Recently PriceWaterhouseCoopers (PwC) put out a report that included their top health industry issues of 2011. The list includes these six items:
- #1: Booming business in health information technology
- #2: Gearing up to redefine health insurance: From MLRs to insurance exchanges
- #3: ACOs: Is this the next big thing or not?
- #4: Nowhere else to cost shift: Consumers could continue to reduce utilization
- #5: M&A: Deals will bond the familiar and unfamiliar as organizations look to fill strategic gaps
- #6: Follow-me healthcare: Patients look to health organizations that are always on
While they are all interesting issues with a lot of implications, the one that makes my head spin is number 3: ACO’s.
ACO, which stands for Accountable Care Organization, is one of those healthcare policy wonk terms that is about to go mainstream, in large part because of their prominent role in the PPACA (national health reform law). The federal government, and especially the Centers for Medicare and Medicaid Services (CMS) has put this concept front and center as the great white hope to reform its healthcare delivery programs.
The idea behind ACOs is that physician groups, hospitals and other usually disconnected caregivers will band together in a seamless integrated web to provide a “medical home” or coordinated locus of care, particularly patients with chronic illnesses or other complex medical needs. There is a firm belief by many, particularly those leading the implementation of health reform, that ACOs are the ideal structure through which to provide consumers with care that is high quality, highly integrated and cost-effective. The objective is to bring accountability in the treatment of high-need patients and to share that accountability among the patient’s caregivers and the patient themselves in a manner that optimizes the patient’s ability to get the right amount of care at the right time and for the best value. According to PwC, ACOs encompass a spectrum of models that include physicians, hospitals, payers, and vendors under a basic premise of shared risks and rewards based on patient outcomes.
Do I hear the dulcet strains of Peter, Paul and Mary’s Kumbaya? Physicians, hospitals, insurance payers, device and pharma manufacturers, patients, families, government all working together hand-in-hand while skipping through the verdant fields, to achieve health, harmony and shared financial accountability. Can you see it? Yeah, me neither. In the immortal words of Kumbaya, “someone’s prayin’ my Lord,” and if we go too far too fast, I’m pretty sure we’ll hear that someone’s cryin’.
It’s not that it’s a bad idea. It’s a great idea. There could be nothing better for patients than a world where all their care is centralized around a core clinical team that really cares about their health and works together, with the patient, to maximize their health and quality of life. I am sure there will be some examples of provider organizations that can actually make this happen and, in fact, there are a few singular examples where something approximating this model exists (Kaiser, InterMountain Healthcare, maybe the Cleveland Clinic or Geisinger).
The problem is how to export this concept broadly nationwide. It requires a fundamental change in the way our healthcare system works, including changing reimbursement models, insurance structures, provider employment constructs, medical school training, technology adoption, and patient cooperation. It’s kind of like saying, “ok, we decided we are going to address the nation’s obesity problem by turning all the McDonalds into Tofu Huts, paying people not to eat ice cream and eliminating corn subsidies; only wheat grass and pomegranate juice will be sold at baseball games and people will no longer want to drink alcohol. Abracadabra, let’s have this wrapped up by a week from Tuesday, shall we?”
It’s not that it can never happen, it’s that it all but takes an act of God to make it happen in our lifetime.
According to a Medical Home Web Summit 2010 e-poll, the most important issues to overcome for widespread implementation of medical homes (ACOs) are:
- Lack of insurance payer commitment to reimburse care coordination (38.2%)
- Growing shortage of primary care physicians (25.4%)
- Lack of sufficient team culture being taught in medical schools and residency programs (11.0%)
- Lack of sufficient incentives to adopt and implement Electronic Health Records (10.2%)
- Other Reasons (15.2%)
Those top four are bad enough, and I don’t know what’s in their “other reasons” category, but it should include:
- Inability to create meaningful ACOs in non-urban areas due to lack of provider resources.
