ACOs

CONTENTS BELOW:

A. Accountable Care Organizations
B. Antitrust, Investment and Power
C. Bonus to ACO for Cutting Costs
D. Changes in the Bonus  (with comparison of rewards before and after 2015)
E. Medicare Worries that ACOs Will Hurt Health
F. Cancer Doctors Worry ACOs Will Hurt Health

RELATED ARTICLES:
Informing Patients about ACOs            (FOIA for more detail)
Special ACOs and Insurance Issues
Technical Bonus Calculation and Risk Adjustment
Press Announcements: 

• 2014 July 15 - Medicare Plans to Penalize Hospital Use or here
• 2014 February 12 - Medicare Pays Doctors To Cut Treatment or here

A. Accountable Care Organizations 

ACOs are groups of health providers who get waivers of rules on competition and kickbacks. They also may get paid more if they reduce spending on their Medicare patients, and sometimes patients of other insurers.

Patients do not sign up. Medicare tracks 9 million patients who get most of their primary care from an ACO. Medicare shelters ACOs from antitrust rules. When an insurer saves money on ACO patients, the ACO can keep half the savings, but when the insurer pays more for ACO patients, the ACO often keeps all the extra income.  There were 32 million patients overall in ACOs, Medicare plus private, on 3/31/2017, 10% of the US population. A recent JAMA article maintains the myth that ACOs' goal is cutting costs, rather than reducing competition, and reducing care for expensive patients.

Medicare provides a current list of ACOs updated through 2017.

• When you reach the list, you can get it as a spreadsheet by clicking the pale blue "Export" button in the upper right corner. I did this and added other information: aco2017.xls
• Before Medicare provided that list, I had an earlier list of ACOs (or spreadsheet), updated to 2015, based on Medicare press releases here. It includes some quality measures from here, but is not as up to date as Medicare's list.

• Medicare describes ACOs here, describes related efforts here, and reports some quality measures here.

Health providers who join an ACO have incentives to refer to affiliated specialists so payments are kept within the group. Quality measures slightly discourage hospital admissions (pp.13-15) and readmissions (p.11), but if the doctors' practice is owned by a hospital, extra income for the hospital more than makes up for any quality measures. They face no loss from patients' deaths or from diseases getting worse.

Patients are poorly informed about which doctors are in an ACO, and about their doctors' incentives. Medicare took three years to  answer my request for some of this information under the Freedom of Information Act.

• A doctor in California, Dr. Weinmann, has written several times about hospitals' and ACOs' power over doctors, "if Physician A has ordered diagnostic testing and treatment averaging $25,000 per patient  while Physician B has made the hospital or foundation pay $50,000 per patient, the physician who made his plan pay twice as much for patient care is less likely to be offered a renewal contract."
• A retired urologist in Minnesota, Dr Geist, has written that ACO doctors are “double agents playing the dual role of caregiver and insurance underwriter"
• ACOs can monitor their referrals to outside specialists and choose specialists based on costs, outcomes and patient satisfaction. Patients can go elsewhere but most follow the referral, thinking that quality is the main or only criterion.

According to Medicare, patients who don't want a doctor with ACO incentives and pressures can "seek care from another provider." If they want to keep their doctor, they can avoid cuts by dropping Medicare part B doctor coverage and using other insurance, or they can accept that the doctor has incentives to recommend less expensive treatments and hospice. They can get second opinions from doctors who have not joined an ACO, who will have less incentive for cost cutting.

Harvard's Dr Herzlinger says, 

• "20 percent of patients generate 80 percent of the costs... if I were a [heart failure patient], I would see a heart failure specialist. If I were an advanced type II diabetic, I would go to the Joslin Diabetes Center, not a primary care provider."
• Patients need "provider organizations that deliver highly specialized care for a certain group of patients, such as those who have diabetes, cancer, or congestive heart failure. You need specialists for that. They are the opposite of organizations, such as ACOs, that do everything for everyone."

Dr. Prince, CEO of Beacon ACO in New York, presciently said before Beacon became an ACO, "If they’re going to put the risk back on to the ACO and onto the physician, it’s going to be more difficult and we could start self-selecting which patients we want to include in our ACO." High cost patients can get more care outside an ACO.

