The Hidden Dangers of Accountable Care Organizations

While I was sitting in a conference room at a large teaching hospital waiting for a noon conference to begin, an attending physician remarked that Accountable Care Organizations would be the future of health care.  He went on to give a brief overview of what they were and how they worked.  All present seemed to nod their heads in understanding and appreciation of the slanted economic insight to health care that they had just garnered.   But if something sounds too good to be true, it probably is.

Accountable care organizations (ACOs) are established in the Affordable Care Act under a Medicare Shared Savings Program (Sec 3022).  The Centers for Medicare and Medicaid Services (CMS) defines ACOs as "groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients."  It further states that "[w]hen an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program."  Translated into practical, real-world terms: when an ACO delivers care to predetermined standards and spends less health care dollars to do so, it can see a bonus.  The concerning features now become who sets the standards of care and how it is possible to spend less money and provide high-quality care.

The first question is relatively easy to answer, because there is a set list of things that need to be reported in order for an ACO to be considered legitimate.  There are a total of 33 items on this list, known as quality performance standards, that will be evaluated for each ACO.  These standards are made up of both subjective and objective measures of performance.  The law is vague as to whether these standards will be compared to other ACOs or to some national average for interpretation, and, according to the affordable care act, the standards are subject to change: "The Secretary shall seek to improve the quality of care furnished by ACOs over time by specifying higher standards, new measures, or both for purposes of assessing such quality of care."

Among the current subjective measures are patient surveys that assess things like "getting timely care, appointments, and information"; "patients' rating of provider"; and "how well your providers communicate."  While excessive waits and health care access are issues worth addressing, using patient surveys to determine quality of care rendered is an inexact science.  A one-week wait for an appointment may be reasonable for one and outrageous to another.  Not to mention the fact that doctor shortages and millions of newly insured citizens are bound to increase waits.  When it comes to these measures, people are not always objective or uniform in their assessments, and they can sometimes be downright unreasonable.   A nurse who is a friend of mine loves to share the story that a patient in the ER gave the doctor a poor rating because he was denied the specific sandwich he wanted for lunch; another patient gave a poor rating because he was denied prescription pain medications.  This is the danger of too much subjectivity combined with unrealistic expectations, and a reason why patient polling should be taken with a grain of salt.

On the opposite side of the spectrum is too much objectivity.  Medicine is just as much of an art as a science, and government over-regulation is blatantly apparent in ACO performance standards that attempt to objectify delicate, situation-dependent medical decisions.  For example, there are specific cutoffs for sugar readings in diabetic patients.  If sugars are too high, there is a chance the ACO won't get its bonus.  This leads to the remarkably dangerous scenario of over-treating patients.  Doctors are more likely to become overly aggressive at prescribing medications not with the best interests of their patients in mind, but rather with concern for having to reach a certain lab value.  The standards contain specific goal numbers for sugar, cholesterol, and blood pressure -- all of which would potentially be treated aggressively in order to meet required levels.  The quality standards incentivize over-medicating at the risk of harm to patients in order to meet certain benchmarks.  This idea is simply outrageous. 

The second question -- how it is possible to give high-quality care and spend less money -- is truly the million-dollar question.  If we knew the answer to this, health care spending wouldn't be at over $1 trillion per year.  It is, however, impractical to think that ACOs (which are discussed in about 6 pages of the lengthy ObamaCare law) are the cure for the malignant health care spending seen in our country.

The fact of the matter is that in order to cut spending in ACOs, care will be rationed.  Whether you call this "smarter utilization" or savings thanks to "coordinated care," the actual care being rendered will be scaled back.  The principles of economics dictate that this must be the case.  If you were a mechanic kept on retainer for a limousine company that was given $8,000 per month and told you could pocket whatever money was left over from repairs each month, suddenly that loose belt doesn't seem so urgent, and the parts can be scrap instead of new.  There is little difference in the case of ACOs, except that you are dealing with lives instead of cars.

The other scenario that still obeys the laws of economics is that ACOs will have incentive to seek out healthy beneficiaries.  The healthier your patient base is, the less money you need to spend, and the more you can save and profit.  This, of course, is unsustainable, because eventually sick patients will need care and may end up costing an ACO more.  It's even possible that in this instance, the ACO will not have any savings to share with Medicare, in which case it would have to absorb the losses.  Absorbing losses doesn't make its way into the CMS definition of the ACO, but it is an ugly reality that could be the Achilles heel of the program.  And it will do nothing to cut health care spending.

An additional threat is that ACOs formed by large hospitals will have the power and money to buy out small private practices.  This leads to the very real threat of oligopoly, thereby limiting the number of choices for care as well as competition that drives success and innovation.  Small practices could become a thing of the past as large health care networks expand and gain more power.  Established oligopoly would be detrimental to innovation in the form of scientific, technological, and pharmaceutical advances because  the increased costs of new innovation may be something ACOs choose not to invest in, since it could detract from their bottom line.

The odds of such ACO adoption and popularity may, however, be limited by the ACO's lack of ability to be sustainable off paper.  A recent Wall Street Journal  article about trial ACOs reported that "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." 

With results like this, ACOs may not be the future of health care that my attending physician had promised.  But they are a dangerous reality of the new health care law and should be watched closely.

