Have ACOs Failed to Incentivize Providers?

September 23, 2014
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ACOsSince there has been an ongoing and rather enormous shift away from fee-for-service models, payers are tasked now more than ever being with finding a place for financial incentives to continue with ACOs now in place.

ACOsSince there has been an ongoing and rather enormous shift away from fee-for-service models, payers are tasked now more than ever being with finding a place for financial incentives to continue with ACOs now in place.

Payers know that medicine, like any business, is not immune to the pull of financial incentives. Providers, while they are noble in their careers as healers, are just as likely as a Wall Street banker to leap at the chance to accept a financial perk. Time is money in any industry, and perhaps medicine most of all.

What payers didn’t anticipate, however, was that providers would react to the ACO call to action by selling their practices to hospitals. Providers simply didn’t have the financial resources to pay the upfront cost – and, not wanting to be left behind, they did what they perceived to be the only sensible thing and joined hospitals – who could withstand the investment’s upfront costs. Of course, what this managed to do was undermine the theory of ACOs wherein providers and patients get to have some power- with the selling of practices to hospitals we now see that power being siphoned into the hospital administration rather than the practices. Oops.

The implications of this for payers is huge, since they were originally under the impression that they would be working with practices and providers, not hospitals. In some places, of course, this is the case. There are many physician groups nationwide who have come together and are adequately soldiering on toward accountable care. The attitude, however, is a bit troubling. Providers are accustomed to losing money on Medicare- the bulk of their income the result of private payers. That’s probably one reason that as much as 60% of ACO buy-in is coming from the hospital groups, not the physician practices, and why those practices continue to ‘sell-out’ to hospitals.

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Payers are probably rightfully so concerned about the potential for market domination by hospitals – not exactly what ACOs had in mind. However, there is a nationwide attention being paid to moving payment away from volume-based systems. We all know it isn’t working – that’s never been the question. What will work has more been the bone of contention amongst healthcare commentators. The truth may be that ACOs will work well- but we will only be made aware of their merit in retrospect. A few years to play with the idea and “let it simmer” may be all that’s needed.

A major concern, that of ‘fixed pricing’ in the industry, is one that many payers are being particularly vocal about. The concept that Medicare can control the pricing, and therefore, pay physicians the same amount regardless of their outcomes, seems not only disrespectful but downright dangerous. Fixed pricing could mean that a newly minted physician who has already got one malpractice case brewing could be making the same as one of our nation’s top physicians with a spotless record. Payers with their eyes on ACOs see them as a much needed diversion away from that line of thinking- an open door through which we can compensate based on outcomes and create a bit of competition within the industry – but with that, as with any major political and economic decision, isn’t without it’s flack.

We should take a moment to recall that the initial incentive of ACOs, when they were being designed at the Dartmouth Institute, was that they would be an alternative payment style to incentivize the reduction of Medicare spending – where providers and hospitals would be responsible for achieving this in their geographic region. Of course, this has since evolved to encompass more ideas, more expectations and, more disagreements. And, now we’re seeing an uptick in hospital-physician practice mergers, as we did in the early 90s when we were trying to create “integrated health systems” under the Clinton administration’s attempted healthcare reformation. This time, however, the union of practices and hospitals is obviously, and with well researched data, seen as being a driving force behind rising healthcare costs. ACOs are purporting such collaborations between hospitals and practices, but it will be a hard sell for those who have been in the industry long enough to know that, historically, this hasn’t worked well.

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Recent studies have shown that, perhaps, these incentives have not yet fully incentivized providers to change their ways. For instance, a recent study from the New England Journal of Medicine found that withholding payment for poor performance did little, if anything, to incentivize greater performance measures. In other words, withholding pay because of a high instance of hospital acquired infections didn’t reduce the prevalence of those infections. This means that insurers are going to have to rethink the concept of ‘incentives’ and find out what it is that providers want.