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What are Accountable Care Organizations?

January 26, 2010 in Medicaid/Medicare, Physician Compensation, Supply of Medical Services | 12 comments

Accountable Care Organizations (ACOs) are the latest rage in the health policy world.  The question is, what are ACOs.  The Urban Institute’s Kelly Devers and Robert Berenson try to answer the following question: “Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandaries?”

The goal of ACOs is to pay providers in a way that encourages them to work together, to pay providers in a way that does not encourage supplier induced demand, and to create an organization that is rewarded for providing high quality care.  What kind of organizations are currently poised to evolve into ACOs. This chart evaluates the prospects.

One question is why doesn’t Medicare just use their current Medicare Advantage program to accomplish these goals.  In the Medicare  Advantage program, Medicare pays a lump sum to private insurers and holds them accountable for all the medical care the beneficiary needs.  However, there are three main differences between ACOs and HMOs.

  1. The “accountability” rests with the providers.  Providers or provider groups, rather than insurance companies, are evaluated on the quality and efficiency of care.
  2. Direct contracting with provider organizations without the reliance on a health plan intermediary.
  3. The ACOs allow for flexibility in the type of organization.  Some regions may prefer independent practice associations (IPAs) while others  may prefer a physician-hospital organization (PHO).

The physician-centered organization makes much sense to many policymakers because “the resources that flow from the decisions physicians make with patients account for a major portion of overall health care costs, regardless of where the care actually takes place.”

Medicare could pay ACOs with a “gainsharing” mechanism.  In the gainsharing framework, the fee-for-service payment structure remains, but a portion of patient cost savings gets passed through to the physician. On the other hand, Medicare could institute a partial capitation scheme.  This would be similar to Medicare Part D, where the prescription drug plans get a flat rate per person, but they also receive are involved in risk corridors, which “limit a prescription drug plan’s potential losses should the plan happen to experience much higher utilization and costs than expected.”

One problem with this framework is that physicians are good at treating patients, not at risk management.  Thus, many physicians may get stuck with high-risk patients and some ACOs may become insolvent unless there are adequate Medicare risk adjustment payments.

Secondly, patients may see ACOs as HMOs in disguise.  ”[I]f beneficiaries believe that ACOs are essentially tightly managed ‘HMOs in drag’ that are going to restrict their choices, undermine the doctor-patient relationship, and result in cheaper but lower-quality care, the concept will be met with skepticism, if not overt opposition.”

Other obstacles to ACOs include possible FTC and DOJ desires to quash ACOs on anti-trust grounds.  Further, state governments may need to change laws related to insurance regulation as well as organizational and professional liability.

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CBO Papers

December 30, 2008 in Public Policy | No comments

In the Health Care Blog, Robert Laszewski suberbly analyzes Congressional Budget Office (CBO)’s two papers.  His key points are that 1) there is no silver bullet and 2) “really controlling costs will be very hard and will require some courageous and politically problematic actions.”

I would point out other highlights, but the post is so good I highly recommend reading it yourself.

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Effective Healthcare Policymaking in Europe

November 24, 2008 in International Health Care Systems, Public Policy | No comments

Health economists and policymakers have lots of ideas of how to improve the health care system.  Yet few of these reforms are implemented.  Why?

Max Hotopf of Healthcare Europa tries to answer this question in the context of Europe’s attempts at healthcare reform.  Below are some of his arguments and my comments.

  1. Decentralization. “In most European countries healthcare policy is effectively left in the hands of regional authorities. Finland takes this to the extreme with primary and secondary care delegated to over 400 municipalities, each with 5,000 to 10,000 people.”  Mr. Hotopf claims that this decentralization makes it difficult to implement health care reform.  I wholeheartedly agree with Mr. Hotopf that decentralization makes implementing wholesale healthcare reforms more difficult.  However, I do not necessarily imply that the solution is centralization.  Generally, most economists have found that more decentralized control of government-run institutions is best.  Individuals generally have higher satisfaction with government institutions on a local level than on a national level.  Although these local bodies may suffer from diseconomies of scale, decentralized systems have better information about the needs of their local constituents.  Thus, fixing the “problem” of decentralization will likely create more problems than it solves.
  2. What the public will accept/elections.  Healthcare Europa states that the European public is often against any high profile privatization in the health care system. Further, changes in the political climate can easily derail reform efforts.  For instance, “in the Czech republic, the social democrats took power this month and are utterly opposed to any sort of private healthcare. The privatisation programme in Slovakia has been slung into reverse.”  Despite this fact, I doubt that abandoning democracy for a government of experts is a good idea [Anyone who thinks a government of experts is always good should read The Best and the Brightest about the U.S. involvement in Vietnam.]
  3. Professional bodies have a lot of political power and can overturn reforms.  ”The British Medical Association regularly scuppers government policy, such as the move towards larger polyclinics. It is two years since the Greek courts ruled that stipulations that a doctor has to own over 50% of any diagnostics lab are contrary to EU law. Yet, thanks to pressure from doctors, the Ministry of Health has constantly stalled any attempt to change the law.”  Here I completely agree with Healthcare Europa.

 
The blog post does leave us with some sage advice: “Unless you have an intimate understanding of how private healthcare operators will behave in any situation, you will fail to come up with programmes which will harness their energy and appetite for change.”

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