• Stuff like this makes me despair for cost containment at all

    A new Viewpoint in JAMA, “The Looming Threat of Liability for Accountable Care Organizations and What to Do About It“:

    The promotion of accountable care organizations (ACOs), a new health care delivery and payment model designed to curb rising medical costs while improving quality, is one of the most important elements of the Affordable Care Act. The ACO model is based on shared-risk contracts, in which ACOs agree to share the financial risk of health care overspending with third-party payers. Although they originate in Medicare, these shared-risk arrangements are quickly spreading to the private insurance markets, where they aim to dismantle the volume-driven fee-for-service revenue model. Hundreds of health systems across the country have already adopted the ACO model and in so doing have taken on a new role of cost containment. What may be less clear to them is that they are taking on new liability risks.

    To be honest, I don’t know what to make of this. The piece is constructed around the idea that ACOs put docs at risk for lawsuits because if something goes wrong, they could be held liable for trying to cut corners at the expense of care:

    Under “agency theory” in tort law, a plaintiff in a malpractice suit is permitted to hold a health system liable for the negligent actions of its employee, ie, the treating clinician. A patient may also sue a health system directly, claiming that policies or actions of the health system are negligent. Thus, whether ACOs or not, health systems are exposed to institutional liability related to medical malpractice. How big of a divergence is ACO liability from the existing forms of institutional liability common to health systems? The key difference is the introduction of a new dimension of medical malpractice liability that goes hand in hand with the cost containment charge: the claim that the ACO’s actions or policies prioritized cost savings over patient safety, contributing to the plaintiff’s harm.

    The problem is that – as far as I can tell – this prohibits us from ever taking any instutitonal steps to try and contain costs at all. I’m not a lawyer; am I missing something? If you really believe this, then there’s really nothing we can do to try and spend less. Just order everything for everybody every time.


    • First, kill all the lawyers, to paraphrase Dick the Butcher.

      • I used to think that as well.

        Then I observed a country that has almost no lawyers (Japan).

        It turns out that not having lawyers is much worse than having too many. Although reality isn’t as nice as the theory, at least in theory the US legal system provides a means of redress for people who have been unfairly harmed. In malpractice, the number of harmed persons who manage to get some compensation is a tiny fraction of the number harmed. But at least it’s there in theory.

        FWIW, with respect to this discussion, Japan manages to hold medical costs to 1/3 those in the US while running a pure fee-for-service system. By strictly limiting what service providers are allowed to charge.

        As I’ve said before, I don’t think that overtreating is anywhere near as much of a problem as overcharging is.

    • The quoted parts make little sense to me. The issue in a malpractice case is whether the patient was provided with adequate care (more formally, whether the treatment provided falls below the accepted standard of practice in the medical community and causes injury or death to the patient).

      Today someone could allege inadequate care and point to financial reasons as motive. All that changes with the ACA is the argument might resonate more with some jurors.

      (I did not read the underlying article.)

      • I’m no lawyer, but based on what I’ve read of malpractice suits, this comment is basically wrong. There is no “adequacy” standard that provides an absolute defense in malpractice suits. Some theorists have suggested that the ACA’s language about “best practices” will eventually be applied in malpractice law, so that demonstration that a course of treatment was consistent with established “best practices” will suffice to protect doctors from liability. However, that standard is not yet a significant portion of the caselaw–at present, cases are judged on a case-by-case basis, and merely demonstrating that you gave average treatment is not itself a sufficient rebuttal to the plaintiff’s claim that you did not provide as good care as you should have.

        Also, there is considerably more wiggle room than you might think. Every patient is a little bit different, so if you, as the defendant, argue that you gave the same treatment as in all these similar cases, the plaintiff will turn that on its head and say “exactly, and you shouldn’t have, because of these differences…”

    • Skim. Reads must faster than you think re: OIG and gainsharing.