- Laws that are intended to prevent anti-competitive market collusion
- Laws that are intended to foster patient choice as well as providers’ ability to participate in any program where they are willing to accept the offered reimbursement (so-called “any willing provider” laws that exist in many states).
- Methods to teach provider organizations corporate-style financial management so they don’t go bankrupt under the types of payment models anticipated for ACOs like they did under widespread capitation during the 1990s.
- Patients’ willingness to cooperate with the whole idea
Each of these latter five issues is as real as the first four noted above, and pose some uniquely difficult challenges.
Rural Area Issues: Everyone already knows it’s hard to find doctors and particularly specialists, the farther you get from a big city. There has been little talk about how to address this problem but it is very real. According to Dr. Howard Rabinowitz, professor of family and community medicine at Thomas Jefferson University’s Medical College,”About 20% of the population lives in rural areas but only 9% of physicians practice there.” Does this mean there will only be access to the supposedly more cost-effective, higher quality ACO programs if you are in an urban area? Will rural Medicare, Medicaid and other patients just be left out of the ACO revolution? I understand how the private market can create wide disparities in access to services, but if the federal government is mandating ACOs, can they really get away with leaving a large portion of the populace behind?
Anti-Competitive Risks: On the anti-trust front, it is worth noting that there has been massive consolidation among hospitals and provider groups over the last 15 or so years. The U.S. has 5,800 hospitals, divided about evenly between nonprofits and for-profits. Nearly 3,000 of them changed owners from 1994 through 2009, according to Irving Levin Associates Inc., and most of those were consolidated into large national or regional chains like Sutter or CHS. According to William Vogt, Ph.D. of the RAND Corporation, 90% of the U.S. lives in “highly concentrated” hospital markets, and that hospital consolidation directly contributes to rising hospital prices. Since 2001, hospital prices have risen more than 40% across the board while real inflation has been about half that amount.
Additionally, hospitals now outright own 55% of outpatient provider practices; that number was 30% five years ago. Consolidation is becoming the norm in many communities, not the exception. Given all this consolidation, many major metropolitan markets are dominated by one or two hospital organizations and that has raised the interest of the FTC and DOJ, who are charged with enforcing the Sherman Anti-trust Act, which is, for those of you who remember Business School, the law that says you can’t allow mergers that essentially create monopolies. In the state that is probably off to the quickest start on the ACO front, Massachusetts, the feds are already swarming around the organizations that look and smell like ACOs and do not appear to jive with the anti-trust rules. For using their market leverage to overcharge certain insurers, the Department of Justice might just use it’s very own invisible hand to slap those providers silly.
Quick note of irony: one branch of the federal government setting policy that fosters consolidation (CMS), one branch of government designed to oppose it (FTC/DOJ). God Bless America, that’s how you create jobs!
Any Willing Provider Laws: Core to the idea of ACOs is the ability to create a limited and tightly integrated set of care providers. However, virtually every state in the nation has on the books an “Any Willing Provider” law. These laws have often been interpreted to effectively require insurance plans to accept any qualified provider who is willing to accept the terms and conditions of a managed care plan (e.g., reimbursement rate, availability terms, etc.). In reality, health plans are not forced to accept any physician who applies to the network, but the company must clearly state its criteria for selection as a provider and has to have a very good rationale for not accepting those who meet them, by and large. How this will jive with the ACO concept is not yet tested, but if providers are left out in the cold, there is no doubt it will be.
Provider Ability to Financially Manage ACOs: On the finance front, one need only look at the barely solvent state of most of the nation’s hospitals to know that this whole ACO idea is fraught with financial risk. Under and ACO, the ACO organization would be paid a fixed fee (similar to a capitation rate) to arrange and coordinate care, pay providers, measure performance, etc. In other words, they get a fixed budget and have to take care of those assigned to them no matter what the costs. If a surgery fails and the patient must return to the hospital, the hospital pays. There may be some fine points, such as exceptions for unusual needs or bonuses for superior performance, but bottom line, it’s a potential cash flow nightmare for many provider organizations, many of which operate on a wing and a prayer. For outpatient provider groups unused to capitation, history is prologue. In the 1990’s when physician practice management was popular, thousands of provider practices banded together under fixed capitation arrangements. It was an unmitigated disaster and many of these entities did not survive.
