The Divide in the ACO Debate – Beltway Rhetoric versus Marketplace Cynicism

by Seth Kneller 12 min read

Amid the broader – and oftentimes highly opinionated and heated – ACO conversation occurring across Washington and the private sector, The Wall Street Journal published an interesting piece last week highlighting the specific views of three individuals:

Don Berwick is the former administrator for CMS who just stepped down last December. Don oversaw the creation of the ACO framework under the Medicare Shared Savings Program.
Tom Scully is currently a General Partner at the New York-based private equity firm Welsh, Carson, Anderson & Stowe. Tom formerly served as the CMS administrator from 2001 to 2004 and CEO of the Federation of American Hospitals.
Jeff Goldsmith is a president of Health Futures, a healthcare consulting firm out of Charlottesville, VA and an associate professor of public health sciences at the University of Virginia.

What becomes immediately apparent in the three-way dialogue (done via email) is the lens through which various participants view the industry’s efforts to improve healthcare’s fundamental problem of shifting from the traditional fee for service to a value-based approach. There aren’t any quick, silver bullet answers to the debate, but what is evident is the divide among those that represent Washington’s political rhetoric (Don) and those that must figure out ways to make the new framework work within a dynamic, private care delivery system (Tom and Jeff).

Several disagreements bubble to the surface related to:

The role providers will play

Berwick: “The ACO premise is different. Beneficiaries don’t join an ACO; providers of care do.”
Scully: “The biggest flaw with ACOs is that they are driving more power to hospitals—not to doctors. Very scary, and I am a hospital guy.” … “If the doctors had the capital to organize comprehensive ACOs to control their own fate and drive us to more efficient care, I would be bullish on ACOs. But doctors are again along for the ride, not driving the bus.”
Goldsmith: “In practice, however, the ACO is more like asking the hungry horse to guard the granary. The major savings for Medicare are to be found by keeping people out of the hospital, and reducing the incomes of the specialists who dominate hospital politics. To get those savings, hospitals and their specialists have to turn their backs on five decades of making more by doing more.”

Emphasis on the patient

Berwick: “…the formula for ACO success is clear: keep quality high, save money by improving—not by restricting—care, and remain attractive to beneficiaries, who could go anywhere for care.”
Scully: “The best models for ACOs are doctor groups like Monarch HealthCare in Los Angeles or JSA HealthCare in Tampa. Give doctors lots of patient data, pay them to see patients more often, follow their drug use and health status more closely to keep them out of hospitals—and give them control of the cash!”
Goldsmith: “The biggest problem with the ACO, however, isn’t the faulty business proposition, but the patient’s role.” … “In the ACO, providers are accountable to Medicare. Patients won’t get a dime of the savings, and no choice whether to participate or not.” “Despite all the rhetoric about ACOs being patient-centered, it is a paternalistic, “we’ll decide what you need” kind of model.”

Prospects for care improvements and financial success of ACOs

Berwick: “Knowing full well the results of the PGP demonstration, the CMS office of the actuary estimated base-case Medicare savings of over $400 million in the first three years of the ACO program.” … The “32 physician groups and health-care systems selected for the pioneer program, covering 860,000 Medicare beneficiaries, [are] projected to save $1.1 billion in health-care costs over the first five years.”
Scully: “In the system we have, ACOs are conceptually right, in that the concept inches toward differential pricing for quality, and Don should be congratulated. But we need to step back out of the trees, look at the forest and question the financing system we have created.”
Goldsmith: “Having each community, large or small, set up its own ACO is like setting up a backyard steel mill.” … “It is the incredibly heterogeneous 5% of the population that generates 47% of all costs that you need to focus on, and if you don’t have enough of them in your “attributed” population, you cannot concentrate the resources to change their care and lives.”

Startup costs of an ACO

Scully: “The start-up cost of a real ACO is probably $30 million and up in a midsize market.”
Berwick: “The actual barriers to entry appear a lot lower than the $30 million cost that Tom Scully mentions; CMS estimates are only a fraction of that.” “… the CMS Innovation Center has proposed a program of advance payment to provide front-end capital and extra operating funds for care coordination, information systems and the like.”
Goldsmith: “A more credible estimate of setup costs for a provider system with no prior managed-care experience to participate in the shared savings program: $10 million to $15 million per health system (consulting, IT systems conversions, new staff, etc.).”

Prospects for success

Berwick: “Smart entrants, focused on seamless care, outcomes and beneficiary satisfaction, will both reduce Medicare’s expenditures and reap financial rewards for themselves.” … “I hope and expect that ACOs will honor the trust they have been given by doing the job—lower cost through care improvements. If they violate that trust, the costs to them and to the future of seamless, coordinated care in America will be high indeed.”
Scully: “Don’s vision is great, and who can’t like what he has tried to do with ACOs… Except that the incentives are very small, the change will be slow, and we are just nibbling at real system reform.”
Goldsmith: “There were a lot of good ideas in the Affordable Care Act for saving money and improving quality. Unfortunately, the ACO wasn’t one of them.” … “By pushing this edgy idea from the policy world and ignoring the real-world evidence of its own trials, CMS picked the wrong horse.”

In a final from Jeff Goldsmith: “One of the most serious problems with the health-care world just now is the gap between the policy world and the real world. The ACO is Exhibit A in this yawning disconnect.” Jeff is right to point out that there’s a divide between the public and private domains, yet progress, however small, has arguably been made.

The real question is whether “the vision” put forth by Don Berwick will ultimately evolve into a pervasive performance-based delivery model in which quality, efficiency, and choice are the driving factors behind private sector reimbursement and profitability. To those outside of Washington, there certainly seems to be a long way to go – let us know what you think.

Seth Kneller

Seth Kneller is a Vice President at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.