      As far as I know, CMS has changed nothing. Safe harbor needed for docs participating in Medicare programs sharing payments (and savings) with hospitals:

      “The OIG recognizes that hospitals have a legitimate interest in enlisting physicians in their efforts to eliminate unnecessary costs. Savings that do not affect the quality of patient care may be generated in many ways, including substituting lower cost but equally effective medical supplies, items or devices; re-engineering hospital surgical and medical procedures; reducing utilization of medically unnecessary ancillary services; and reducing unnecessary lengths of stay. Achieving these savings may require substantial effort on the part of the participating physicians. Obviously, a reduction in health care costs that does not adversely affect the quality of the health care provided to patients is in the best interest of the nation’s health care system. Nonetheless, the plain language of section 1128A(b)(1) of the Act prohibits tying the physicians’ compensation for such services to reductions or limitations in items or services provided to patients under the physicians’ clinical care.”


      • Aaron
        Worthy of discussion, Georgia passed last month, the The Provider Shield Act–first of its kind. I believe other states will be pursuing the same. Our society will be chewing on this as well.

        The bill gives protection to providers if ACA/QI metrics fall short, say bottom decile, and wont hold them responsible for institutional shortcomings. Oddly, the GA plaintiffs bar signed on to bill as well. Rationale? You cant play the scenario the opposite way.

        Interesting development.

        I would be curious how readers felt about bill, good or bad.

        • I feel kind of blah. It is not a safe harbor law. It looks as though it will just protect docs from getting sued because they failed to comply with payment schedules. Do we ever get sued for that now? It seems more like an anti-ACA bill, symbolic at that, than anything.


          • The nidus of bill lies in the ACA ether, no doubt. In fact, given the progenitors, speaks to anti-measurement, pro independent practice skew.

            However, despite above, can you envision measurement–perhaps not at institutional but at group level at some point–becoming refined enough whereby cases can materialize?

            Dont know. I have no position but will hear more and do my research. LIkely more sizzle than substance, but who knows. AMA put some muscle behind effort. U heard of them, right? 🙂

    • I am not sure what the author means by “medical costs”. For the sake of argument, I will assume that the author actually means “prices” when he says “costs”.

      All else being equal, prices rise when demand exceeds supply and prices fall when supply exceeds demand. A corollary is that prices can fall when producer productivity increases. I am always intrigued by how healthcare economists and policy makers seem to completely, completely, completely disregard these fundamental axioms of economics.

      If one is willing to consider these axioms in the context of healthcare prices it becomes fairly simple to discern how to contain prices, Either reduce demand for healthcare delivery or increase the supply of healthcare delivery, or both; or thirdly, improve the productivity of healthcare delivery.

      ACO’s and so called”tort reform” do not increase supply, reduce demand or improve productivity. Thus, they can be dismissed, without further consideration, as not having any meaningful impact on reducing the price of healthcare delivery.

      • @Jardinero1–

        Your economic analysis is correct only for an efficiently functioning market. Healthcare is nowhere close to an efficient market (supply is artificially constrained by certification requirement of doctors and hospital, consumers (i.e., patients) have little ability to distinguish necessary and effective care from unnecessary or ineffective care, etc.). Given these inefficiencies in the health care market, your Econ 101 gloss on supply and demand is not a complete description of the situation.

        One example to illustrate my point is that hospitals make more money if patients are readmitted after hospitalization, so the incentive to avoid infections in patients is not high (it is surprisingly difficult to get all hospital staff to wash their hands regularly). In an efficient market, a supplier should not be able to get away with “planned obsolescence” or other techniques to increase costs to consumers because other suppliers will enter the market place with better products. This mechanism of addressing product quality does not work very well in the health care market because the consumer is less able to shop for the best product and real competition among suppliers does not exist (or exists only to a rather limited extent). If incentives are introduced to reduce compensation for ineffective care and increase compensation for better results, potentially overall costs can go down while quality of care goes up. I suppose you can call this increased “productivity” if you want or even reduced demand for unnecessary care (which would reconcile your theory with this attempt to get better quality at reduced cost). Nevertheless, the large amount of inefficiencies in this market pose many opportunities to improve results and lower costs. But in any event, I don’t think your “axioms” are not as central to health care economics as they are in an industry with a more efficient market.