While I was sitting in a conference room at a large teaching hospital waiting for a noon conference to begin, an attending physician remarked that Accountable Care Organizations would be the future of health care.  He went on to give a brief overview of what they were and how they worked.  All present seemed to nod their heads in understanding and appreciation of the slanted economic insight to health care that they had just garnered.   But if something sounds too good to be true, it probably is.

Accountable care organizations (ACOs) are established in the Affordable Care Act under a Medicare Shared Savings Program (Sec 3022).  The Centers for Medicare and Medicaid Services (CMS) defines ACOs as "groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients."  It further states that "[w]hen an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program."  Translated into practical, real-world terms: when an ACO delivers care to predetermined standards and spends less health care dollars to do so, it can see a bonus.  The concerning features now become who sets the standards of care and how it is possible to spend less money and provide high-quality care.

The first question is relatively easy to answer, because there is a set list of things that need to be reported in order for an ACO to be considered legitimate.  There are a total of 33 items on this list, known as quality performance standards, that will be evaluated for each ACO.  These standards are made up of both subjective and objective measures of performance.  The law is vague as to whether these standards will be compared to other ACOs or to some national average for interpretation, and, according to the affordable care act, the standards are subject to change: "The Secretary shall seek to improve the quality of care furnished by ACOs over time by specifying higher standards, new measures, or both for purposes of assessing such quality of care."

Among the current subjective measures are patient surveys that assess things like "getting timely care, appointments, and information"; "patients' rating of provider"; and "how well your providers communicate."  While excessive waits and health care access are issues worth addressing, using patient surveys to determine quality of care rendered is an inexact science.  A one-week wait for an appointment may be reasonable for one and outrageous to another.  Not to mention the fact that doctor shortages and millions of newly insured citizens are bound to increase waits.  When it comes to these measures, people are not always objective or uniform in their assessments, and they can sometimes be downright unreasonable.   A nurse who is a friend of mine loves to share the story that a patient in the ER gave the doctor a poor rating because he was denied the specific sandwich he wanted for lunch; another patient gave a poor rating because he was denied prescription pain medications.  This is the danger of too much subjectivity combined with unrealistic expectations, and a reason why patient polling should be taken with a grain of salt.

On the opposite side of the spectrum is too much objectivity.  Medicine is just as much of an art as a science, and government over-regulation is blatantly apparent in ACO performance standards that attempt to objectify delicate, situation-dependent medical decisions.  For example, there are specific cutoffs for sugar readings in diabetic patients.  If sugars are too high, there is a chance the ACO won't get its bonus.  This leads to the remarkably dangerous scenario of over-treating patients.  Doctors are more likely to become overly aggressive at prescribing medications not with the best interests of their patients in mind, but rather with concern for having to reach a certain lab value.  The standards contain specific goal numbers for sugar, cholesterol, and blood pressure -- all of which would potentially be treated aggressively in order to meet required levels.  The quality standards incentivize over-medicating at the risk of harm to patients in order to meet certain benchmarks.  This idea is simply outrageous. 

The second question -- how it is possible to give high-quality care and spend less money -- is truly the million-dollar question.  If we knew the answer to this, health care spending wouldn't be at over $1 trillion per year.  It is, however, impractical to think that ACOs (which are discussed in about 6 pages of the lengthy ObamaCare law) are the cure for the malignant health care spending seen in our country.

The fact of the matter is that in order to cut spending in ACOs, care will be rationed.  Whether you call this "smarter utilization" or savings thanks to "coordinated care," the actual care being rendered will be scaled back.  The principles of economics dictate that this must be the case.  If you were a mechanic kept on retainer for a limousine company that was given $8,000 per month and told you could pocket whatever money was left over from repairs each month, suddenly that loose belt doesn't seem so urgent, and the parts can be scrap instead of new.  There is little difference in the case of ACOs, except that you are dealing with lives instead of cars.

The other scenario that still obeys the laws of economics is that ACOs will have incentive to seek out healthy beneficiaries.  The healthier your patient base is, the less money you need to spend, and the more you can save and profit.  This, of course, is unsustainable, because eventually sick patients will need care and may end up costing an ACO more.  It's even possible that in this instance, the ACO will not have any savings to share with Medicare, in which case it would have to absorb the losses.  Absorbing losses doesn't make its way into the CMS definition of the ACO, but it is an ugly reality that could be the Achilles heel of the program.  And it will do nothing to cut health care spending.

An additional threat is that ACOs formed by large hospitals will have the power and money to buy out small private practices.  This leads to the very real threat of oligopoly, thereby limiting the number of choices for care as well as competition that drives success and innovation.  Small practices could become a thing of the past as large health care networks expand and gain more power.  Established oligopoly would be detrimental to innovation in the form of scientific, technological, and pharmaceutical advances because  the increased costs of new innovation may be something ACOs choose not to invest in, since it could detract from their bottom line.

The odds of such ACO adoption and popularity may, however, be limited by the ACO's lack of ability to be sustainable off paper.  A recent Wall Street Journal  article about trial ACOs reported that "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." 

With results like this, ACOs may not be the future of health care that my attending physician had promised.  But they are a dangerous reality of the new health care law and should be watched closely.

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