Unaccountable Care Organizations

The release of preliminary performance data of 32 Accountable Care Organization Pioneers has largely been spun by the media into a great success story. But for those of us who actually deliver care, and who lived through the Health Maintenance Organization fad some years back, this report is a big red flag.

For those too young to remember, the HMO was going to save health care in America. The managed care model consists of a “gatekeeper” physician working for an insurance company to control patients’ access to higher-level care, tests, and hospitalizations. The gatekeeper is paid a set amount each month per patient enrolled to “coordinate” care.

This arrangement, called “capitation,” creates a strong incentive for the physician to see the patient rarely, if at all. In addition, the gatekeeper is eligible for a bonus payment if total spending on his panel of patients was under a certain threshold. This, obviously, creates more incentives to spend as little as possible.

This system works just fine, as long as the patients are healthy! And managed care companies went out of their way to recruit healthy patients. They pushed managed care onto seniors by giving sales pitches on cruises, thus eliminating the bed and wheelchair-bound.

But “cherry picking” has limits. Eventually, managed care had to deal with sicker patients, and the model started to collapse. Late referrals and late diagnoses lead to worse patient outcomes, and greater expense. The bureaucracy devoted to care denial is itself quite expensive. Premiums at HMOs began to skyrocket, as consumer complaints proliferated.

Many companies abandoned the strict gatekeeper/capitation model in favor of the Preferred Provider Organization. Beneficiaries had a choice of “preferred providers,” with whom “discount” pricing had been “negotiated.” Prior approval for expensive procedures or medications still had to be obtained.

Instead of saving American medicine, managed care accelerated its demise by pitting doctors and insurance companies against patients. Any money not spent on actual care went to the burgeoning administrative sector and to HMO profits, which supported exorbitant CEO paychecks and perks. Not one red cent was devoted to clinical research.

How is the ACO different from the HMO? The difference is merely cosmetic. The ACO is composed of physicians, other “providers,” and administrators. It contracts with the Centers for Medicare and Medicaid Services (CMS) to provide care for selected beneficiaries. The ACO receives a lump sum per patient per month from which all care is to be provided.

Money not spent on care (“profit”) is split evenly between the ACO and CMS. Money spent in excess of the “bundled” payment is a loss to the ACO. The ACO can also receive incentive payments for achieving (and reporting) certain “benchmarks,” such as lowering blood pressure or cholesterol level. These “quality” indicators, which are based on large population studies, will almost certainly lead to over-treatment of individuals, particularly the elderly.

Like HMOs, ACOs will face very strong incentives to cherry pick the healthy and to limit access to specialty care, procedures, expensive drugs and hospitals. These incentives are devastating to the truly ill. And the ACO is accountable to CMS, not to the patient!

So how did the pioneer ACOs do? Melinda Beck reports in The Wall Street Journal:

All of the 32 health systems in the so-called Pioneer Accountable Care Organization program improved patient care on quality measures such as cancer screenings and controlling blood pressure… But only 18 of the 32 managed to lower costs for the Medicare patients they treated — a major goal of the effort. Two hospitals lost money on the program in the first year. Seven have notified CMS that they intend to move to another program where they will face less financial risk. Two others have indicated they intend to leave the program.

Few details are reported on the CMS website. We don’t know the baseline health status of the patients or the start-up and administrative costs for the ACOs.

Some insurance companies and hospitals will cash in on this boondoggle for a few years, before opting out or folding. The ACO, like the HMO, is not a viable long-term model. Only a true free market, with transparent pricing and consumer choice through direct payment, can bring high quality at a reasonable price.

Article provided by the Association of American Physicians and Surgeons.

Richard Amerling, MD is a nephrologist practicing in New York City. He is an associate professor of clinical medicine at Albert Einstein College of Medicine in New York, and the Director of Outpatient Dialysis at the Beth Israel Medical Center. Dr. Amerling studied medicine at the Catholic University of Louvain in Belgium, graduating cum laude in 1981. He completed a medical residency at the New York Hospital Queens and a nephrology fellowship at the Hospital of the University of Pennsylvania. He has written and lectured extensively on health care issues and is a Director of the Association of American Physicians and Surgeons. Dr. Amerling is the author of the Physicians' Declaration of Independence.