61% of doctors plan to stay out of ACOs. 24% were members in January 2014, with another 10% planning to join in 2014. 91% of kidney dialysis patients are not in ACOs, so Medicare is setting up other doctor groups (End Stage Renal Disease Seamless Care Organizations - ESCO) just to cut costs for dialysis patients. "Members must place their fiduciary duty to the ESCO before the interests of any ESCO participant."

Medicare patients who use an ACO doctor cannot opt out as long as they have Medicare Part B, though they can opt out of letting that doctor see their Medicare claims from other doctors. (42 CFR 425.708). ACOs can maximize their inexpensive patients by reminding them to come in for checkups. 

• "it is important to keep our healthiest (least expensive) patients active and engaged. Reaching out to these patients allows a practice to generate revenue and offer preventive or wellness opportunities to patients. In addition to the benefits to the practice, there are organizational benefits as well. Maintaining the attribution of these lower cost patients to our population pool acts to depress our overall spend while we deliver high quality care."

B. Antitrust, Investment and Power

ACOs are largely sheltered from restrictions on antitrust, kickbacks, and referrals to financially related providers 

• Medicare and Justice have given ACOs waivers.
• The reason many hospitals are at the center of ACOs may be these waivers of referral and antitrust rules, resulting in higher, not lower costs. 
• The government says, "The multiplicity of waivers is intended to afford flexibility to ACOs in varying circumstances." 
• If they were not sheltered, violations could cost hundreds of millions in lost income and penalties (Drakeford v. Tuomey), so the ACO shelter is supremely valuable.
• The government is also trying to loosen privacy on substance abuse, to ease the efforts of ACOs to share information on patients.

An April 2011 editorial in the New England Journal of Medicine (NEJM) said most medical groups spend money to set up an ACO, and cannot profit from it, unless they cut costs 20% or more. The large number of ACOs, all signing up after the editorial was published, shows managers want the kickbacks, referrals and antitrust waivers described above, or expect to cut spending on your care at least 20%, neither of which is desirable.

A July 2015 study in Annals of Family Medicine found that primary care doctors received very little pay for quality, whether they were in ACOs or not:

• A quarter got all their compensation based on the services they billed ("productivity").
• A quarter got all their compensation from straight salary (no word how it was set)
• The rest had a mix. ACO doctors' compensation averaged 49% from salary, 46% based on billable services, 3% based on "quality", and 1.5% other, almost the same as non-ACO doctors.
• The study had a 50% response, and excluded solo practices. 

​
There is a revolving door between ACOs and the federal Department of Health and Human Services. 

• The so-called "most influential" physician executive in the country moved from senior manager at Geisinger (part of Keystone ACO), to director of Medicare's Innovation Center, to CEO of CHE Trinity Health, which is part of 5 ACOs and is forming 11 more, and is carefully navigating anti-trust rules in Michigan.
• Another executive moved from manager of a NY program using commercial electronic health records, to federal coordinator of health records, to a company setting up and managing ACOs. He took a key executive with him from the federal government. (Under his leadership as federal coordinator, electronic records expanded rapidly in hospitals and doctors' offices, without adequate security.)

​HOSPITAL POWER AND COST

A January 2012 discussion reported in the Wall Street Journal included a former Medicare administrator, Scully, saying ACOs would not work and would be dominated by locally powerful hospitals forming ACOs. "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. The goal of ACOs was to organize doctors to focus more on patients and keep the patients out of hospitals. Instead, doctors are selling practices to hospitals in droves."  A Virginia professor, Goldsmith, said ACOs had been tried 2005-2010 and failed, the same pattern noted by NEJM.

The professor, Goldsmith, also has written, "Hospitals and systems that became powerful in the marketplace through mergers and acquisitions aggressively shifted costs onto private insurers." Austin Frakt, a VA health economist and Boston professor writes, "If ACO formation proceeds with few checks... lower public-sector costs but higher private-sector premiums" are likely.

​In fact integrated health care delivery networks (IDNs) raise both public and private costs. A 2015 study found "there is growing evidence that hospital-physician integration has raised physician costs, hospital prices and per capita medical care spending... Diversification into more businesses is associated with negative operating performance. This is consistent with the management literature, which shows that diversification increases a firm’s size and complexity, in turn increasing its cost of coordination, information processing, and governance/monitoring."

