THCB

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.

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Esteban1968TruelifefitnessecsLianalarry w hirons, M D Recent comment authors
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Truelifefitness
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Aco not a great idea

Liana
Guest

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

ecs
Guest
ecs

ACO’S the new American cancer!!!!!!!!!! A Boom for dr.s

larry w hirons, M D
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larry w hirons, M D

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… Read more »

larry w hirons, M D
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larry w hirons, M D

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;… Read more »

Barry Carol
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Barry Carol

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… Read more »

Dan Urbach, MD
Guest
Dan Urbach, MD

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.

Barry Carol
Guest
Barry Carol

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… Read more »

Barry Carol
Guest
Barry Carol

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?

Dan Urbach, MD
Guest
Dan Urbach, MD

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.

Barry Carol
Guest
Barry Carol

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… Read more »

Dan Urbach, MD
Guest
Dan Urbach, MD

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… Read more »

Margalit Gur-Arie
Guest

….. 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… Read more »

Dan Urbach, MD
Guest
Dan Urbach, MD

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.

nate ogden
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nate ogden

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.

Barry Carol
Guest
Barry Carol

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… Read more »

Dan Urbach, MD
Guest
Dan Urbach, MD

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.

Barry Carol
Guest
Barry Carol

“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… Read more »

The Last Word
Guest

See “Talk to The Invisible Hand”

http://www.slate.com/id/2229839/

Margalit Gur-Arie
Guest

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… Read more »

Barry Carol
Guest
Barry Carol

“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… Read more »

Margalit Gur-Arie
Guest

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… Read more »

Margalit Gur-Arie
Guest

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… Read more »

nate ogden
Guest
nate ogden

“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?

Dan Urbach, MD
Guest
Dan Urbach, MD

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.

nate ogden
Guest
nate ogden

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.

Dan Urbach, MD
Guest
Dan Urbach, MD

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… Read more »