        • All valid points. I would go one further than you and submit that no true healthcare market exists at all. A market is where willing seller and willing buyer engage in free exchange with the absence of coercion.

          Perhaps the solution to price containment is to move healthcare purchase and delivery back to a market driven model.

        • The requirements for perfect information, perfect competition, and perfect rationality are not and have never been requirements for any markets to function, much less for the laws of supply and demand to hold.

          These are entirely artificial constraints to make the mathematics necessary for a complete description of the *computational simulations* of real markets tractable, not something that ever has or ever will be required for real markets involving real humans to function.
          That’s the first thing that they should teach in economics 101.

      • I especially like your comment on tort reform. The Texas Trial Lawyers Association is rightly considered a foe of Texas republicans, and some years back our republican-dominated state government passed legislation limiting medical liability. I suppose it has had some effect on doctors’ insurance premiums or their willingness to practice in Texas, but I don’t think there have ever been any but partisan claims of cost reductions.

      • “All else being equal” is a phrase used to indicate conditions that do not occur in the real world. You seem to be intrigued by the fact that healthcare economists and policy makers pay more attention to condition that do occur in reality instead of what should occur in theory.

        • I am intrigued by the fact that, for some, the solution to regulatory failure is still more regulations.

          The reason that the price of healthcare delivery rises on a continuous basis is because:

          1. The supply is static and ever less efficient with each new layer of regulation.

          2. The demand is constantly expanding because the carriers demand and receive higher premiums from the premium payors, typically employers or the government.

          The primary party, the patients, have no incentive consider the costs of the services since they do not pay for the service directly nor, for the most part, do they pay the premiums directly.

          • “I am intrigued by the fact that, for some, the solution to regulatory failure is still more regulations.”

            I take it then if you had built a race car and the brakes were insufficient to stop the car as quickly as you wanted, you would remove the brakes entirely, or at least make them less effective?

            • I wouldn’t buy the same kind of broken brakes over and over again expecting a different result.

          • “The reason that the price of healthcare delivery rises on a continuous basis is because:
            1. The supply is static and ever less efficient with each new layer of regulation.”

            The supply is static? The per capita supply of physicians has been going up for decades. Perhaps the reason healthcare economists and policy makers don’t believe in the same policy solutions you do is that they are aware of things you aren’t aware of.

            • Between 2005 and 2025 the total supply of physicians in the USA is expected to grow about 10 percent.


              Over the same period the US population will grow a cumulative 16 percent. Supply isn’t just static; it is negative relative to the population.

            • I guess you aren’t familiar with the phrase I used, “per capita.” You might want to look it up.
              The document you linked to shows a 36% increase in “per capita” supply of physicians in the US in the period from 1980 to 2000. (page 13) From other sources I know that between 1970 and 2006 the per capita supply of physicians in the US increased by 61%.
              To be honest, I ‘m not sure what point you’re trying to make when you write supply is static. It sounds like an incredibly naive statement. Is the supply of imaging machines static? Is the supply of radiologists static? Forty years ago MRIs and CT scanners didn’t exist. Has the greater range of options in imaging caused prices to decline? What fixed costs are associated with an MRI machine and how does that affect prices?
              I would guess that if you had an opinion on imaging services it would be along the lines of “increase the number of machines and prices will fall!” An easy statement to make if you don’t know anything about imaging and its costs but an easy statement to dismiss if you do.

    • The article compares ACOs with managed care organizations (MCOs), and makes the point that MCOs are protected by ERISA against most instances of liability whereas ACOs aren’t, and suggests that Congress grant the same treatment. I would argue that MCOs aren’t like ACOs, the later, by definition, “a legal entity that is recognized and authorized under applicable State law, as identified by a Taxpayer Identification Number (TIN), and comprised of an eligible group (as defined at § 425.5(b)) of ACO participants that work together to manage and coordinate care for Medicare fee-for-service beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an
      appropriate proportionate control over the ACO’s decision-making process.” The key is “act together to manage and coordinate care”. In other words, the ACO is the “provider”, and as such should have liability for medical mistakes committed by the ACO participants, just as a “group practice” has liability for the medical mistakes of its members.

