ACO Fairy Tale Faces a Rumpelstiltskin Moment

The ACO fairy tale is drawing perilously close to an unhappy ending.

The government’s long-awaited draft regulations on Accountable Care Organizations have brought a dose of ugly reality to a concept that’s always seemed coated with a patina of pixie dust. Unless those regs are substantially changed before the clock strikes Jan. 1, 2012 — the statutory date for ACO implementation — Cinderella’s going to turn back into a scullery maid and the horse-drawn carriage transporting her to the Health System Transformation Ball will be revealed as nothing more than four mice and a pumpkin.

The essence of the ACO concept is using financial incentives to reward doctors and hospitals for redesigning care processes to provide “high quality and efficient service delivery,” in the words of the Patient Protection and Affordable Care Act. As I wrote last fall, ACOs have been the one reform beloved by Republicans and Democrats; doctor groups and insurance companies; policy wonks and profit-seeking capitalists. This unusual unanimity was due in part to a lack of specifics that enabled every stakeholder to gaze upon the ACO and see reflected their very own version of Prince Charming.

Conservatives hail the ACO as marketplace medicine, while liberals focus on organized systems of care replacing fee-for-service chaos. Providers applaud a reform that places them at its center, while health plans know that providers asked to bear financial risk — if an ACO doesn’t measure up, the government won’t pay up — will seek out actuarial experts like them as partners. ACOs also are expected to require the products and services sold by a host of consultants and entrepreneurs.

For medical groups and hospitals considering becoming an ACO, Medicare offers a straightforward risk-reward proposition. Providers must invest considerable resources in building an infrastructure and institutional culture capable of managing and measurably improving the health of a defined group of Medicare beneficiaries. In return, however, ACOs that meet the government’s standards will make much more money than if they clung to the old ways of care delivery.

The central problem with the draft regs, however, is that the risk-reward ratio is highly skewed. The Centers for Medicare & Medicaid Services painstakingly delineates a dizzying litany of hurdles to surmount, from documenting progress on 65 different quality measures to Medicare editing your marketing materials and to government monitors descending upon your offices. Meanwhile, the promised rewards are wrapped in a fuzzy package of impenetrable risk-adjustment algorithms and wait-till-next year financial commitments that sound like a cross between a cell-phone contract and a time-share vacation offer.

In the classic fairy tale formula, a king offers his beautiful daughter’s hand in marriage and half his kingdom to the young man brave and resourceful enough to ford a dangerous stream, climb a treacherous mountain and then slay a ferocious dragon. But if Medicare were making the rules, the successful suitor would be lucky to get a goodnight kiss — if not have the door slammed in his face. Not surprisingly, the list of volunteers to become an ACO under these conditions appears to be extremely short.

Consultant Steven Lieberman, a 30-year veteran of the Congressional Budget Office, warns that the new regs could kill ACOs outright. “The proposed regulation imposes unfavorable economics, unrealistic requirements, high uncertainty and significant risks for ACOs,” he writes on the Health Affairs blog. In the same vein – and in the same venue — Ron Klar, a physician who has consulted extensively to health plans and to CMS, says the agency has created a program “likely to have few participants.”

Lieberman and Klar are both ACO supporters, but their concerns are widely, perhaps universally, shared. Those wary of offending CMS have mostly praised the agency for simply issuing the regs, while emphasizing how intently regulators will listen to complaints during the comment period. Support for specific provisions is scarce.

Still, it’s hard not to feel some sympathy for the bureaucrats. Yes, as Klar points out, they have written rules “overloaded with provisions to mitigate the likelihood that any conceivable negative possibility will occur.” Yet in today’s polarized political climate, any sort of backlash could prove fatal. One can envision a piqued ACO participant in Piqua (an Ohio town represented by House Speaker John Boehner) prompting a full-scale congressional investigation.

At the same time, opening the spigot of government funding to private-sector innovators, as the Bush administration did with MedicareAdvantage plans (or was that Medicare-Take-Advantage?) risks a backlash from liberal Democrats and Tea Party Republicans alike.

CMS is being asked to implement a risk-sharing program where everyone wins and a disruptive innovation that disrupts nobody. It’s a handicap heavier than that borne by the private sector, where ACOs continue to proliferate, and more burdensome even than the shackles on the CMS Innovation Center, whose mandate to finance “demonstration projects” provides more political flexibility.

None of this, however, should cause us to lose sight of what’s at stake. The ACO concept continues to represent an extraordinary, perhaps even unique, opportunity to begin to remake American medicine in ways that are critical to our nation’s economic health and to health itself. Squandering that opportunity would be indefensible.

The potential reward is worth taking some real risks to achieve. When writing the final ACO rules, CMS has the chance to spin the dross of the current regulations into something of genuine value to providers, even if it’s not quite Rumpelstiltskin-quality gold. If the feds fail, it is all of us, not just those on Medicare program, who could live unhappily ever after.

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

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