hours. Also, assuming we made good, user friendly price and quality transparency tools available to referring doctors, when referrals are necessary, I expect you to refer patients to the most cost-effective specialists and hospitals including surgeons who believe in shared decision making and oncologists who work closely with palliative care specialists. Hospitals that command the highest prices because of their local or regional and market power but not their care quality should be avoided like the plague unless it’s for a specific procedure or course of treatment where they really are the best and can prove it with superior outcomes. In short, PCP’s need to consider it an important part of their job to know and to care about healthcare costs incurred beyond their own office.

  32. So nice to read a discussion this long with minimal vitriol.

    I was around as a primary care doc under capitation. It was not pretty. If you think that doctors don’t neglect patients in order to make money, you’re wrong. They are as capable of it as they are of doing more to patients than necessary to make more money. All of us in that world experienced angst when a really sick patient walked in. They represented financial loss, sometimes enough to threaten a practice. I found myself hating what I had trained for years to do. There were physicians (I was not one of them) who refused to consult a specialist even for a critically ill patient, and those physicians were promoted within the group to management, with big raises. There were physicians (I was again not one of them) who were fired for objecting to what they saw as neglect.

    The meetings we attended had an Orwellian character, beyond what I ever dreamed possible. The word “quality” was literally substituted for “inexpensive” in every sentence. Whenever care was cheaper, it was “quality” care. The group’s goals were to provide “quality” care in order to keep more money at the end of the year. The head of the group was an attending physician I had worked with when I was an intern. I was seriously disillusioned and disappointed. A hard lesson.

    The incentives under capitation are destructive to both the patient and the doctor. You can argue all you like about how much money it saved. Of course you save money if you perform less care. If a patient with a catastrophic illness is denied care, it costs less. How is that good?

    It may sound strange to policy theorists, but in the real world, doctors almost always just want to do a good job for the patient. Why do primary care doctors refer when they don’t really need to? Usually because they don’t have the time to manage a complex patient by themselves; because they aren’t sure if there’s something new out there that will benefit the patient; or because the patient expects them to, and they don’t have the time to explain why it isn’t needed. The comment, above, that PCPs would do better if they saw only 8 or 10 patients a day was exactly right. However, that doesn’t pay the overhead nowadays. How do you make that happen? Pay PCPs enough to see fewer patients.

  33. 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?

  34. 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.

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

  36. 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.

  37. Tim –

    Your post fails to promote rational discussion; it’s an.assortment of unsubstantiated generalizations (“The goal of the managerial corps of any large bureaucracy is to grow the bureaucracy, because larger responsibility is how they make more money.”), strawmen (Who, specifically, are “the ‘visionaries’ in medicine who want to take all the profit out of it”?) and false dichotomies (Leftists “spend whole lifetimes demanding unsuccessfully that groups act selflessly.” Do Right-wingers spend a lifetime preaching “greed is good?” Do you deny there is a middleground where both can meet?).

    Let’s see facts, examples, and proposals, if any you have? For example, what kind of changes to Medicare (or government in general) would you like to see? Or do you approve of the status quo?

  38. “Unless you think that governments have no role in economies, than surely you can see how regulations and interventions for the benefit of the many are logical in this case, as well as in many other vital services.”

    Absent rational and effective regulation, you inexorably end up with a Gresham’s Law chase to the bottom. Unless you disavow any notion of a “commonwealth,” you have to admit to that.

    Keywords “rational and effective,” I know. Easier espoused than accomplished.

  39. I have very few objections to the concepts in your post, Tim, although I do consider myself comfortably on the Left. I don’t think the government should own and/or operate anything as large as Medicare or Medicaid either. But I do think that government should ensure that in certain “markets”, that are not and cannot be real markets, such as medical services, all citizens are able to participate at a minimum level required to prevent individual loss of life, limb, liberty and ability to pursue happiness.

    This is not about aggregates or wishful thinking regarding selflessness. It is about government’s role in an enlightened society (without displacing the role of relatively free markets in creating prosperity for all).
    Unless you think that governments have no role in economies, than surely you can see how regulations and interventions for the benefit of the many are logical in this case, as well as in many other vital services.

  40. “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.”

    There you have it. And the wonks, most of them on the Left, believe that if they can just get more bureaucratic power they will make it all smarter, and finally work. But what you’ve described is not one agency that needs “reformed”; you’ve described government, insulated as it is from competitive pressures.

    Somebody was surprised that a “non-profit” would behave like a profit seeking business…you all do realize that the managers of non-profits are compensated on the financial performance of their entity? Just because you call it a “surplus” and invest it back in the business doesn’t mean the business behaves any differently. It just means you get grand pianos in the non-profit waiting room — that piano which has become the icon of money-driven medicine to the Maggie Mahars. There are “non-profit” health systems in every city in America like this: you would never know their tax status if you didn’t read it in their annual report. This is not because they are corrupt. Seeking profit is not corrupt; it is human. Most of the “visionaries” in medicine who want to take all the profit out of it draw their own paychecks from the government in a university post, or from rich donors in a think-tank — all profits, twice or thrice removed.

    By the way, there is no reason at all to expect a Federal agency to behave any differently. The goal of the managerial corps of any large bureaucracy is to grow the bureaucracy, because larger responsibility is how they make more money. It’s just that the Federal agency has an incentive to have no surplus (i.e. spend it all).

    The fatal flaw of the Left is just this genetic propensity to empathize with individuals and then think about aggregates, which means they spend whole lifetimes demanding unsuccessfully that groups act selflessly.

    By the way, the big-government successes are indeed parasitic on the private sector, so the initial flush of a few decades of solvency is mesmerizing to the social engineers, who mentally project a linear trend into the future. As the state consumes the markets the whole thing collapses, because it is simple logic that no coercive system can emit economic activity.

  41. “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.

  42. 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.

  43. 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)

  44. That’s very interesting.

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

  45. “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.

  46. 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?

  47. 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.

  48. 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.

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

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

  50. 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.

  51. “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.”

  52. 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.

  53. 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.

  54. 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.

  55. 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.

  56. 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.”

  57. 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?

  58. 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.

  59. 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?

  60. 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.

  61. 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.

  62. “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.