    • Keep despairing for what brings prices down is not price fixing, rather competition. Interfering with the free marketplace comes with a lot of unintended consequences.

      • “Keep despairing for what brings prices down is not price fixing, rather competition. Interfering with the free marketplace comes with a lot of unintended consequences.”

        Unintended does not mean unexpected. Nor does it mean bad.

        In Canada, we have various forms of “price fixing” in medicine and it seems to work exactly as intended, and very effectively. Reference Based Pricing for drugs in British Columbia is a good example.

        • I am happy that Canada is satisfied with its system even though they seem to be looking for ways to cut their costs. I have no gripe with Canada. Americans and Canadians are different with different demographics and expectations. The U.S. has far greater minority groups and if you look at the Inuits in Canada you will find that they don’t receive the same care and have high mortality rates. Then again there is always that Supreme Court case in Quebec where the individual won over the state system because the system wasn’t providing the care and thus violated his rights. There are also long waits and CAT scan machines that don’t exist near ski resorts.

          When it comes to pharmaceuticals the American is subsidizing the Canadian and if the prices were fixed in the US the creation of new pharmaceuticals would be reduced. In the US price fixing of vaccines led to shortages.

          Americans are impatient, so they don’t laugh about jumping the queue like
          Canadians do bouncing their neighbors even lower on the list. Things aren’t perfect in the US, but their not perfect in Canada either.

          • “The U.S. has far greater minority groups [than Canada]”

            You should take Aaron’s advice about when your world view contradicts the facts.

            • #1) Please tell me about all those that are considered “oppressed” minorities in Canada. Canada has a wide variety of ethnic groups like the US, but in the context of minority that I was using I believe they occupy a much lesser number. That is important for they are the ones frequently falling through the cracks. Thanking you in advance for your education on Canadian demographics.

              Now tell me about Canadian care to the Inuits, their lifespan, infant mortality rates etc.

          • “…CAT scan machines that don’t exist near ski resorts.”

            You are of course referring to the Natasha Richardson incident. And not surprisingly you are simply parroting fabrications published by people with an agenda.

            The fact of the matter is the hospital near the ski hill where she was taken does have a CAT scanner.

            But more importantly, the much bigger problem was that she had no symptoms, and in fact refused both transport and treatment at different points in the process.

            • #2) “she had no symptoms, and in fact refused both transport and treatment at different points in the process.”

              Natasha R. first refused transport when she had no symptoms from her head injury. This is not unusual as many people do fall and hit their heads. She called again with symptoms from the head injury which makes that injury a medical emergency since it can easily be recognized that likely she is bleeding into her head. How many hours went by before she got that CAT scan?

              Have you ever heard of trephination which should have been done on the spot or as quickly as possible. I think took 3.5 hours to get her to the hospital in an advanced western nation. There was no reason for her to die. One didn’t even need a CAT scanner or high tech medical care. A regular carpenter’s drill could have done the job. Are you telling me the nearest hospital she could have been taken to was 3.5 hours away by ambulance? You must be kidding.

              Check out the Australian head injury in a child that occurred several weeks later. The child was seen in a General Practitioner’s office and he did the procedure right then and there because he felt the child would be dead before he reached the hospital.

              I have nothing against Canada and would never respond in this fashion so consider this as more of a reply towards your attitude rather than an attack on Canada.

          • “There are also long waits…”

            More dishonesty.

            For some non-urgent procedures there are definitely wait times. In my case I recently developed tinnitus. It took me 1 business day to get an appointment with my family doctor. From there, the referral to a specialist took less than 3 weeks. From him, a referral to a full up investigation at a hospital based hearing clinic was about 2 months. So that’s the wait for one particular, and very non-urgent problem.

