One of the big system reforms embedded within PPACA is a move towards payments for quality instead of quantity. The Medicare payment structure is changing at the pilot project level. The formation of Accountable Care Organizations (ACOs) are designed to shift some of the risk of high cost care away from the government and other payers and towards the providers. The ACOs are structured so that providers are responsible for population health management and if their patients cost less, they keep a good chunk of the incremental savings over expected expenditures. If they cost significantly more than just random noise or case mix would suggest, the providers are on the hook for the overruns.
Medicare’s ACOs are starting out small, but they seem to be working.
The Washington Post is reporting that the Pioneer ACO program (Pioneer is the more ambitious program) is seeing good results:
The second, smaller group of 23 ACOs are in the Pioneer ACO Model. They have more experience, and the financial incentives are larger. Out of this group, 11 earned bonuses, Medicare announced. Three other ACOs in this Pioneer ACO Model lost money, and three more took advantage of a Medicare option that allows them to delay evaluation until after they have three years of experience.
Roughly half of the ACOs are saving significant money, a quarter are either losing money or seeking safe harbor, and a quarter are bouncing along within the margin of error.
This is a major win, especially since research has shown that the business process changes that produce big cost savings for ACO like organizations take some time. The Pioneer ACOs have been in operation for two years. Business process changes usually take eighteen to twenty four months to propogate through the organization. My bet is that next year’s results from this cohort of Pioneer ACOs will be even better.
As the ACO model spreads throughout healthcare, structural changes will need to be made.
ACOs require providers to take on population health management, to coordinate incentives and to share data effectively between multiple entities. This is tough to do in a fragmented provider space. Integration is the trend forward, and there is an interesting story in California about virtual integration of the provider-payer space.
The Orange County Register reports on the formation of a virtual entity that will be a quasi-analogue to Kaiser and its home cooking methods:
insurance giant Anthem Blue Cross is partnering with seven major hospital systems in Orange and Los Angeles counties to create a new health plan in which they all will profit by keeping people healthy and out of the hospital.
To do this, the eight partners have launched a new company, Anthem Blue Cross Vivity, that will sell an HMO-like health plan to employers with more than 50 workers, starting next month. They are all providing seed money and will share equally in the company’s profits or losses. …
Running a big ACO requires being able to effectively model behavior. It requires being able to see current services across multiple entities, it requires identifying gaps of care that could be easily filled to avoid a $100,000 kick save three months from now. Those are all things a big insurer should be able to do in their sleep. Claims data gives the underwriters and actuaries a very good idea of the current and near future population health. Utilization review allows medical management to look at where people aren’t getting the care they should have to avoid bigger problems down the road.
At the same time, providers need to know that their patients can get appropriate follow-up care at high quality facilities. They need to have access to appropriate resources and they need to send patients to centers of excellence when wierd things happen.
This type of integration is becoming more common in the US healthcare industry. Kaiser is the classic example, but there are others such as Geissenger in Pennsylvania where the insurance company is also the hospital. There are several consulting firms that are teaching hospitals how to become insurance companies so that they can build the back-end to manage population risk. Vivity is a bit unusual in the allure of the major players, but this is a common theme.
There is one other interesting thing in the article and that is the increased specialization of hospital services that Vivity wants to create:
the group hopes to identify centers of excellence within the network, so that patients might be referred to Cedars for one procedure and to UCLA or Long Beach Memorial or Good Samaritan for other conditions.
I think this makes a lot of sense for intermediate and high end services. We know that hospitals and doctors that perform a lot of one class of procedure tend to have much better results than hospitals and doctors that only sporadically perform a procedure within a certain class. This is basic division of labor and learning by doing. High quality care means fewer mistakes, less time in rehabilitation and better health for the patient. Specialization between hospitals might not be viable in South Dakota, but it is certainly viable in Los Angeles especially when several world class medical centers are in the program together.
ACO success and system integration will go hand in hand. This will lead to a public policy challenge in the future on two fronts. First, newly formed integrated payer-providers such as Vivity will lead to further consolidation of the provider universe. The market power model that I use suggests this will lead to higher provider pricing. Secondly, integrated payer-providers can lead to system siloing where there is for instance a Kaiser universe of providers and hospitals and patients, a Vivity universe of providers and hospitals and patients, and then everyone else where Vivty and Kaiser don’t talk. I don’t think Vivity, under their most optimistic projections, will be big enough for this to be a problem in Los Angeles for a decade, but other regions could see signifcant siloing where an individual is either in Silo A or Silo B, and switching betwee those universes is difficult. If switching is difficult, then the competition on the Exchanges weaken as the lock-in effects beat price.
But overall, this is a good news day for systemic reformation of the American healthcare delivery model.