The good news is you won’t have insurance companies to kick around much longer. The system is changing. As a result, insurance companies as they are now will be going away. Indeed, they are already evolving. For the next few years insurance companies will both continue to provide services to employers and, increasingly, compete against each other in the health insurance exchanges. In that role they will put together networks of physicians and hospitals and other services and set a premium. But because of health care reform, new actors will force insurance companies to evolve or become extinct. The accountable care organizations (ACOs) (which I discuss in Chapter 8 of my new book) and hospital systems will begin competing directly in the exchanges and for exclusive contracts with employers. These new organizations are delivery systems with networks of physicians and hospitals that provide comprehensive care. This health delivery structure is in its infancy.
Nearly half of the 114 hospitals and doctor groups that began Accountable Care Organizations under the health law in 2012 managed to slow Medicare spending in their first year, but only 29 of them saved enough money to qualify for bonus payments, the Centers for Medicare and Medicaid Services said Thursday.
CMS called the results “very promising”—particularly for the first year of a program that involved significant changes in the delivery of health care. But the fact that more than half the ACOs didn’t achieve savings underscores the challenges that remain in curbing health-care costs this way.
Editor’s note: average savings among the 29 ACOs receiving bonus payments amounted to ~$10 million per ACO. In a separate program, of the 32 Pioneer ACOs, 9 qualified for bonus payments generating savings of $147 million or ~$15 million apiece. There are 360 ACOs serving 12% of the Medicare population. Medicare spending was $574 billion in 2012, so these ACOs served patients accounting for ~$69 billion in spending. Thus, total savings represent 0.6% of total Medicare spending on Medicare patients. If every one of these had saved $10 million, the savings would have amounted to 5.2% of spending.
The main reason for high hospital costs in the United States, economists say, is fiscal, not medical: Hospitals are the most powerful players in a health care system that has little or no price regulation in the private market.
Rising costs of drugs, medical equipment and other services, and fees from layers of middlemen, play a significant role in escalating hospital bills, of course. But just as important is that mergers and consolidation have resulted in a couple of hospital chains — like Partners in Boston, or Banner in Phoenix — dominating many parts of the country, allowing them to command high prices from insurers and employers.
Critics and supporters alike have framed the Affordable Care Act as an effort primarily aimed at expanding access to healthcare insurance. As the refrain goes, the legislation placed much less emphasis on pursuing ways to make healthcare delivery more affordable. This analysis belies significant measures that the legislation pursues, in the name of cost control, which will fundamentally transform the delivery of medical care. These provisions are based on a primary belief that there is a lot of waste in the delivery of medical care. Moreover, the President and his advisers believed that this waste owes largely to the inefficient and sometimes-inappropriate decisions made by providers. The legislation sets out, through a collection of policy measures, to restructure the organization and delivery of medical care.
Among other things, it consolidates providers around hospitals where they will become salaried employees that are easier to regulate and supposedly less likely to overprescribe services. History shows, such measures do not produce the promised savings. Moreover, this reorganization comes at a significant cost, not only in terms of the quality of medical care, but its affordability. Provider productivity will inevitably decline. Continuity of care will suffer. Entrepreneurship in medical practice will be squelched. Obamacare will dramatically change the practice of medicine. This will perhaps be its most enduring legacy, and its most significant human cost.
Jumpstarting Entitlement Reform: Replace Obamacare’s Flawed Medicare ACOs with a Better Model – Ethics & Public Policy CenterOctober 15, 2013
There are far better ways to encourage the spread of high-quality integrated care networks in Medicare. The fastest, surest way would be to create a level competitive playing field with Medicare’s dominant FFS insurance system. This is the premise of the “premium support” model of Medicare reform. Under premium support, private insurance options—the MA plans of today, plus whatever new models may emerge—would compete directly with the government-administered FFS option on a regional basis, and the beneficiaries would select their coverage from the competing plans. Importantly, the government’s contribution to coverage would not increase with higher priced insurance. That means the beneficiaries would have to pay more for expensive plans. The result would be strong incentives for enrollment in options that offer high value at reasonable cost — exactly what well-run integrated systems of care could offer.
For the moment, the premium support model is unlikely to be adopted because the Obama administration prefers a more regulatory approach to Medicare reform. But short of full premium support, progress is still possible.
“The real question is whether, after the merger, the new system is what’s called a must-have, a hospital system that every insurance company must have in their network,” said Martin S. Gaynor, professor of economics and health policy at Carnegie Mellon University in Pittsburgh.
“The strong evidence is that these kind of mergers raise prices anywhere from 20, 30, 40 percent up to 50 percent, if a merger strongly enhances a hospital system’s negotiating power,” Professor Gaynor said.
But even as more health systems seek to replicate Advocate’s early success, its experience shows just how hard it may be to expand the approach and keep medical costs from resuming their relentless rise.
“It’s hard to imagine that you could start from scratch and do this and be successful in three years, said Dr. Lee Sacks, Advocate’s chief medical officer, noting that other systems may find it far harder to flip the traditional fee-for-services system on its head. “We had a running head-start going back to 1995.”
Nonetheless, the Affordable Care Act, President Obama’s health care law, has helped encourage a shift to Advocate’s payment model. Such agreements were merely a theory four years ago. But an estimated 428 accountable-care organizations now cover four million Medicare enrollees and millions more people with private insurance.
The five Boston Pioneers say they expect to stay in this program that will inform, if not create, the framework for a new way to manage care, both in Massachusetts and across the country.
“While we have concerns over the proposed benchmarks for performance year 2013, Steward Health Care remains committed to working with the Center for Medicare & Medicaid Innovation towards our collective goal to enhance quality and lower costs for Medicare beneficiaries,” says Steward spokesman Chris Murphy.
But providers aren’t willing to lose much, if any money, in this experiment, and that’s where it gets messy. Will Medicare adjust the quality rules to keep everyone in the program?
Accountable care organizations at their heart are about aligning provider financial incentives with patient needs for better health and lower-cost care. Unlike traditional third-party, fee-for-service insurance, which pays more for doing more, the payment models underlying accountable care pay providers more for achieving better care at a lower cost.
This is not a return to 1990s-style HMOs, which put the focus largely on reducing costs, so that patients and their physicians worried about stinting on care. Under the ACO payment model, the health-care providers aren’t eligible to keep the savings from lowering costs unless they achieve measurable quality improvements. Such quality measures weren’t available in the 1990s and can’t come primarily from insurance companies.
Provider Market Power in the U.S. Health Care Industry: Assessing its Impact and Looking Ahead. Catalyst for Payment Reform.