Accountable Care Organizations: A Health Experiment in Progress

Husband and wife research team Dr. Margaret Pericak-Vance, Ph.D (R), director of the Hussman Institute for Human Genomics, University of Miami, and Jeffery M. Vance, M.D., Ph.D, chair of department of Human Genetics, University of Miami, are seen with a tray of DNA samples taken from the BioRepository in the genetics lab where they did research that discovered the cause of retinitis pigmentosa, a form of blindness, on February 2, 2011 in Miami, Florida. The ground breaking discovery that was announced today, February 3, 2011 has helped Betti and Carlos Lidsky's nearly 20-year search for what caused three of their four children to lose their sight. Researchers used a new technology known as whole exome sequencing to find the cause and now hope with the new information to be able to work on a possible cure for the eye disease.
National Journal
Darius Tahir
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Darius Tahir
Oct. 10, 2013, 8:53 a.m.

A pa­tient goes to the doc­tor’s of­fice with vague back pain. He gets the most ex­pens­ive scan on the mar­ket, which sug­gests sur­gery might be needed. Bet­ter be safe than sorry; he has the sur­gery. But a closer look would have re­vealed that cheap­er phys­ic­al ther­apy would have been just as ef­fect­ive.

The dol­lars wasted on that pa­tient con­trib­ute to a key prob­lem with the health care sys­tem: soar­ing costs that haven’t been ac­com­pan­ied by a com­men­sur­ate in­crease in qual­ity. Obama­care is try­ing to fix the prob­lem of ex­pens­ive, un­ne­ces­sary care in sev­er­al ways, the most well-known of which are ac­count­able care or­gan­iz­a­tions.

ACOs are groups of pro­viders that have been as­signed a pro­jec­ted budget per pa­tient. If the cost of caring for the pa­tient comes in be­low that level, the group shares the sav­ings. The idea is that doc­tors will bet­ter co­ordin­ate care to pre­vent waste­ful or in­ef­fect­ive treat­ment. Pi­lot pro­grams sug­gest the jury is still out on ACOs’ abil­ity to drive this kind of be­ha­vi­or.

A re­cent work­ing pa­per by M. Mar­it Ra­havi, an eco­nom­ist at the Uni­versity of Brit­ish Columbia, il­lus­trates the prob­lem with cur­rent be­ha­vi­or. Ra­havi ex­am­ines births by Cali­for­ni­an and Tex­an first-time moth­ers who are phys­i­cians and com­pares them to first-time col­lege-edu­cated moth­ers. Due to their med­ic­al edu­ca­tion, phys­i­cians would pre­sum­ably be bet­ter equipped to avoid un­ne­ces­sary med­ic­al pro­ced­ures. And, in­deed, phys­i­cian-moth­ers have lower rates of cesarean sec­tions and high­er rates of va­gin­al de­liv­er­ies than their col­lege-edu­cated coun­ter­parts. The phys­i­cian-moth­ers and their ba­bies ten­ded to be health­i­er, too.

Be­cause they’re more ex­pens­ive, C-sec­tions are more prof­it­able for doc­tors and hos­pit­als. Nearly 3 per­cent less was spent on phys­i­cian-moth­ers than oth­er moth­ers in the same hos­pit­al. A Los Angeles hos­pit­al ex­ec­ut­ive quoted in the pa­per ad­mits that in­cent­ives to re­duce C-sec­tions are low, des­pite their prob­able over­use.

Re­du­cing the num­ber of un­ne­ces­sary med­ic­al pro­ced­ures means chan­ging pay­ment in­cent­ives, re­formers ar­gue. With ac­count­able care or­gan­iz­a­tions, the the­ory is that if the pro­vider does a good job tak­ing care of the pa­tient, something the in­surer can track with qual­ity met­rics, the pa­tient’s health will be bet­ter, they will use few­er and less ex­pens­ive ser­vices, and, there­fore, they will cost less to in­sure.

Medi­care is run­ning two pi­lot ver­sions of the pro­gram. In one, pro­viders may sus­tain losses if they’re over budget but can be hand­somely re­war­ded if they’re un­der. The oth­er re­wards pro­viders for com­ing in un­der budget but has no down­side risk. If they work, the pro­grams will be ex­pan­ded.

