The Rashomon of Health Care: Why the Government is Promoting and Hindering ACOs at the Same Time


As I have previously blogged, a centerpiece of the Affordable Care Act (ACA) is the promotion of Accountable Care Organizations (ACOs). The Center for Medicare and Medicaid Services is banking on the financial incentives of ACOs (through “shared savings”), combined with over 60 pay for performance quality metrics, to promote efficient, high quality medical care. Providers are certainly taking notice. Hospitals are acquiring physician practices in numbers not seen since the 1990s and many physicians are thinking of starting their own ACOs. For the federal government to so aggressively promote the reorganization of health care delivery is unprecedented. (I am willing to debate those of you who remember the HMO Act of 1973.)

It must have quite a shock to CMS when the Federal Trade Commission announced its antitrust guidelines for ACOs. (These can be found here, especially pp. 21896-21899). I won’t dwell on the details but suffice it to say that the proposed test is likely to have a high false positive rate (challenging many ACOs that are not anticompetitive). And while the FTC lacks the resources to investigate every new ACO, the new rules certainly pose an obstacle to integration. So why is the FTC standing in the way of CMS? The answer may be found in one the masterworks of the great film director Akira Kurosawa.

In the movie Rashomon, four men witness different moments of what might or might not have been a heinous crime. Testifying at trial just three days later, the men attempt to describe the entire terrible episode from their own limited perspectives. The healthcare event whose details are in dispute occurred not three days ago, or even three years ago. And it wasn’t just one event, it was the entire decade of the 1990s. I believe that support or opposition to ACOs depends critically on how one views that lost decade.

Those who adamantly support ACOs – that includes most of my health services research colleagues, especially those still working in Washington to implement the ACA – view the 1990s as a lost opportunity. During the 1990s, hospitals merged with each other and with their medical staffs to create integrated delivery systems. IDSs were the forerunners of ACOs. They were supposed to coordinate care, accept shared financial risk, and give us greater efficiency and quality. Leading health policy analysts at the time could not wax more enthusiastic about how IDSs would change the system. And health providers were eager to jump on the bandwagon; IDS were hailed as “a new wave becoming a tidal wave.” (There were a few naysayers, including this blogger and my friends on the faculty at the Wharton school.) Unfortunately, the IDS wave crashed. Few IDSs saved money or raised quality; many lost their shirts.

I think that ACO supporters in CMS look back on the 1990s and do not see anything wrong with vertical integration other than that it was an idea before its time. The market wasn’t ready for radical transformation. Physicians weren’t willing to partner with hospitals. Providers lacked the necessary management information technologies. From their perch two decades removed from the IDS debacle, the time for ACOs has come.

I believe that the FTC rejects this view. To the antitrust enforcers, the 1990s was not about a failed effort to coordinate care delivery but was instead about a successful effort to eliminate competition. Hospitals didn’t merge to generate economies of scale, they merged to raise prices. Hospitals didn’t acquire physician practices to promote coordination, they acquired them to increase referrals and prevent physicians from competing in the growing outpatient diagnostics and surgery markets. And while many IDSs did lose money, many hospital systems made small fortunes. Antitrust enforcers worry that providers will use ACOs as an excuse to renew their efforts to grab market power. Hence the new restrictive antitrust guidelines.

In Rashomon, we never find out what really happened on that terrible day. And I think healthcare in the 1990s will be much the same way. The FTC can point to empirical studies showing that some mergers led to higher prices even as scale economies proved elusive. But definitive studies of IDS efficiency do not exist, and no one knows for sure if a new generation of hospital managers can correct the mistakes of the past.

I also bore witness to the 1990s, and from my perch things looked pretty much the same as they did to the FTC. And I worry that ACOs are going to perpetuate the same heinous crimes as their IDSs forebears. So I can support what the FTC is trying to accomplish (though I have some thoughts about how they do so more efficiently that I hope to share with them). But I recall the conviction with which each of Kurosawa’s characters described the events that had just transpired. I may think that ACO supporters are viewing the 1990s through rose colored glasses, but for our nation’s sake, I hope I am wrong.

5 replies »

  1. I think we need to be very clear that there are two competing motivations for ACO creation by hospitals and medical groups, just as there were in the 1990s for integrated delivery systems. One is a desire for more cost-effective medical care through better coordination among providers. The other is simply turf (and profit) protection.

    The most successful IDSs, like Giesinger and Marshfield Clinic, are those with the strongest motivation for cost-effective care. They have their own health plans and, much like staff model HMOs, they must control medical costs in order to compete with commercial insurers. In contrast, the unsuccessful IDSs referred to by David Dranove are more likely to be those for whom the collapse of the 1990s HMO boom removed the need to control their physician groups, who were then more than happy to separate themselves from their hospital parents.

    Given the complexity of the rules that CMS is proposing to impose on ACOs, it’s difficult to forecast what ultimately might be successful. However, just as for the IDSs, ACOs created by hospitals to avoid revenue reductions due to physician-based ACOs tightening controls over use of hospital services are likely to disappoint both CMS and their participating physicians.

  2. Steve — true, HC costs in the 90s actually went down, but people are people: As soon as you capitate, that changes how doctors act (despite their best intentions) and people rebel agains limits on care, access and choice (though they REALLY liked the $10 co-pays).

    People went to their legislatures to insist on various coverage mandates and untimately undercut or eviscerated the savings potential of integrated (vertically or horizontally) care.

    Here was the tipping point for me: seeing “As Good As It Gets” (1997) with Jack Nicholson and Helen Hunt, she as a mom with a sick kid, going through medical bills and bursting out with “effing HMO!” and the entire theater erupted in cheers.

  3. Oddly, David does not mention what happened to health care spending during the 90s.


  4. What the FTC doesn’t take into consideration nor does the author is the fact that the AMA’s influence on Medicare pay schedules and that insurance companies use the same schedules with a multiplier to pay providers. Getting the federal government out of setting schedules will help the system:
    1. adjust to the true cost of patient care on a regional level
    2. be innovative since money isn’t being thrown at it by the federal government
    3. reduce administrative costs for the “privilege” of receiving Medicare dollars
    On the whole, money would stay locally, not have 20-30% federal bureaucracy administrative fees taken off the top.
    Agree with Killroy: insurance has become a system of pre-paid care primarily from the mandates given by states and that most insurance is provided by employers and not chosen by the consumer. The de facto consumer and that is the other big problem.

  5. Everybody consolidated — the doctors and hospitals to get leverage with the payer (insurers); insurers to get leverage with the the providers. and all the time, prices going up for the end user — patients.

    What system can we construct that will make people stop acting like people? Everybody wants to do good, and they want more and more money to do it. Meanwhile care and coverage get less and less affordable.

    I hate the cynicism of GOP trying to push consumerism – more skin in the game for patients. But who is going to care more than patients what things cost and their relative effectiveness? So far, there isn’t a payment system that makes doctors consider costs, and they’re the ones prescribing care. IN fact, they brag about not letting money be a consideration — except when it comes to them getting paid.

    At one time, patients “hired” the health insurer to pool their money so they could afford catastrophic care. But the castrophic care options have expanded exponentially, and so have the every-day treatment / testing possibilities.

    And coverage somehow, this morphed into pre-paid “free” health care and people sure don’t want to leave anything on the table when they are (1) paying so much for coverage and (2) using other people’s money to pay for care.

    This is worse that Rashomon – this is a Gordian knot.