Is There an ACO in Your Future?

As individuals and small groups, physicians have proved to be an independent lot — “herding cats” a common metaphor for getting the profession to toe the line, even on matters beneficial to them. Once they have been herded under one roof, however, the job of controlling and coercing them becomes far easier.

Ever hear the term “ACO”? No? Better get familiar with it, because this is your future.

Accountable Care Organizations are the government’s new carrot & stick to control costs and micromanage the health care profession and industry. Those of you who’ve been around a while may remember HMOs — the insurance industry’s innovation in the late 80’s to get control of spiraling health care costs. Using a mechanism called capitation, the HMO would pay a lump sum to physicians and groups to manage “patient lives.” The theory — which worked, unfortunately — was to flip the incentives: rather than “reward” physicians for providing medical services and ordering tests and procedures, remunerate them instead for doing less: the less care provided, the more money the physicians got to keep.

Can you say, “moral hazard”, boys and girls?

It worked–all too well. Primary care physicians became “gatekeepers” whose job it was to make sure no “unnecessary” care was given. Need to see a specialist? No can do. CT scan? Unnecessary, don’t you know. Every time the doctor said “no”, their wallet got a bit fatter. It cut costs dramatically when introduced. Of course, patients got sicker; cancers took longer to diagnose and treat; needed diagnostic and necessary but expensive treatments were deferred or not done at all. While some unnecessary and redundant care did get eliminated, the overall effect was disastrous. Since the HMO’s bore significant financial risks, it became a fine art to “manage” those risks, to wit: you had to make sure that the “patient lives” you contractually managed were not very sick, lest you break the bank taking care of medical disasters, poorly-compliant patients (typically the poor), and the elderly. The system imploded when patients revolted, followed shortly thereafter by politicians (who had been prime movers behind the HMO juggernaut) demonizing the monster they themselves had created. No worries: they now had a new straw man to attack, the “evil insurance companies” of their own design; this ogre lives on to this day.

They say that insanity is repeatedly doing the same thing, while expecting different results each time: enter ACOs.

So what are ACOs?

Like most bad ideas, the concept originated in the think tanks of academia, where “health care experts” who never take care of patients dream up idyllic solutions to problems they don’t understand. ACOs are defined as follows:

ACOs can generally be defined as a local entity and a related set of providers, including at least primary care physicians, specialists, and hospitals, that can be held accountable for the cost and quality of care delivered to a defined subset of traditional Medicare program beneficiaries or other defined populations, such as commercial health plan subscribers. The primary ways the entity would be held accountable for its performance are through changes in traditional Medicare provider payment featuring financial rewards for good performance based on comprehensive quality and spending measurement and monitoring. Public reporting of cost and quality information to affect public perception of an ACO’s worth is another way of holding the ACO accountable for its performance.

ACOs have three main characteristics:

  1. The ability to provide, and manage with patients, the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care and possibly post acute care;
  2. The capability of prospectively planning budgets and resource needs;
  3. Sufficient size to support comprehensive, valid, and reliable performance measurement.

In English, for those fortunate souls unschooled in the lingo of academic health care policy , this means a health care organization, comprised of hospitals (with their associated services, such as radiology, operating rooms, inpatient beds, physical therapy, etc., etc.), doctors and other health professionals (e.g., PAs and nurse practitioners), all centrally managed with an eye toward controlling costs and those who generate those costs (see “providers”, above), large enough to generate meaningful statistics on costs and health care “outcomes”, reportable back to Medicare and Big Insurance for their “review.”

The benefits to providers of aligning with such a cumbersome, micromanaged, top-heavy beast? You got it: the lure of filthy lucre:

In exchange for investing in this reformed health care provider structure, the ACO members will share in the savings that results from their cooperation and coordination. Thus, ACOs can–theoretically–act as a reform tool by incentivizing more efficient and effective care. This would help to combat the current perverse incentives of overutilization and overbuilding of health care facilities and technology.

So what could possibly go wrong with this model?

[The ACO model] was built on what is (to my consulting colleagues, anyway) a stunningly obvious discovery: Medicare spending for physician services tends to cluster around hospital service areas.

