by Katherine Restrepo
Director of Health Care Policy, John Locke Foundation
In previous newsletters, I’ve discussed how both ends of the political spectrum strive to reform our nation’s health care delivery system by following through with the "triple aim" concept of former CMS administrator Dr. Donald Berwick — increase access to care, reduce health care costs, and enhance population health.
How can these components be realized? From a free-market view, stripping excessive regulations that prohibit provider competition and instead protect powerful special interests can certainly pave the way towards reduced healthcare costs and increased patient choice.
To boost individuals’ overall health, payer models that reimburse providers based on quality performance and patient outcomes have been around since the 1970s. Coordinated healthcare delivery models — where providers either communicate or integrate to holistically address patient needs — have also been around for a while. The idea behind coordinated care and pay-for-performance is to break down provider "silos" and cut down on health care costs by reducing duplicative services.
Obamacare’s Accountable Care Organizations (ACOs) push for the medical community to expand on the aforementioned ingredients for better population health.
To give an example, let’s say that each ACO must manage a population of at least 5,000 patients. Provider reimbursement will be dependent on whether providers achieve quality health measures via delivery of standardized services within a set budget.
The ACO benchmark budget will be projected based on previous medical claims of a patient population within the ACO’s geographic region of the state. All ACOs will share with the payer any savings or losses (see below).
Now, suppose an ACO has an annual benchmark of $100 million. The ACO comes under budget at $90 million. If providers have met the quality health measure guidelines, the payer will award them the lesser of either 60% of the total amount under budget ($6 million) or 15% of the allotted budget ($15 million).
Let’s throw in an example of an ACO that ends up over budget after year one. If an ACO spends $110 million and fails to meet its targeted patient health outcomes, the ACO will be held fiscally accountable to a degree. It must pay the lesser penalty of either 60% of the amount over budget ($6 million) or 5% of the allotted budget ($5 million).
Much debate has ensued as to whether ACOs are producing desirable results. A recent Wall Street Journal editorial casts doubt, calling the law’s experiment a ‘bust.’ According to the article, of the 32 robust health systems chosen by the Department of Health and Human Services (DHHS) to participate in the Medicare Pioneer ACO demonstration project launched in 2011, one-third of participants opted out due to increased spending. Complaints also arose based on the long list of quality measures enforced by CMS:
In year one, spending increased at 14 sites and only 13 of the 32 qualified for a bonus. In year two, spending increased at six of the remaining 23 and 11 received a bonus. Spending did fall somewhat, driven by a few high performance successes… All in, per capita spending was a mere 0.45% lower compared to ordinary fee for service Medicare.
Savings may be perceived as lean, but others counter that an ACO’s success depends on how well each of its provider groups’ cultures can intertwine, its location, and the patient populations to which they hold themselves financially accountable.
More to come next week on integrated delivery systems.
Click here for the Health Care Update archive.
You can unsubscribe to this and all future e-mails from the John Locke Foundation by clicking the "Manage Subscriptions" button at the top of this newsletter.