More detail on ACOs or Accountable Care Organizations and Global Payment Systems
We saw a lot this week in the press about Anthem and Aetna’s initiatives in this region around ACOs. I’m posting some detailed information below about ACOs, what they mean and how they are likely to change the way that healthcare is financed. It is important that brokers and consultants know and understand these changes. The first post is from this month’s New England Journal of Medicine. Both posts describe the incredible challenges facing this approach and conclude that rapid change and cost reduction isn’t likely. Jeff
Keeping Score under a Global Payment System
N Engl J Med 2012; 366:393-395February 2, 2012
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It is widely acknowledged that continued growth in health care spending is threatening the viability of the U.S. health care system. Although there are no clear comprehensive solutions to this problem, most observers see payment reform as the next best hope for reining in out-of-control costs. Our current fee-for-service payment system provides incentives to physicians to increase the delivery of services, which results in excessive utilization. Moreover, neither individual physicians nor the patients receiving the services bear the brunt of these utilization decisions. Rather, they're reflected in ever-rising health insurance premiums or tax-financed government expenditures shared by all. Many observers are therefore calling for fundamental redesign of the ways in which physicians and hospitals are compensated for the care they provide. Most options call for bundling payments to physicians; specific approaches range from prospective payments for discrete episodes of care (e.g., coronary-artery bypass surgery) to global payment or risk-based models of care.
Global prospective payments became prevalent during the heyday of managed care in the 1990s. Such so-called capitation payments were common in many markets, whereas in others physician organizations were actively preparing themselves for a coming tide of capitation that never materialized. In a fast-growing economy, both patients and physicians bridled at the restrictions of choice and access associated with such payment arrangements, and capitation quickly fell out of favor. In addition, the information systems and infrastructure necessary to successfully manage risk under global payments were underdeveloped during that period. After a lull of more than a decade, however, global payment is again seen as the potential savior of the health care system.
Among the most important anticipated experiments in global payments are accountable care organizations (ACOs), which were included as part of the Affordable Care Act and are also being developed under the auspices of the Center for Medicare and Medicaid Innovation. ACOs represent a hybrid of our fee-for-service system and true capitation. The ACO regulations, proposed by the Obama administration last March and finalized in October, call for two models of shared savings. In the first model, health care organizations would be eligible to share in savings but would bear no risk for losses for the first 2 years. Under this program, ACOs would be eligible for approximately 50% of the savings accrued by the Medicare program after they surpassed a fixed savings threshold. In the second model, there is both upside and downside risk sharing for participating health care organizations from the start. Because these organizations are taking on risk for losses, they would also be eligible for a larger percentage of shared savings. This latter version of ACOs most closely approximates true capitation. These proposed ACOs are similar to arrangements already present in the commercial sector, such as the Alternative Quality Contract rolled out by Blue Cross Blue Shield of Massachusetts in 2009.1,2
Conceptually, global payment represents an important opportunity for changing the perverse incentives inherent in our current fee-for-service system. To be successful, however, ACOs must pass these incentives along to their member physicians, who continue to be responsible for most utilization decisions. Although organizations can implement various managerial strategies to influence physicians' decision making (e.g., radiology decision support and prior authorization), ACOs are unlikely to reduce the rate of increase in health care spending without some essential changes in the behavior of member physicians — and therein lies the rub. The fundamental questions become how ACOs will choose to divide their global budgets and how their physicians and other service providers will be reimbursed. Thus, this system for determining who has earned what portion of payments — keeping score — is likely to be crucially important to the success of these new models of care.
Under ACOs and many commercial global payment products, providers will continue to receive traditional fee-for-service payments, and hospitals will receive their usual contracted payments, through either the diagnosis-related-group (DRG) system or per diem payments. All spending for each patient that is attributed to the ACO will then be tracked and compared with the calculated budget retrospectively at the end of the performance year in order to calculate savings or losses. Thus, standard fee-for-service payments remain the de facto method for keeping score, which works against the very design of the program. The inequities of the fee-for-service system, which reward proceduralists and specialists at the expense of cognitive specialties and primary care, remain embedded in the payment system. Although organizations can receive surplus payments, additional revenue from any surpluses will not flow into organizations until at least 18 months after the program begins.
As global payment systems are currently designed, primary care physicians stand to be among the big winners. However, to earn rewards, they will also have to shoulder the largest burden of the work needed to succeed under risk-sharing arrangements.3 In a well-functioning health care system, primary care physicians are the point of access, are responsible for care coordination and management, have perspective on the whole patient, and have the ability to manage the care of a patient population. Moreover, most quality incentives being incorporated into the payment systems for ACOs and other new global payment contracts also fall under the purview of primary care. To accomplish the care-management and quality goals, however, primary care physicians will need substantially more resources — for hiring care managers and other personnel to pursue population health management, for coordinating and managing care, and for implementing processes to ensure adherence with quality measures.