            My sister on the other hand, is currently undergoing the final stages chemo and radiation therapy for colon cancer. Her initial diagnosis came during a GP visit for hemorhoids. Within a week she’d had a complete investigation and diagnosis. And about a week after that (during which she had many consultations and counselling) she began treatment. Keep in mind she lives in a very small town (population ~31000 c. 2006)

            I don’t know for certain, but I wouldn’t be surprised to find that many Americans, even if they are insured, wait longer for either situation. And of course, if you’re one of the 50,000,000 who don’t have insurance, your wait could be forever.

            In Canada, if you have a non-urgent medical condition you may indeed have to wait. But if you are seriously sick you will be treated immediately.

            • #3) You can provide all the anecdotes you wish but anyone wishing can check the Fraser Institute that can lead one to actual wait times for actual procedures in actual hospital districts.

          • “When it comes to pharmaceuticals the American is subsidizing the Canadian and if the prices were fixed in the US the creation of new pharmaceuticals would be reduced. In the US price fixing of vaccines led to shortages.”

            Seems to me this has already been dealt with at length in this very blog. And I seem to recall that many drugs (perhaps even most?) are in fact developed outside the US.

            Secondly, much of the development in the US is actually funded by taxpayers through university research programs.

            And finally, much of the cost of US drugs is taken up by advertising and marketing expenses, and much of the price is driven by making small and essentially useless changes to dose, packaging, etc, to extend patent protection.

            Given the amount of money drug manufacturers and other health care industrial giants are making, it seems improbably that they are subsidizing anyone.

            • #4) It is too hard to correct for data that is incomplete and erroneous. Take a look at the consumption of pharmaceuticals and the costs paid above marginal costs. You will find it is the American consumer that bears the brunt of the costs. A number of years back when there was a lot of talk regarding Americans buying drugs in Canada there was a lot of research with regard to what would happen if that occurred. The thoughts of many was that the pharmaceutical companies would have to restrain the sale of drugs to Canada or raise prices.

          • “Americans are impatient, so they don’t laugh about jumping the queue like Canadians do bouncing their neighbors even lower on the list.”


          • “Things aren’t perfect in the US, but their not perfect in Canada either.”

            I don’t think anyone, in Canada or out, is claiming things are perfect in Canada. But they do seem, by almost any metric, to be better or much better.

            And for a lot less money.

            • #6) Someone posted the Concord study. Did you by chance happen to see it. It demonstrates something quite different than what you say. I also understand that with regard to preventative medicine, i.e. pap smear, mammography, and PSA’s Americans have utilized these preventative measures more frequently than the insured Canadian whose use on a per capita basis is similar to that of the American uninsured.

              We don’t know how much money Canada spends. We can only add up the premiums and out of pocket costs. We cannot or have not added up the extra costs to the taxpayer or other costs regarding the trade-offs involved.

              Neither Canada or the US is perfect and the spending curve of both nations is atrocious. I think their curves of increased spending are almost the same though without question the US seems to spend a lot more than Canada. All western nations can learn from one another, but as a Canadian please don’t tell me how I should live in America and I won’t tell you how to live in Canada.

    • I’m not sure why ACOs are different from HMOs. Several of the docs who worked for my former employer were the target of that sort of lawsuit since the group had a large HMO population. The patient had terminal cancer and was taking routine narcotics. He developed constipation and was seen at the urgent care by a PA who felt he had a soft, non-tender belly and prescribed lactulose. The following day he developed pain and was taken to the ED where a CT was performed that showed a perforation. He had emergency surgery and survived almost another year, but due to his frailty was never able to return home from the nursing home. The lawsuit alleged “fraud” since the medical group had accepted payment from his HMO and then “refused” to order a CT to “save money”. Since the patient was over 65 (81 y.o.), California law also allows a suit for “elder abuse”. The two doctors (who had not actually seen the patient) responsible for the PA were sued, but since they were not covered by malpractice insurance for either fraud or elder abuse they were actually sued for their personal assets. The group was also named in the lawsuit. They did win the lawsuit and the medical group covered their legal expenses. One doctor who already suffered from depression retired on disability.