​A 2017 report says, "Not only did sixty drug companies combine into ten, but hospitals, outpatient facilities, physician practices, labs, and other health care providers began merging vertically and horizontally into giant, integrated, corporate health care platforms that increasingly dominated the supply side of medicine in most of the country... Even nominally independent surgeons, for example, can’t stay in business if the only hospital in town won’t grant them admitting privileges, or if it grants “affiliated” surgical teams better terms... A full 40 percent of all hospital stays now occur in health care markets where a single entity controls all hospitals... not a single highly competitive hospital market remains in any region of the United States."

Hospitals are rapidly buying doctor practices, so the doctors become employees and refer patients to the hospitals, not necessarily saving money, but strengthening the hospital. 

• A November 2012 article in the New York Times, supported by hundreds of comments from doctors and nurses, reported on hospitals buying doctor groups, raising prices, pressuring doctors to maximize billings, then paying doctors bonuses if they discharge quickly, after the hospital earns its flat payment for the diagnosis.
• Only 53% of employed doctors think patient care is better from employed doctors than self-employed doctors. 
• Over half get pay based on their productivity or profits, rather than straight salary, and 39% of these are dissatisfied with their productivity targets. 
• 45% are expected to see 16 or more patients per day. 
• 49% are satisfied with their autonomy at work (Medscape report pp. 13, 16, 17, 20, 23). 
• 90% of hospitals hired temporary doctors in 2013, up from 74% in 2012, to fill in for doctors who quit or went on vacation.

Some doctors leave hospitals when the employment contract becomes unsatisfactory.

C. Bonus to ACO for Cutting Costs

Medicare has lost money on ACOs every year. In each year some ACOs raise Medicare's costs, others get small bonuses. The most expensive ACOs look as if they save the most money, but their costs are still higher than less expensive ACOs, which do not get bonuses. A 2018 report analyzes costs, risk adjustment and alternatives.

An ACO gets a bonus payment of up to 50% of the cost savings from Medicare Parts A and B for its patients. By 2015, half the ACOs have raised Medicare's costs, an average of 3%. The other half of ACOs have cut costs, an average of 4%. Among all 392 ACOs, 30% cut costs enough to earn a bonus. The bonus received by these ACOs averages 3% of their costs. During 2014 there were 353 ACOs, and a quarter, 97, saved enough money to get bonuses, though not necessarily enough to pay back the set-up costs. During 2012, the initial year, there were 114 ACOs,  and a quarter, 29, saved enough money to get bonuses.

A rational ACO with professional management knows these 30% odds of getting a 3% bonus, which seems so small that it is unlikely to be the reason for forming an ACO. The other main benefit of an ACO is obtaining federal waivers.

Three ACOs have signed up for a version of the program where they can get up to 60% of the savings, but they share losses. One cut costs 17% (third biggest cut in the country), giving them a 12% share. One cut costs one percent, and the other raised costs half a percent, not enough to share. They have an incentive to avoid expensive treatments, which give them losses.

Theoretically bonuses can be large, so some ACOs may cut aggressively, like the one which cut costs 18%. Five small ACOs (average 7,000 patients) in Florida and Texas cut costs over 15%, averaging $1,000 per patient.. A cancer practice saved $1,000,000 per year per doctor, without even signing up for an ACO.

Detailed steps and definitions for calculating cost savings and risk adjustment issues are in another section.

Each year some doctors and patients in any ACO will chance to have above-average costs, reducing the bonus for everyone else. How will the ACO and peer pressure penalize these doctors and their sicker patients? The articulate Dr. Prince, CEO of Beacon ACO, says about their doctors, 

• "We’ll have data and see who the outliers are, and there are teeth in the agreement," he says... "If we do go down the road of the ACO, everyone needs to be rowing in the same direction. It won’t make sense to be a high utilizer and gaming the system."

The AMA has an article about the difficulties in distributing bonuses. Another AMA study found little connection between ACOs and expenses: 62% of ACO doctors' costs were on non-ACO patients. 68% of specialist visits by ACO patients were to non-ACO doctors. 33% of ACO patients were assigned to 2 different ACOs in 2 successive years. An AMA study as long ago as 2009 said, "the results from this study call into question the wisdom of pay-for-performance programs and quality reporting initiatives that focus on differentiating the value of care delivered to the Medicare population by primary care physicians."

