Wednesday, June 10, 2009

Mr. President, Mr. Governor, please explain

I have raised some questions below about the concept of "accountable care organizations," an idea that has gained prominence in both federal and state discussions. The idea, in short, is to combine a capitated form of reimbursement with a restricted network of providers across the spectrum of care. In its most expansive form, each of us citizens would have an annual health care budget, and your ACO would manage your care -- from primary care to secondary and tertiary care, and perhaps further to skilled nursing facilities or rehab, and maybe even through hospice if that was how far things went for you. Short of that, there might be "bundled" amounts of payment to cover acute care episodes of certain types or chronic disease extended care.

Let me now pose a different question. What would be the public policy incentive created by the government to cause institutions to band together to create an ACO? Presumably, health care institutions and physicians would want to know that it would be financially advantageous to combine under a single care management structure. So, first, someone would have to create insurance products that are attractive to consumers and employers. What would make it attractive to tell people that their choices of service providers will be limited to those contained in a given ACO? Well, at a minimum, they would have to be offered a lower price for their insurance coverage.

But, let's now turn back to the medical providers who were thinking of banding together to create an ACO. To garner customers who would pay less, you would have to be confident that your new group could deliver services at a lower cost than you previously would have expected individually and as a group. You would also have to be willing to take some portion of the actuarial risk previously born by the insurance companies or the government. You could do the latter by purchasing re-insurance or by building up your balance sheet to provide a financial buffer against miscalculations.

So, not only would you have to be confident of delivering services at a lower cost, but you also have to do so net of your new cost of absorbing greater risk.

When it comes to business planning, I am pretty simplistic. If the government wants to encourage ACOs, it seems to me that this construct will require the government to be co-investors in them. Either the government will need to create a mechanism to absorb risk, or it will have to offer direct subsidies to make it financially attractive for the the ACOs to agree to lower payment rates for the same services previously offered.

What am I missing? Well, you could argue that those who are contemplating the construction of an ACO could be confident of reducing their overall cost of health care delivery. They would also be confident that the consumer and employer market will rise to greet their new product offering. The two thoughts combined would make this an attractive business model. These market leaders would be willing to take that pricing risk for the sake of getting a foothold in the new world order of health care delivery.

It is hard for me to imagine this as a widespread phenomenon -- independent hospitals and physician groups and skilled nursing facilities and rehab centers having the wherewithal to do the business planning, the relationship building, the decisions about risk allocation, the construction of interoperable medical records, and the like that would be necessary to even evaluate the proposition -- especially in the face of a void in insurance products that would have been tested in the marketplace for their attractiveness to consumers and employers.

So, the question for President Obama and for Governor Patrick is, "What are you planning to offer to make this an attractive proposition for the medical professions and the institutions that provide care?"

6 comments:

Engineer on Medicare said...

This whole ACO concept, as I infer from the remark by Mr. Levy (quote below), is a bit scary.

"What would make it attractive to tell people that their choices of service providers will be limited to those contained in a given ACO?"

Most health care needs can be met by "local level" providers, but there are some conditions for which the best or most appropriate care is avallable only at major medical centers. How would a patient in North Dakota or Alaska have access to the same quality of treatment for cardiac or cancer care that would be available to someone who happened to live near a group of major medical providers such as are available in Boston? Or would the residents of the Dakotas and Alaska have access only the services, skills, treatments, and experience available within the limited boundaries of an ACO within which they reside?

If there is to be some kind of management of health care access then access to the best available care when it is appropriate should be assured to all. That could be implemented by identifying regional "Centers of Excellence" in various specialty ares to which members of smaller ACOs would have access, by right, for treatment of appropriate conditions. Those medical centers could be paid a set fee for the services provided if they are serving patients not included in their region.

A reasonable standard is that all citizens will have access to the same level of care that is available to members of Congress.

fairhavenhorn said...

I was wondering about accountability. My question has been "accountable to who? and to what standards?". I hoped that the patient and medical ethics would be a part of the answer. It looks like these fundamental questions are not being addressed, and so far I have not seen the patient or medical ethics mentioned.

Anonymous said...

Paul
You are assuming that regions/areas that have the practioner substrate (rural areas off the menu) will "contemplate." I sense a carrot and stick approach, meaning, "you have 5 years to form an ACO" or face ratcheted rates or no bonuses.

Not a bad thing, we need to evolve to this model, but my take is CMS will provide the incentives, like it or not, to proceed in this direction.
Brad

Anonymous said...

Perhaps these types of plans should be piloted in "the hills", no, not Beverly. Beacon and Capitol.
Let the pols that come up with these ideas provide the litmus test using their families and staffs as subjects.

Peter Smulowitz said...

Paul, are there several definitions of Accountable Care Organizations that you are aware of? You seem to use it in one context referring to a capitated rate of payment to a restricted system of providers.

Yet, the Mayo Clinic and Geisinger Health Centers, for example, also seem to go by the nomenclature ACO. My knowledge of these systems is limited, but I thought their cost savings were mostly through reducing the incentive to overutilize services as well as an intense focus on improving efficiency and quality via huge down-payments made in their systems. Is capitation part of their payment structure as well?

I agree that there are many limitations to the model, including that there is no incentive for a hospital or group of physicians to take in increased financial risk when any cost savings (under fee for service) just goes back to the insurance company. Also, the financial down-payments needed to make this work are considerable obstacles to smaller groups or rural areas. But in a general sense, how then did places lake the Mayo Clinic or Geisinger make it work, and is this generalizable?

Anonymous said...

One major incentive for physicians to organize into a large group such as an ACO would be a large reduction in malpractice payments and risk. This would also lead to a reduction in defensive medicine, which, despite all the nay-sayers, does contribute to increased health care costs.
On another forum, some commenters purported to show that defensive medicine does not exist since physician costs in states with tort reform laws are not different than those without. They don't get it - it's the act of BEING SUED that the physician fears, not how much the plantiff can recover. On recredentialing forms one must report any lawsuit, whether won, lost or settled - to say nothing of all the studies documenting the extreme psychological stress involved, and subsequent practice changes toward even more defensive medicine.

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