Wednesday, March 06, 2013

The prisoner's dilemma in ACOs

Now comes the Society for General Internal Medicine, jumping on the global payment bandwagon. John Commins at HealthLeaders Media reports that the SGIM has concluded, "Fee-for-service medicine is a financially unsustainable payment model that should be phased out by the end of the decade."

What is this really about? SGIM has finally concluded that the existing rate structure, which favors proceduralists over cognitive specialists, will never be changed under the fee-for-service rubric.  But, if we adopt capititation, will the reallocation will somehow mysteriously occur?  Not likely. 

There remains remarkably little discussion about how capitated, or global, budgets should be allocated among the various types of doctors and facilities engaged in providing care.  As Bruce Landon noted last year, this is a key issue:

The fundamental questions become how ACOs will choose to divide their global budgets and how their physicians and other service providers will be reimbursed. Thus, this system for determining who has earned what portion of payments — keeping score — is likely to be crucially important to the success of these new models of care.

Under ACOs and many commercial global payment products, providers will continue to receive traditional fee-for-service payments, and hospitals will receive their usual contracted payments, through either the diagnosis-related-group (DRG) system or per diem payments. All spending for each patient that is attributed to the ACO will then be tracked and compared with the calculated budget retrospectively at the end of the performance year in order to calculate savings or losses. Thus, standard fee-for-service payments remain the de facto method for keeping score.

Let's go further, though, and posit a potential adverse impact of global payments that has not been discussed to date.  It derives from a phenomenon known as the prisoner's dilemma,which "shows why two individuals might not cooperate, even if it appears that it is in their best interests to do so."

Let's say that you are a surgeon in an ACO being paid per procedure.  You have been advised that, if there is a surplus for the ACO at the end of the year, you will get a small percentage of that.  You do a calculation of the likelihood of a surplus occurring and of your likely share.  You conclude that doing one or two more surgeries per month will give you more income that your likely share of the surplus.  You also figure out that the same will be true for your colleagues.  How do you act?  If you are economically rational, you do the extra procedures.  Ironically, if all the proceduralists do the same, the ACO might run a deficit rather than a surplus and might cause a clawback of all physicians' payments--including those internal medicine doctors represented by SGIM who so strongly advocated for global payments.


Barry Carol said...

It will be interesting to see how many ACO’s are willing to accept capitated payments up front and pay their doctors on a salaried basis plus a reasonable bonus for meeting cost and quality metrics. In effect, such an arrangement would require the ACO to take on the actuarial risk associated with the insurance function and estimate its cost of providing care for the upcoming year. Personally, I don’t think assuming actuarial risk is easy to price and it requires the maintenance of significant reserves to cover cost overruns in bad years. I would like to see hospital led ACO’s try it though and see how they do.

Anonymous said...

Most ACO structures I have observed are top heavy with management and other "non-productive" middle men who expect to be compensated at some level. I suspect that ACOs will ultimately fail due to intrinsic complexity, income/work product disparity, and patient dissatisfaction, much as capitation failed in the '90s.

John Gallagher said...

Fascinating dilemma for ACO's and those employed in the ACO's. Specialists have gotten so used to the "pay by the drink" environment of fee for service. Asking them to make this change will take great leadership. Thanks for sharing.

David Joyce MD said...

ACO's are expected to work under the global payment system, aka, capitation. It is all about transferring risk from payer to provider. This occurred more than 20 years ago and resulted in horrible failure wherever it was tried. What makes anyone think that clinicians are capable of accepting risk that the payers have been dealing with since health insurance was born. The first step in accepting risk is to know what it costs the clinician to provide a service. Once the cost is known a price can be calculated, plain and simple just like any other business. Yet for the overwhelming majority this is a foreign concept. Good luck, the attempt by primary care to introduce global payments as a redistribution scheme is bound to place everyone under water as it has done in the past.

Mitch said...

I think a likely outcome is a large number of physicians becoming salaried employees; now they are in essence commission salespeople. This avoids the very real allocation issue, and it seems hospitals are trying to acquire as much of the value chain as possible. Also, if you own the chain you can allocate revenue away from profit by pating more "cost."