• Chart of the day: ACO growth

    A look at ACO growth from Matthew Petersen, David Muhlestein, and Paul Gardner (PDF) of Leavitt Partners:

    ACO growth

    A few observations:

    • Non-Medicare is not defined. In theory it could include Medicaid. It almost certainly includes commercial market organizations. As such, because there were some non-Medicare ACOs before the start of 2012, ACOs were not a government idea. (This does not, by itself, make them a good or bad idea.)
    • Non-Medicare ACOs and Medicare ACOs exist in nearly equal numbers. I understand why Medicare is promoting ACOs. But, because they encourage provider integration, which could lead to higher prices and premiums, I do not understand why private insurers would be. (Not all non-Medicare ACOs are private-insurer sponsored, but many are.)


    • A comment to Frakt’s second observation. Integration (i.e., physicians employed by the hospital) puts the hospital in control, directly or indirectly, in determining procedures and, more importantly, the location of the procedures performed by the physicians. And where do the hospitals want the procedures performed? In the hospital, not only to capture the reimbursement but to capture the much higher reimbursement for procedures conducted in hospitals as compared to the same procedures performed in outpatient facilities. This reverses decades of policy to encourage outpatient services, encouraged both because patients prefer them and because their cost is significantly lower. As physician practices are integrated, competing outpatient facilities are either being acquired by the hospitals or shuttered. Isn’t this counter-productive? Depends. The large hospital chains (for profit and not for profit) are forming their own insurers, such vertical integration avoiding the dilemma Frakt mentions. As for Medicare, most physicians believe that administration policy is intended to encourage integration, eliminate the competing facilities (many physician-owned), and then cut hospital reimbursement to put it more in line with the current lower level of reimbursement for outpatient services. These are interesting times.

    • Here’s an example to support my prior comment. The proposed reimbursement rates for 2014 (they came out in July) would cut reimbursement for office-based cardiac procedures around 35% while slightly increasing the already much higher reimbursement for hospitals for the same procedures. On its face it seems crazy to cut reimbursement for already much lower reimbursement for office-based services while at the same time increasing the already much higher reimbursement for for the exact same services in hospitals. It’s crazy unless the intent is to drive the physicians and their services into the hospital (integration) and then cut hospital reimbursement. Surprise!

    • “I do not understand why private insurers would be.”

      Private insurers are using ACO contracts to negotiate lower hospital FFS reimbursement rates. Shared savings ACOs are also being used as a stepping stone to narrow network products that can be taken directly to large employers.

    • Large hospitals have lots of leverage with insurers, and a whole lot more leverage than physicians and non-hospital-owned outpatient facilities. Indeed, hospitals promote consolidation/integration with the promise of higher reimbursement rates (for both the professional component (in the case of integration) and the technical/facility component of reimbursement (in the case of joint ventures)). Put an existing outpatient facility under the “control” of the hospital and reimbursement rates go up 20%, or much, much, much more if the outpatient facility is made a HOPD. Chasing higher reimbursement rates may be like a dog chasing his tail, but that’s the current practice.

    • All part and parcel of the drive to encourage large, integrated operations that can then be pitted against one another on either favorable or unfavorable terms as the political passions of the moment dictate, relying on monopoly/oligopoly and monopsony/ologopsony power to achieve the ‘right’ outcome.

      Needless to say I’ve always found it amusing that those who decry the loudest the idea that normal economic forces work in health care the same as in any other industry, are often the most keen to identify those economic forces and steer them for their own ends. The desire to use government monopsony power to ‘negotiate’ Medicare drug prices is probably the most obvious example.

    • What is an ACO ?

    • “I do not understand why private insurers would be.”

      ACO’s (potentially) provide a mechanism for providers to work together and bypass the health plans, or at least put them back to simply dealing with insurance risk. Health plans are aggressively supporting ACO models to stay relevant. Self-preservation.

      • I should add that for many payors, I would think the additional attraction is that it provides a mechanism for pushing more of the “provider” risk off to the physicians/hospital while they maintain responsibility for the “insurance” risk. Private payors have the same incentives that CMS does in many ways. ACOs provide a vehicle for the health plans to get providers to work more effectively together without making them take on the insurance risk that many providers are uncomfortable with (e.g. HMO/capitated models).

    • The comment “what is an ACO” is brief but significant. The tracking, study, and evaluation of ACOs is made more difficult, by a looseness in defining the concept.

      While the latest LP study described in the post does not define ACOs, their earlier work defined them as follows:

      First, the entity must be financially responsible for the health needs of a population. Second, the entity must coordinate and oversee the clinical provision of care across the continuum of health care services. Third, the entity must be held accountable for the measured outcomes relating to both cost and population health that its care produces. (http://leavittpartners.com/wp-content/uploads/2013/08/Accountable-Care-Paradigm.pdf)

      This is certainly a broad definition that could encompass many different ways to organize and pay for care.

      The “fathers and mothers” of the pre-ACA discussion of ACOs, and I believe those who coined the term, including Mark McClellan and Elliott S. Fisher, defined ACOs as:

      (1) Provider- led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients.
      (2) Payments linked to quality improvements that also reduce overall costs.
      (3) Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care.

      This is a related, although different ,definition than the one used by LP. Most significantly, their definition (and I always thought the defining difference between ACOs and MCOs) was placing providers at the center of the arrangement. This feature was adopted in the Medicare MSSP program.

      Do we need a common definition? Not really. However, the more we begin to call anything involving care coordination and payment based in any part on cost and quality an ACO, the more we risk losing the ability to separate the wheat from the chaff of health reform experimentation.

      • Of course, the provider at the center of and with the greatest leverage in the ACO is the hospital, which is the least efficient of the providers, has the highest reimbursement rates, and moves with the speed of a glacier. On the other hand, only the hospital has the resources to pay for and implement EMR and other “innovations” that are supposed to make the ACO efficient, have lower reimbursement rates, and adapt with the speed of a gazelle. Faith is irrational.