• The ACO haircut

    In NEJM, Bruce Landon puzzles over how ACOs will provide sufficient incentives for success. He makes two principal points:

    1. “[Primary care physicians] are responsible for care coordination and management, have perspective on the whole patient, and have the ability to manage the care of a patient population. Moreover, most quality incentives being incorporated into the payment systems for ACOs and other new global payment contracts also fall under the purview of primary care. To accomplish the care-management and quality goals, however, primary care physicians will need substantially more resources — for hiring care managers and other personnel to pursue population health management, for coordinating and managing care, and for implementing processes to ensure adherence with quality measures.” Where will the resources for such up-front investments come from?*
    2. If you think they’ll come out of the pockets of specialists, think again. “It may be difficult for organizations to unilaterally alter the flow of funds to accomplish these aims. Moreover, although organizations may face strong incentives to control costs, specialist physicians who continue to be paid through the fee-for-service system and hospitals, which continue to receive DRG-based payments, face no such inherent incentives — and in fact will continue to benefit from practicing in much the same way as they do now.”

    The source of the problem is the maintenance of the fee-for-service (FFS) payment system. There are two ways for an organization to put some distance between physicians and the incentives of FFS. One is to put physicians on salary. The other is for FFS to go away. In fact, for Pioneer ACOs, it will, but only in the third year, as explained in a recent Health Affairs/Robert Wood Johnson Foundation health policy brief on ACOs.

    In the third and final year of the Pioneer ACO experiment, groups that meet a specified level of savings will be eligible to move a substantial portion of their payments to a population-based model in which they could receive a dollar amount per beneficiary per month—true capitation— instead of continuing to layer ACO bonus payments on top of traditional fee-for-service reimbursement.

    There are only 32 Pioneer ACOs, so this is not yet a wide-spread solution to Landon’s concerns. Broadly, if ACOs only succeed if specialists take a haircut, it’ll be a tough fight.

    * Some, but not all, ACOs may be eligible for loans from CMS for these purposes.


    • All payment reform advocates seem to believe that FFS is a significant driver of cost variation in the health care system.

      I will admit that there are isolated instances where this has been shown to be true (see Neil Jensen’s paper on stress testing costs in JAMA) but I am skeptical that ending FFS will truly help. Several reasons why:

      1. Many European and Asian systems still rely on FFS, even the ones lauded by HCR advocates in the US (e.g., France). The lack of similar issues in this widely divergent group of countries should make everyone skeptical that FFS is at the root of the US healthcare system’s problems.

      2. Most of the solutions will encourage problems even more severe than FFS. For example, capitation/ACOs will encourage cherry picking and denial of care to the sickest patients, salaried physicians have extremely poor productivity records (see many hospital systems previous round of buying physician practices in the early ’90s) which will raise costs, etc. Now many of these problems have possible workaround (e.g., use productivity-based pay, etc.) but implementation has proven difficult even in the most controlled systems (e.g., see the way physicians gamed the last set of NHS reforms tried by Labor in the UK).

      Neither of the above arguments are strong enough to totally convince me but until FFS advocates acknowledge or engage with them, it will be difficult to overcome skepticism.

    • 1. It’s not clear to me that we have a clear enough understanding of the factors that drive local and regional cost variation well enough to determine the extent to which we can construct a centralized mechanism to restrict provider compensation without also cutting the volume or quality of care delivered, or both.

      If this information exists, then the reluctance of payors to save hundreds of billions of dollars by putting it to use is quite puzzling.

      It’s also strange that the incentives embeded in FFS could result in wonderful care at low cost in some geographic areas, and poor care at high cost in others. Without concrete IO-level explanations that can account for such variations, what are we left with in terms of tools that a centralized rate setting body can use to constrain payments without affecting the quantity and quality of care available?

      2. V – excellent points.

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