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.
Villago Delenda Est
What, beyond the current fiscal quarter?
Well, this will just blow some MBA minds.
WereBear
The idea behind HMOs was originally was that it would cost less money to keep you healthy, rather than pay for the complications you would otherwise be dealing with.
Of course, the cheapest of all is not treat you and dump you when you got sick enough. MBA and medicine is the worst of both worlds.
RP
Have you seen this M. Kinsley article?
http://www.vanityfair.com/politics/2014/10/obamacare-health-care-reform.print
I’d like to get your take. I found it annoying because he presents this argument as if it’s some brilliant new insight, when in fact it’s just restating the most fundamental issue at the heart of the plan. Does he think that no one has thought about this issue over the many, many years in which it was being debated and fine tuned? And he doesn’t cite any studies or experts to support his argument. It’s just pointless blathering.
JoyfulA
Geissinger, which has a lock on rural and sparsely populated parts of Pennsylvania, has been trying to expand to the south, toward a denser, richer population. For a while, it had a “relationship” with Penn State-Hershey Medical Center, which for some reason unknown to me broke up a few years back. (Now Hershey, with its medical school, children’s hospital, etc., is merging with Pinnacle, the biggest group in the area. No insurance companies involved.) Geissinger recently announced a “not-merger” relationship with the Catholic hospital in this area, which suggests to me that Geissinger health insurance will be channeling its insureds there.
Six years ago or so, I was on a panel of self-insured individuals not insured by Geissinger. Geissinger wanted to find out why, and the answer was very simple: They didn’t have our MDs and other providers on their lists. That was very obvious to the panel, and I wonder whether they were accustomed to insureds in sparsely populated areas with fewer choices, or what.
Richard Mayhew
@RP: yeah, that is no fucking shit territory that Kinsley is writing about. His point about insurance being for unknown events only works if we model insurance for paying for catastrophic car accidents and the first round of treatment for a condition that will become a pre-exisiting condition. After that fuck you and die quietly if you’re poor is his logical conclusion.
RP
Part of what bothers me is that he suggests that single payer is a better approach, but only at the end in a couple sentences. Why not make that the focus of the article? Is he afraid of being called a hippie?
Frankensteinbeck
Your posts are too technical for most of us to have any useful comments, Mayhew, but thank you for providing them. I know I learn a lot.
Richard Mayhew
@Frankensteinbeck: Appreciated, and I know I’m writing deep in the weeds on a highly technical subject does not lead to a lot of commenting.
dr. bloor
@Richard Mayhew:
I don’t think he’s drawing that conclusion at all. He seems closer to dancing around the third rail of health care, which is hard rationing (FWIW, I don’t think he realizes that). We can all agree that having an MRI done on an advanced cancer patient a week before he’s the guest of honor at a funeral is a waste of money, and sure, maybe we want to make sure everyone gets more than one round of chemo, but where to stop? How many rounds does an 80 year old with Stage IV melanoma get? How about a 60 year old with the same staging?
BTW, the ACO scheme ducks these difficult questions and implicitly dumps the decision-making process into the laps of the providers. Having seen what happened during the capitated coverage heydays of the 80’s and 90’s, I can assure you that many patients are not going to be pleased with the results.
WereBear
@dr. bloor: Well, you’ve got families who are determined to get the elderly relative “everything possible” for their own reasons (granny in a coma is still not dead-granny) and what if that does jeopardize a six year old’s leukemia medicine, which is highly likely to actually work?
This was the bullet that end of life counseling was supposed to help catch, until the Republicans did their usual tantrum. We still haven’t had that national conversation, have we?
Uncle Cosmo
As a former applied mathematician, this–
–brings me up a bit short.
11 + 3 + 3 = 17. What happened to the other 6 ACOs–over 1/4 of this group?
I clicked over to the WaPo article. No sign the author even realized there was a disconnect, let alone explained it. Is it too much to ask people who write for a living to at least do elementary arithmetic?
dr. bloor
@WereBear:
Yup. And even the end-of-life counseling component was doomed to failure. Many patients don’t have the stomach for that, and, quite frankly, neither do most doctors. As a class, they don’t do the “dying” thing very well.
You can talk about greehead doctors and the price of Prozac and uncoordinated care all you want, and those things are certainly worth talking about, but healthcare costs are being driven by two unavoidable fundamentals: (1) We are an aging society, and (2) we have become very, very good at keeping people alive if not always healthy.
Richard Mayhew
@Uncle Cosmo: As I mentioned in my post, the other 6 were no bonus/no payback, so no real change in expected versus actual costs. They’re a null event
catclub
I thought you might mention the big Boeing ACO being started in Seattle. I saw that in some business reporting.
Richard Mayhew
@catclub: I did not know about Boeing going the ACO route without an insurer — I need to read more.
First thoughts — Boeing is a big enough and concentrated enough risk pool to try this. I think it will most likely work reasonably well, assuming the ACOs have decent backends as Boeing at this point is effectively 100% self-insured and just used an insurer as an ASO (administrative services only) vendor to take care of ID cards, claims payment and medical management etc. So they bring in some of the functionality of the insurer to their own HR department, some gets sent to the ACO.
Smaller companies or very dispersed companies might not be able to do this. Large universities would be a natural next step as they could drop 10,000 covered lives within a few counties onto an ACO and cut-out the middleman.
Violet
@WereBear: Wasn’t there something just recently about how doctors or insurance companies or something are now starting to do end of life counseling? How it was “death panels” but they’re just ignoring that phrase and doing it anyway and even Republicans think it’s a good idea?
From Richard’s post:
I can see this happening for sure, especially in less populated area. At some point there may even be one choice only and then competition and price pressure will be out the window.
cmorenc
One of the key infrastructure elements of the move to the ACO model is the rapid changeover to electronic medical records, which is also proving to be a frustratingly exhausting learning curve for physicians (especially those who trained and entered practice under the old paper-records system). It’s a necessary change, but in my wife’s OB-GYN practice, it’s added an extra hour+ to her office days, and often she brings some of the electronic record overhead work home with her in the evening. Before electronic records, the only “work” she did at home was over the phone with patients when she was on-call, or phone consulting with another member of her group (e.g. when handing off call to them).
Violet
@cmorenc: I think I posted about this in a previous thread, but having gone to quite a few doctors appointments with my parents over the last few months, I’ve been shocked at how many time the EMR are “down”. Computers down or EMR down. It completely shuts down the practice and an appointment for my mom fell through the cracks. Only because I remembered and followed up did we get the appointment.
And that doesn’t take into account what happens when we’re in the exam room and the computer is down. The doctor has no records they can access. They’re dependent upon us to bring our files (paper!) and tell them what medications are being taken, history of appointments, etc.
Ruckus
@cmorenc: @Violet:
My Dr prior to the VA used EMR and it worked great except for one thing. She was far busier with her computer than with anything to do with me. I got 3-5 minutes of her time and then she was off to someone else. Of the 3-5 minutes about 30 seconds was looking, probing talking. That cost $85, no insurance, I paid cash. I stopped going to her when they upped the price to $105.
The VA on the other hand, everything is on the computer and from what I’ve seen every one has a UPS attached. I’ve never seen the system even hiccup once. Everything connected to a patient is on there, xrays, medication, every visit, vitals, your whole history. And my record is available at every VA facility. Pretty good stuff actually.