Although many ACOs will direct future surpluses to primary care, infrastructure payments to facilitate the development of the care-management functions noted above have not been built into the design of the ACO program or many new versions of capitation. Since most of these organizations will continue to rely on fee-for-service payments for the purpose of keeping score, making funds available to invest in this infrastructure would require a transfer of funds from specialists or hospitals to primary care, and it may be difficult for organizations to unilaterally alter the flow of funds to accomplish these aims. Moreover, although organizations may face strong incentives to control costs, specialist physicians who continue to be paid through the fee-for-service system and hospitals, which continue to receive DRG-based payments, face no such inherent incentives — and in fact will continue to benefit from practicing in much the same way as they do now.
Over time, if global payments become the norm, there is likely to be a resurgence of subcapitation and budgets for particular specialties, and systems will be designed to provide similar incentives to specialists while also enhancing funding for primary care. In addition, ACOs and their aligned hospitals must share incentives to control hospital costs. This transition, however, is likely to be painful and prolonged under the current design of the programs. Certainly, adjustments to the fee schedule that limit specialist pay and divert funds to primary care will be helpful, but even more helpful would be up-front payments that organizations can use to invest in their care-management and primary care infrastructure to facilitate this transition without taking funds from specialists or hospitals, at least until they achieve surpluses that ensure the continuation of this funding stream. Tightly managed multispecialty or primary care groups without strong alignment with a hospital may be well positioned to manage this transition.
The health care system is placing tremendous hope in changing incentives to control the ever-increasing costs of care. Hybrid approaches such as ACOs that incorporate global incentives but continue to keep score using fee-for-service payments will face serious challenges as they attempt to place increasing burdens on the already-stressed primary care system without providing additional resources for achieving the aims of global payments — slowed growth in costs and higher-quality care.
Disclosure forms provided by the author are available with the full text of this article at NEJM.org.
Source Information
From the Department of Health Care Policy, Harvard Medical School; and the Division of General Medicine and Primary Care, Beth Israel Deaconess Medical Center — both in Boston.
And this is from a blog called “On Running a Hospital” by Paul Levy:
Thursday, February 02, 2012
Landon lands on the major issues about capitation
Bruce Landon offers an excellent summary in today's New England Journal of Medicine about the necessary conditions for a capitated, or global, payment regime to be successful. He notes:
The fundamental questions become how ACOs will choose to divide their global budgets and how their physicians and other service providers will be reimbursed. Thus, this system for determining who has earned what portion of payments — keeping score — is likely to be crucially important to the success of these new models of care.
Under ACOs and many commercial global payment products, providers will continue to receive traditional fee-for-service payments, and hospitals will receive their usual contracted payments, through either the diagnosis-related-group (DRG) system or per diem payments. All spending for each patient that is attributed to the ACO will then be tracked and compared with the calculated budget retrospectively at the end of the performance year in order to calculate savings or losses. Thus, standard fee-for-service payments remain the de facto method for keeping score, which works against the very design of the program. The inequities of the fee-for-service system, which reward proceduralists and specialists at the expense of cognitive specialties and primary care, remain embedded in the payment system. Although organizations can receive surplus payments, additional revenue from any surpluses will not flow into organizations until at least 18 months after the program begins.
My regular readers may recall that I raised a similar point last year, when I noted:
Now, though, let me let you in on a little secret with regard to capitated care. Underneath the global budget, there is still a fee-for-service arrangement establishing the transfer prices among the providers in a network. That GI specialist will still get paid for each colonoscopy. The big thing to work out in this system is the allocation of any surplus or deficit in the annual budget among the various specialists.Unless that allocation is skewed heavily towards primary care doctors, decisions about the level of care given will not change. But, if the allocation is skewed too heavily towards the PCPs, there is no real income signal for the specialists, leading to a danger that they will not feel invested in the end result. Unless the system is accompanied by intensive, real-time reporting, along with clear penalties for excessive care, it will not work.
Bruce appears to concur, further explaining some necessary conditions for success:
As global payment systems are currently designed, primary care physicians stand to be among the big winners. However, to earn rewards, they will also have to shoulder the largest burden of the work needed to succeed under risk-sharing arrangements. . . . To accomplish the care-management and quality goals, however, primary care physicians will need substantially more resources — for hiring care managers and other personnel to pursue population health management, for coordinating and managing care, and for implementing processes to ensure adherence with quality measures.
He concludes:
The health care system is placing tremendous hope in changing incentives to control the ever-increasing costs of care. Hybrid approaches such as ACOs that incorporate global incentives but continue to keep score using fee-for-service payments will face serious challenges as they attempt to place increasing burdens on the already-stressed primary care system without providing additional resources for achieving the aims of global payments — slowed growth in costs and higher-quality care.
