Putting the Focus Back on Obamacare: ACO Option Rebuffed

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On March 31st, the Center for Medicare and Medicaid Services (CMS) released its annual report.  Things are not looking good.

Medicare Part A, the Hospital Insurance (HI) portion of the Medicare program, is estimated to run out of funds in 2024, five years before the date that was documented in the 2010 CMS annual report.  Dr. Susan Berry, author of this article, points out the following:

Of course the Obama administration, with its spin-to-win “new math,” is reporting- now try to follow this one– that even though Medicare is running out of funds five years earlier than expected, this is actually eight years longer than it would have without the passage of Obamacare, and that the reason for this is cuts to Medicare Advantage made in the health reform law- the same cuts that President Obama and the Democrats have been denying were in there. Got that?

One of the mechanisms included in PPACA (Obamacare) to reduce costs is the establishment of Accountable Care Organizations (ACOs).  (See H.R. 3590, Sec. 1899(a))  By definition, an ACO is “a type of payment and delivery reform model that starts to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients.”  The concept of ACOs is based on the premise of “virtual” organizations, i.e. organizations consisting of physicians associated with local acute care hospitals.  ACOs basically deem these physicians to be “extended medical staff” of the hospital.  The idea is that by establishing these ACOs, the correlation of this “extended medical staff” and the local hospital will lower costs.

To provide a hypothetical example of how an ACO would work, Medicare determines a benchmark payment of what it projects the cost will be to treat the average beneficiary in that geographic area for a year.  For the sake of this article, consider $10,000 to be that benchmark. The physicians submit their traditional fee-for-service claims.  The hospital submits its DRG-based claim.  At the end of the year, Medicare determines if the ACO has provided care for less that $10,000 per patient.  If they have come in under cost, the ACO gets a cost savings bonus and the bonus is divided among the providers and hospital.  If they have exceeded cost, the ACO takes a loss.

Sounds simple, right?  If you’re thinking, “No, not really”….that’s just a start.

The law requires each ACO to include health care providers, suppliers, and Medicare beneficiaries on its governing board. (The ACO would have to be a legal organization that can receive shared savings, and would have to incorporate primary care physicians who solely practice under the ACO.)

The ACO must take responsibility for at least 5,000 beneficiaries for a period of three years.

CMS is also proposing to establish a minimum sharing rate that would account for normal variations in health care spending, so that the ACO would be entitled to shared savings only when savings exceeded the minimum sharing rate.

The proposed rule links the amount of shared savings an ACO may receive to its performance on quality standards (65 different quality measures with costly data collection)

CMS is proposing to implement both a one-sided risk model (sharing of savings only for the first two years and sharing of savings and losses in the third year) and a two-sided risk model (sharing of savings and losses for all three years), allowing the ACO to opt for either model.  (CMS mandates withholding 25% of any savings during this 3-year agreement, plus the added year or two that it takes to “close the books”)

The Department of Justice (DOJ) and the Federal Trade Commission (FTC) have worked together to facilitate the creation of ACOs by giving providers the clear and practical guidance they need to form innovative, integrated health care delivery systems without running afoul of antitrust laws.

This is just a brief overview.  The actual documentation is 500 pages long.

In theory, ACOs work.  In the context of reality, it works in some cases.  Does that mean all physicians, hospitals and/or established ACOs support the CMS plan?  Not even with those considered to be vanguards of accountable care organizations.  Check this out…

But in an unusual rebuke, an umbrella group representing premier organizations such as the Mayo Clinic wrote the administration Wednesday saying that more than 90 percent of its members would not participate, because the rules as written are so onerous it would be nearly impossible for them to succeed.

“It’s not just a simple tweak, it’s a significant change that needs to be made,” said Donald Fisher, president of the American Medical Group Association, which represents nearly 400 large medical groups around the country providing care for roughly 1 in 3 Americans. Its members, including the Cleveland Clinic, Intermountain Healthcare in Utah, and Geisinger Health System in Pennsylvania, had been seen as the vanguard for accountable care.

As this physician has said,

“The problem with this “movie” is that we’ve actually seen it before, and it was a colossal and expensive failure.  During the 1990s, many hospitals and physicians believed that the Clinton health reforms would force them into capitated contracts with health plans.  This catalyzed a flurry of mergers and physician practice acquisitions, all motivated by a desire to control the stream of payments from health plans, rather than being subcontractors to those who did.

There were numerous reasons for the 1990s collapse of at-risk hospital/physician partnerships, besides the failure to find willing buyers of their services. These efforts lacked infrastructure, experienced management, as well as reliable and timely cost information to support cost management. They assumed global risk but paid for care on a fee basis, just as Fisher and colleagues propose.  But these hospital-sponsored organizations could neither redistribute income nor exclude their high-cost providers (who inconveniently generate most hospital profits)

He goes on to point out that some things have changed since the 1990s that might favor ACOs, such as large multi-specialty practices with strong relationships with their local community hospitals.  But he provides this example being considered by the state of Massachusetts as a warning:

The State of Massachusetts seems headed toward imposing an all-payer mandatory, communitywide ACO model for cost containment purposes. There is time to reconsider what I think is a reckless decision. Unless they are very careful, and build on existing risk-sharing arrangements, the Massachusetts ACO experiment is likely to be a gory and comprehensive failure.

All of the information stated above provides yet further evidence that Obamacare will not succeed.  We need to put the focus back on this piece of legislation as quickly as we can.

Time is running out.

 

Additional References:

https://healthaffairs.org/blog/2011/04/06/proposed-cms-regulation-kills-acos-softly/

https://www.healthreformwatch.com/2010/03/11/a-guide-to-accountable-care-organizations-and-their-role-in-the-senates-health-reform-bill/

 

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