The policy leap that led to the ACO idea was that since these “communities” already use hospitals, let’s assume that they and their hospitals are actually “virtual organizations” and give them a global budget. Consumers would not be aware that they were being treated by ACOs. Rather, they would be “attributed” to them: virtual patients of virtual organizations. Aggregate health spending for attributed patients would be tracked, and increases in that spending would be capped using a form of “shadow capitation.” ACOs that lived within the caps would get their fees increased. Those that overspent would see their fees reduced or frozen.

Some policy types on the Medicare Payment Advisory Commission (MedPAC) became intrigued with the ACO idea and saw it as a solution to the Sustainable Growth Rate (SGR) problem, a durable policy headache bequeathed by Congress to physicians in the Balanced Budget Act

The SGR cuts payments to physicians when health care costs rise, nominally maintaing “budget neutrality”, and has been routinely overridden by Congress because of real concerns over restricting access to medicare patients.

If a national SGR didn’t work to constrain physician behavior, why not create a hospital service area–specific SGR?

Fisher and colleagues theorize that when you cap the total resources coming into a specific “community,” hospitals and physicians would form organizations to accept and manage the global payments. This would create an economically motivated community lobby for not building more hospital beds, not recruiting additional cardiologists, not putting CT scanners in physician offices. Little delegations from the ACO would visit the high utilizers and work with them to get them to give up their diagnostic equipment and reduce their incomes. (As Dave Barry would say, “I am not making this up.”)

The problem with this movie is that we’ve actually seen it before, and it was a colossal and expensive failure. During the 1990s, many hospitals and physicians believed that the Clinton health reforms would force them into capitated contracts with health plans. This catalyzed a flurry of mergers and physician practice acquisitions, all motivated by a desire to control the stream of payments from health plans, rather than being subcontractors to those who did. Many system builders assumed that they would increase their market share through selective contracting at the expense of docs and hospitals that remained unorganized.

Risk-bearing physician/hospital organizations and hospital-sponsored preferred provider organizations (PPOs) sprang up all over the country. They typically paid their docs a discounted fee based on prevailing rates in the community … in anticipation of capitated health plan payments. Some of these hospital/physician efforts actually succeeded …

However, these were outliers in an expensive failure. Employers and patients preferred open panels managed by health insurers to closed panels managed by providers. Billions of dollars were lost. After rivers of red ink, most bold 1990s hospital risk-sharing experiments were terminated, along with the CEOs and physician leaders who created them. Many of the practice acquisitions were reversed, as hospital systems sought to rein in their expenses and adjust to an open-panel world dominated by point-of-service style health plans.

Why did they fail?

The State of Massachusetts seems headed toward imposing an all-payer mandatory, communitywide ACO model for cost containment purposes. There is time to reconsider what I think is a reckless decision. … the Massachusetts ACO experiment is likely to be a gory and comprehensive failure. Virtual assignment of patients, virtual organizations, “shadow capitation” superimposed on fee-for-service based economically independent docs, further consolidation of local hospital monopolies: we really ought to know better….

The sad reality is that most hospitals, even the well-managed ones, simply lack the tools, leadership, and leverage to enable them to bear and manage global risk. Many will not possess them in a decade. The mandatory ACO (apparently still a live option in the June 2009 MedPAC report) is one of the worst health system reform ideas since the Health Systems Agency. Fisher and his colleagues are attempting to broaden the idea to encompass independent practice associations (IPAs), existing multispecialty groups, even academic health centers. But the core idea remains that physician communities and hospitals in defined geographies are viable economic units. They are not.

The elephant in the room — never addressed in this grand schema to control costs — is the medical liability monster. Huge amounts of medical services and costs are driven by defensive medicine. ACOs will provide no protection to their physicians as they drive down costs by haranguing them while denying services, diagnostic tests, and procedures based on cost, thinly disguised as “quality.” Every physician hears the voice of an attorney when he decides to order a medical test, which may be of marginal benefit to the patient: “Doctor, didn’t you realize that by ordering a CT scan, Mrs. Jones’ cancer could have been diagnosed earlier, and cured?” The defense that “My ACO told me it was unnecessary and expensive” will be no defense at all: “And when you refused to order that scan, Doctor, you stood to make more money, didn’t you?” Devastating–and inevitable.

But the bottom line is that medical decision-making will become further removed from the patient and his physician, decisions now moved to faceless bureaucrats with Excel spreadsheets and no medical degree. Once again, the “experts” will win — and you will lose.

Be afraid — be very afraid.

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