Early res­ults are mixed. Of the 32 ini­tial pro­viders in the high­er-risk, high­er-re­ward Medi­care ACO pro­gram, 18 de­livered sav­ings. Of the 14 that didn’t, two dropped out of the pro­gram en­tirely, and sev­er­al op­ted to move in­to the less-risky ACO pi­lot pro­gram, ac­cord­ing to an ana­lys­is by in­vest­ment bank Triple Tree. Their de­par­ture from the pro­gram was pres­aged by pro­vider com­plaints over the ex­tens­ive qual­ity meas­ure­ments re­quired by Medi­care; the gov­ern­ment is mon­it­or­ing qual­ity to make sure pro­viders aren’t skip­ping ne­ces­sary treat­ment to come in un­der budget.

While Medi­care is test­ing ACOs, private en­ter­prise is build­ing them ag­gress­ively. Even one of the gov­ern­ment-pro­gram dro­pouts, the New Mex­ico hos­pit­al sys­tem called Pres­by­teri­an Health­care Ser­vices, has partnered with tech gi­ant In­tel to run an ACO-like or­gan­iz­a­tion for the firm’s loc­al em­ploy­ees, sug­gest­ing its prob­lem with the Medi­care pi­lot was the prac­tice, not the the­ory. Private in­surers, in­clud­ing Cigna and Aet­na, are also jump­ing on board, and Triple Tree’s ana­lys­is shows well over 100 pay­er-backed ACOs.

Some ini­tial res­ults have ar­rived from these private pro­grams. A study pub­lished in the Journ­al of the Amer­ic­an Med­ic­al As­so­ci­ation looked at 11 pro­vider or­gan­iz­a­tions that entered Blue Cross Blue Shield’s ACO-like or­gan­iz­a­tion for Medi­care be­ne­fi­ciar­ies in Mas­sachu­setts between 2007 and 2010. Some of the news was good: Even the Medi­care pa­tients who wer­en’t in an ACO cost 3 per­cent less than a con­trol group dur­ing this time, sug­gest­ing in­sti­tu­tion­al changes that spread sav­ings to all pa­tients. Some wasn’t as good: Just one of the four qual­ity meas­ures tested by the au­thors im­proved for the non-ACO Medi­care pop­u­la­tion.

Mak­ing ACOs work will re­quire many or­gan­iz­a­tion­al changes on the part of pro­viders. They’ll have to ori­ent their sys­tems more around qual­ity than quant­ity. They’ll have to track pa­tients closely, us­ing new ana­lyt­ics, to make sure their status is im­prov­ing. And they may fo­cus on high-risk, high-cost pa­tients, us­ing ana­lyt­ics and tailored in­ter­ven­tions to help them. The pay­off for im­prov­ing the health of that pop­u­la­tion could be sub­stan­tial.

Crit­ics worry these changes could en­cour­age ex­cess­ive pro­vider con­cen­tra­tion in the private sec­tor. Hos­pit­al mer­gers and ver­tic­al in­teg­ra­tion may ac­cel­er­ate if ACOs are widely ad­op­ted be­cause they en­cour­age closer co­ordin­a­tion among health-sys­tem play­ers. The shift could counter the ef­fect of the ACOs and ac­tu­ally drive up prices. Aus­tin Frakt, a Bo­ston Uni­versity health eco­nom­ist, writes, “I un­der­stand why Medi­care is pro­mot­ing ACOs. But, be­cause they en­cour­age pro­vider in­teg­ra­tion, which could lead to high­er prices and premi­ums, I do not un­der­stand why private in­surers would be.” The Fed­er­al Trade Com­mis­sion shared that con­cern when Medi­care first began its pi­lots, and tight­er rules to dis­cour­age this be­ha­vi­or were put in place. But private in­surers, which gen­er­ally con­trol smal­ler por­tions of the mar­ket than Medi­care, re­main vul­ner­able to the neg­at­ive ef­fects of con­sol­id­a­tion.

The ACO ex­per­i­ment is in mo­tion, and we’ll have to see what hap­pens when it stops. Early res­ults sug­gest suc­cess is not as­sured.

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