    • The whole idea behind the ACO is to have the physician, insurer, hospital and even government collaborate together to lower costs where all these entities will be fighting over the savings and the profits. The patient whose care could be compromised is totally justified in believing that that collusion might have deprived them of appropriate care. This setup could induce even more suits in the future unless we wish to deprive patients of their rights to judicial relief. Maybe we need to find better solutions to the cost problem.

      • Mario, you have that right. My mom was killed by an HMO. It was cheaper to let her die then treat her. My dad sued the HMO and won, but because she was no longer working and no longer had to take care of children the award was small. He found out from another doctor who resigned from that HMO and told him what happened. They even had a book to educate those in utilization review called “Delay In Treatment Means Profit”. He even said that despite the fact that they had to pay out a claim by withholding treatment to many people they still made a profit despite the claims made against them. Disgusting.

        I looked at the ACO and though I don’t understand them as well as you might they seem to be the same except they are bigger with hospitals included as well. The government is trying to cut costs by restraining necessary care. That is terrible so it seems those patients like the elderly and poor that will have the lowest awards will be at great risk.

    • “I wouldn’t buy the same kind of broken brakes over and over again expecting a different result.”

      What about buying more brakes for more breaking power? Or bigger brakes? Or more powerful brakes?

      You seem to suggest that “regulatory failure” is a reason to eliminate regulation. To me there are many more options available:

      1. Change/improve the regulations
      2. Enhance/expand the regulations
      3. Increase enforcement
      4. Or even try something different, instead of regulations.

      But to suggest that because some regulation doesn’t work perfectly you need to throw it out is absurd.

    • I’m neither a lawyer, nor economist, nor doctor.

      But if there’s a silver lining in this, here it is: Besides buying more liability insurance, ACOs can protect themselves by doing things that, it seems, they ought to do anyway:

      “ACOs also could embrace self-help remedies to reduce their future liability, such as matching institutional care algorithms like the CHF hospital admissions criteria to published guidelines or evidence-based medicine. In doing so, ACOs tie their policies to recognized standards of care. In addition, ACOs could be cautious when implementing incentive-based compensation that ties a substantial portion of physicians’ income to their ability to reduce patient care costs. Such a compensation structure might be seen as tacitly encouraging undertreatment, exposing the ACO to additional liability.”

      • “to published guidelines”

        Which guideline?

        As the journals pile up with better treatments does one follow the guideline or the new information?

        What happens when the doctor follows the old guideline, but the literature at the time said to do something else?

        Picture the doctor on the stand stating that he followed the guideline. Now picture the lawyer saying that the journals had better ways of treatment that after the fact were incorporated in a new guideline. Think of the patient.

    • Dr. Carroll,
      Out of curiosity, how do you equate the position above with the concusion from your “meme busting” article on tort reform=cost control? i.e. “But it’s not the solution to our high health-care spending. Tort reform does not equal cost control.”


      You said that health spending as attributed to malpractice is 2.4% of total health spending in the article. If you are truly worried about ACO liability, then is there some lingering doubt about that 2.4% and that tort may drive a significantly higher percentage of health spending? Or, are you sure of the 2.4% and are just worried about ACO’s ability to control such a small amout of overall health spending?

      • I don’t mean to put you in a corner, Dr. Carroll. I realize that tort reform has not had the multiplier effect on savings that many physicians believe it would, as implmemented in states like Texas. But, I also want to recognize your thoughts here. For better or worse, defensive medicine seems to have raised the bar for both physicians and patients on implicit expectations of care which have a direct impact on cost.

        It makes me wonder if there is a dichotomy in care for a physician with a patient population less likely to sue (and more likely to pay cash – read: price sensitive) like the Amish and the rest of that physician’s patient population without also having a statistically significant difference in outcome. Are you aware of any such studies?

    • I just saw this @ the NCPA site with regard to the same subject:

      “What I never see from Aaron or Austin or any other bloggers at the Incidental Economist is how they would deal with these perverse incentives. And don’t (as the JAMA article did) tell us evidence-based medicine will be a safe harbor. That way out is unreliable and it doesn’t have any mechanism for insuring the appropriate tradeoffs will be made.