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Accountable care organizations and your new employee: Lady luck
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Washington is a company town. The “company” passes laws and makes rules and regulations for the nation.
It has thus far produced more than 13,000 pages of rules and regulations from the 2,000-page Patient Protection and Affordable Care Act (PPACA), which was signed into law in 2010. Its work is far from done. For example, the phrase “the Secretary shall determine” appears in the bill 1,563 times and will produce a torrent of many thousands more pages. In this month’s column, I will focus on that portion of PPACA involving accountable care organizations (ACOs) and the elements of risk and luck that they incorporate into health care.
But haven’t we been down this road before? Aren’t ACOs just HMOs spelled with different letters?
The term “accountable care organization” came from Elliott Fisher at Dartmouth Medical School in 2006. By 2009, it was part of PPACA. Similar to an HMO, the ACO is responsible for providing health care to a defined population of patients. A “shared savings payment” replaces the “capitation” of HMOs. Under capitation, revenue is limited to a flat payment per member per month. With the shared savings payment, an element of risk is added. If certain quality measures are met and savings achieved, a bonus is paid.
The psychology behind the bonus is nothing new; consider taxes. By withholding more money than the actual tax owed for the year, people get back a refund when they file. They then happily focus on how much money they got back from the government rather than sadly contemplating how much money they paid in. Likewise, when I check out at my local supermarket, the cashier never says the total cost of my groceries, which is clearly displayed on a screen in front of me. Instead the cashier always says, “You saved X dollars shopping today.” As a shopper, it makes me feel good to hear that I saved money instead of that I spent money.
ACOs will use the same psychology. Medicare has price controls — the amount the doctor is paid is limited, established in advance and has been declining for years. This has resulted in some physicians dropping Medicare patients and all physicians grousing about how little they get paid to see those patients. Under a shared savings plan, however, they might receive a “bonus.” In theory, it will cause the physicians’ attitude and performance to improve as they shift their focus away from how low their reimbursements are to how much their bonus will be.
Physicians reactions
What if the total amount, including the bonus, paid to the physician turns out to be less than he or she is currently receiving for seeing a Medicare patient? It could be. In fact, with Medicare constituting the largest and fastest growing portion of our national debt, some argue that reimbursements will have to fall further. The massive national debt is becoming an economic imperative and applying pressure to all aspects of our economy, including health care. We are no longer talking about health care reform in isolation but instead as a part of greater economic reform.
The challenge policymakers face is how to get more services while paying less, in fact much less, for health care. Similar to the game musical chairs, when the music stops and the Medicare checks have to be written, there is not enough money to pay for all of the desired care. Policymakers, however, must find some way to get physicians to do the work. That’s the goal behind the methodology using “risk-based payments” in ACOs. The payments can include bonuses via a shared savings plan, so when the music stops, some providers will get bonuses. Others, however, will not. The total amount the government pays for health care will be less.
Richard O. Dolinar
Here’s how it works. If physicians are able to reduce spending for their patients below a “benchmark level” and still meet certain quality standards, they will receive a portion of the savings in the form of a bonus if the amount of the savings reaches a certain “threshold level.” The benchmark and the threshold are set by the payer.
A recent study in Health Affairs simulated a scenario involving Medicare patients with type 2 diabetes. The researchers found that a 10 percentage point improvement in performance would decrease adverse events 4.1% but only generate 1.22% in savings. PPACA’s initial threshold to achieve shared savings was 2%. Having not reached that threshold, no bonuses would be paid in the above scenario. The authors concluded that “the savings needed to generate these payments will have to come from activities other than improvements in the clinical quality measures.”
In reality, the shared savings model measures the predictions against the results. Thus, one’s ultimate payment is not based on the reality of what was spent, but rather on a fabricated number of what the government expected you to spend. To generate a bonus, the amount spent must be less than the expected amount. In the end, this bases physicians’ income not only on how well they perform, but also on what the estimators choose as benchmarks. Payments are now to be based on fiction instead of reality.
Several questions raised
What will the benchmark be for each year? How will it be determined? For example, if this year the expected cost for care was estimated at “X” dollars and the providers were able to provide it at a lower cost of “Y” dollars, what will be the expected cost of care for next year? Clearly, the payers would not expect it to be “X” dollars when they now have data showing that it can be, and in fact was done previously, for “Y” dollars. Will “Y” dollars now be the new benchmark? To obtain a bonus, will the providers now have to provide that care for a lower amount, “Z” dollars? With time, will the bonuses eventually fade away as the actual costs converge with the expected costs and the projected savings are realized? What do you do then?
And what about the high-performing, low-cost group that is already doing its best when it enters into an ACO? Without demonstrated improvement, it will get no bonuses. What should be done about that?
With compensation at risk because of dependence on how well the patients do, “luck” now becomes a factor. The mix of patients who wind up in your practice could make or break you financially. Risk-adjustment could mitigate the effect of outlier patients, but it is not an exact science and is fraught with problems. Keep in mind that it is the payer who determines the methodology of the risk adjustment and that he who defines the methodology determines the winners.
In essence, you are now responsible for a warranty on “used bodies.” With Medicare, the youngest bodies were “made” in 1947 and all of the rest are older, some much older! Who would provide a warranty on a 1947 Ford or a 1938 Chevy (and what would it cost)?
When considering entering into such arrangements, this new element of risk means you will need not only a negotiator and an attorney, but also an actuary and plenty of money to pay for them. The ACOs will have them. Will you?
And is there a fatal conceit here that with enough information government central planners have developed a methodology that can make this work?
Forecasting the future is the job of entrepreneurs, not government bureaucrats.
Can a physician win in such a situation? Only if our medical communities are like Lake Wobegone, where all physicians are above average and all patients are good-looking.
Luck, be a lady tonight!
For more information:
- Eddy DM. Health Aff. 2012;31:2554-2564.
Disclosure:
- Richard O. Dolinar, MD, is a senior fellow with The Heartland Institute and a clinical endocrinologist specializing in diabetes in Phoenix. He can be reached at rdolinar@heartland.org. Dolinar reports no relevant financial disclosures.