Accountable care organizations: Everything old is new again

In addition to providing coverage to millions of uninsured Americans, one of the key attributes of the Affordable Care Act (aka Obamacare) is reforming the way that we finance health care in the U.S.

Since the rise of the health insurance industry (as a job benefit or under Medicare), we have operated under a system known as “fee-for-service,” in which every little nugget of health care provided (from an operation to an aspirin) incurs a charge. There are exceptions to the rule (like the Group Health Cooperative in WA, Kaiser in CA), but in practice the more doctors, hospitals, and health providers do, the more we charge. This is what’s become known as volume-based care. It has enriched many, as health care for the most part has inelastic pricing, steady high demand, and very little transparency or information symmetry.

As is evidenced by its name, the Affordable Care Act seeks to bring down the costs of health care. At nearly 20% of our GDP, there’s a collective will to bend the cost curve.

How can we do it, you ask?

We need to switch from volume-based care to a system of value-based care, in which payments are based on the quality of care delivered, not simply the quantity of care. Should we pay for hundreds of thousands of open-heart surgeries just because we do them, or should we pay for them in bulk based on outcome data that shows recipients live longer, symptom-free lives?

It’s anybody’s guess how to make the transition from volume to value. But there are myriad pilot programs underway racing us all to a new era. Perhaps no pilot idea has gained more traction than the creation of ACOs: accountable care organizations.

ACOs align the insurer with the provider of service (e.g. your doctor or hospital), such that monies are paid in advance, rather than after the fact for itemized bits of service. The advance payments are then creatively used with a goal to keep people healthy (and out of, for example, hospitals) instead of ringing the cash register every time you get sick.

ACOs put the incentive on thrift (using best available evidence and high quality practices — all requiring lots of data so we’re not flying blind) instead of on simply doing more. Savings derived from providing less (but more effective) care are shared with providers in this model — in essence rewarding utilitarian health promotion ingenuity. However, the potential downside is that the emphasis on thrift means some necessary care may be denied in the name of cost savings or cost-effectiveness.

We experienced something like that in the 1990s with the rise of managed care, or what became demonized as HMOs, health maintenance organizations. HMOs saved money by tightly regulating networks of providers and rigorously negotiating prices with them.

It’s far too early to tell if ACOs will make any dent in our national health expenditures, or if they will even turn out to be feasible. My fear is that they’re a high-minded idea that will fail to catch on with a confused public. The up front investment in ACOs is considerable, so even with public support the idea may never make it to prime time.

The more things change …

John Schumann is an internal medicine physician who blogs at GlassHospital.

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  • Thomas D Guastavino

    First question. If the justification behind ACOs is that it incentivizes providers to provide high quality care then what is it do you believe we we are doing now?
    Second. The ACO model makes the assumption that all patients are incentivized to get better. Under an ACO, how are we supposed to handle the high risk, uncooperative, secondary gain incentivized patient.?

    • NPPCP

      Do what you have to do to keep satisfaction surveys high or eat the difference.

    • Dr. Drake Ramoray

      You are “supposed” to grin and bear it and take less payment. This is part of the doctor credo as one of the few professionals expected to provide services for free, or for less money than it takes to do your job (see Medicaid). Of course doctors will dismiss them form the practice, or choose not to inherit them, or operate on them in the first place. I have long maintained this is a side effect of ACO’s.

      I just saw a nice lady who changed to a Medicare part D that doesn’t cover any of her insulins (about 3% of Medicare part D plans don’t cover modern analog insulins). She made this change becuase her monthly costs are supposedly less. She is on over 200 units of insulin, A1c remains above goal. In our wonderful new ACO system I’m supposed to meet target A1c goals using no medications that have been developed in the 21st century (Lantus was approved in 2000 and I can’t even use that). I’m left with Metformin, old sulfonyureas, and insulins developed in the 1950′s (NPH).

      The ACO system will literally tell you how to do your job and then grade you on how well you do what you are told. I for one am positioning myself for a thyroid only and possibly direct pay practice.

  • Joe

    Are creatures like ACOs used in any other countries’ health care systems?

    • Thomas D Guastavino

      Physicians in other countries are allowed to collectively bargain so I find it hard to believe that they would put up with this.

      • Joe

        Thank you, gentlemen. I appreciate your responses greatly. I asked a similar question in the recent article around here about population health. We seem to hear a great deal about what other countries are doing that gives them such allegedly wonderful health care ratings. However, we seem to be adopting a bunch of policy measures that are highly counter-productive and bear little resemblance to the things that work elsewhere (which still might not work here since no country is the same as another).
        I don’t think of myself as a tinfoil hat guy, but all these items seem to be a nice, pleasant way to something like Logan’s Run.

    • southerndoc1

      Most countries with lower health care spending (and possibly higher quality, though I know that is controversial) use good old fee for service payment methods. It’s the talking point du jour, but there is no, I repeat, no evidence that FFS is the cause of our problems, or that abandoning it will improve things.

      • Dr. Drake Ramoray

        And reducing physican reimbursement

      • Dorothygreen

        “All countries are different” but really, all others are variations on a basic idea – that payment to all players is negotiated or regulated
        form through social insurance and everyone is in the program. Anger about “young paying for old”, “taking away my liberty” etc. don’t happen outside the US. Switzerland moved to complete this model with their private insurance in 1996 because the insurance companies were doing what US insurance companies were doing – denying based on pre-existing conditions and cherry picking for young and healthy. They can no longer do this and basic insurance cannot be market based. Beyond that folks who have the bucks and want perks, access to top docs, experimental or brand drugs, private rooms pay upfront on top of table through supplemental insurance and not under the table directly to the doc (say like concierge docs) . Why can’t we have social insurance (not to be sold on the market) for all and supplemental private insurance (so called free market) those who want and can afford? It works pretty well in Switzerland. Is seems instead, some pundit comes up with a clever program name like Accountable Care organizations and then $$$$ and time is spent trying to develop it without changing the basic structure. Then taxpayer $$$$ down the proverbial drain and on to another clever name of a program and taxpayer $$$$ .

  • betsynicoletti

    Everything old is new again. I don’t think it worked well in the 1990′s when we “shared risk” with the insurers, and I am skeptical it will work well now.

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