In theory the idea of capitation is a very good one. Give the provider entity a reasonable but fixed amount of money and make them take better care of the patient by fostering prevention, improving patient monitoring, anticipating crises and optimizing the resources offered to those with chronic illness. All well and good in theory, and occasionally in practice, but it requires a massive cultural shift from the current world where most providers are given an incentive to provide more care, not better care, and where few have the financial wherewithal to work on a fixed budget basis. Today in most locales, more visits to the doctor=more payments to the doctor. In a world of ACOs, more visits to the doctor=more cost to the doctor. Some fear that this kind of payment structure may cause the ACO to provide the cheapest care possible to maximize profits. Others believe that this kind of payment structure effectively aligns incentives so physicians take a long-term approach to managing patients. Bottom line is, both opinions have proven correct but no one has been effectively able to predict which outcome they are going to get with the newly constructed ACO entities. It is one thing to ask Kaiser to behave this way; they’ve had decades of practice. It is quite another to put a motley crew of hospitals and providers together and hope they act efficiently, with every provider forsaking greed for the greater good. Yikes.
Note of irony: government is going to solve it’s inability to live within its means (deficit due in part ot excessive healthcare spending) by forcing newly minted provider organizations to do so. Lawyers, start your engines.
Patient Acceptance: With respect to patients, there is a lengthy tradition in this country that has favored people’s right to provider choice. By being assigned to an ACO, a patient will have to forego some of that choice and stay in their assigned network. Again, not necessarily a bad thing, but something that many are resistant to, and sometimes for good reason. What if the patient needs a service that isn’t available in their ACO and the ACO isn’t willing to pay for it? Who gets to decide? This is precisely the kind of challenge that landed HMO’s on television as the evil protagonists in a variety of prime time dramas and made it challenging for them to be effective in real life.
When PwC asked Medicare enrollees about how likely they would be to stay allegiant to an ACO, less than one half (48%) surveyed said they would always stay with a hospital or group of physicians if they knew that group was accountable for their care. That ain’t going to cut it if the ACOs are going to stay solvent and the whole CMS restructuring program is going to work.
Note of irony: large portions of PPACA are directed to leveling the playing field among insurers so consumer can freely choose to move between those insurers without penalty if they change jobs, etc. Implementation of PPACA may effectively result in those same consumers’ inability to choose freely among providers. You cannot make this stuff up.
In my view, the goals of the ACO are noble and good, and there is much logic to the idea. The problem is that the terms “logic,“ “patient behavior,” and “physician as effective financial manager” probably can’t be found in the same dictionary. When you add “government as leader of social change” to the list, the smoke alarm starts to go off.
Doing nothing to fix our healthcare system and its outrageous rate of inflation is not a solution either. Something must be done and it would be ideal if we could migrate to a world where patients took good care of themselves, doctors only gave exactly the care necessary and hospitals didn’t need to maximize profits to grow their stock price. It will be interesting to see whether ACOs can be viable beyond a few special locations, but making that happen will take some real intestinal fortitude as well as significant government coordination and support, not just directive. Going too far too fast in the name of PPACA could be a serious prescription for disaster and too many cultural changes are needed to try to make this happen in a year or two or even three. Communication and re-education of the players in our healthcare system will be a critical component to success.
If this is really going to work, everyone in the healthcare industry is going to have to trade in Kumbaya and get on the REM bandwagon to sing,
It’s the end of the world as we know it.
It’s the end of the world as we know it.
It’s the end of the world as we know it and I feel fine.