Doctors are seeking ways to avoid these programs. A third are in ACOs. 61% plan to stay out of ACOs. 6% refuse insurance and 3% charge concierge subscriptions starting at $600 per adult per year and $120 per child, or more typically $1,500 per adult. 10% of Texas doctors do not take insurance, and instead charge for each visit, starting at $50 per visit.

D. Changes in the Bonus

The bonus percentage, up to 50% or 60%, depends on quality scores. ACOs get a few percent for each quality standard they meet (if 2-sided, you would increase each percent below by a fifth, so they total 60%). 

• Tonya Saffer of the National Kidney Foundation says, "Quality measurement is not exactly where it needs to be yet. We need true outcomes measures that are associated with morbidity, mortality, and patient quality of life."
• Medicare proposed and made changes. Comments were due Sept. 2, 2014.
• 2 columns show how the bonus is calculated before and after the changes were adopted. Click on the table to obtain links to the definitions.
  

Within each measure, the ACO gets only partial points if it is below the 90th percentile (p.67899, see graph below), so most will not get the full 50% (60%) of cost savings. Many of the screening standards are so easy that ACOs and other doctors will be clustered closely. The circulatory and hospital admission standards are the main "quality" measures where ACOs may distinguish themselves.

Penalties for readmissions after a nursing home stay will reduce the number of good nursing homes willing to accept risky patients, as well as deterring needed hospital treatment. More discussion and evidence are in the Nursing Home section.

Patient surveys have pros and cons. The surveys are here.

Electronic health records are problematic, since they have enabled vast breaches of medical privacy for 30,000,000 patients. Great systems are rare, though ideally they would show key information clearly in the way that each clinician needs it. Bad systems are not read by clinicians, are full of errors, generate erroneous prescriptions, and interrupt doctors when listening to patients.

Checking medications at an office visit is problematic, since hospital stays are the main cause of prescription changes, and the office visit is too late. Medicare says (p.19), "28% of chronic medications were canceled" during hospital stays, so immediate coordination is important and needs to be required. Office checks are also incomplete, since the patient rarely knows what medicines are given at the dentist, dermatologist, dialysis center, chemotherapy session, and other specialist locations.

E. Medicare Worries that ACOs Will Hurt Health

Medicare has a ceiling to protect patients from doctors' excessive cost-cutting incentives. (pp.67935-6). They worry if the ceiling is adequate.

• The reward is limited to 10% of the baseline total Medicare spending on their patients (15%, if 2-sided). So an ACO gets the lesser of 10% of total Medicare spending or 50% of savings.
• Medicare originally proposed the reward ceiling at 7.5%, not 10%, to avoid "an overly large incentive such that an ACO may be encouraged to generate savings resulting from inappropriate limitations on necessary care" (p.67935). 

• The industry cited the NEJM editorial mentioned above, and said it needed a bigger ceiling than 7.5% in order to invest in setting up ACOs (pp.67935-6). Which means the industry expects to hit the ceiling. Medicare gave them the higher ceiling.
  1. ACOs which earn savings at the maximum 50% rate will hit the ceiling when they cut 20% of Medicare spending on their patients (50% of 20% is 10%)
  2. ACOs with median quality scores earn 35% of savings and will hit the ceiling when they cut 29% of Medicare spending (35% of 29% is 10%)
  3. ACOs willing to risk the lowest quality scores (30th-40th percentiles) earn 27% of savings and will hit the ceiling when they cut 36% of Medicare spending (27% of 36% is 10%)

• As noted above, industry comments to Medicare show they want to reach the ceiling, so they hope to cut costs the full 20%-36% allowed by the ceiling (30%-55%, if 2-sided).

• Medicare says, "Many health care researchers believe that the rate of unnecessary health care is more than... 10 percent" (p.67935). They did not say how many researchers believe the rate of unnecessary health care is 20% to 55%. Patients who think 20-55% of their own health care should be omitted can go to ACOs, knowing these doctors have incentives to reduce spending that much.

The first graph below shows what fraction of the theoretical bonus an ACO gets, depending on its quality ranking (p.67899). The second graph shows threshold savings ACOs must reach to earn any bonus (p.67928-9). Large ACOs need to save 2% to earn any bonus, while small ACOs need to save at least 3.9%, to avoid payments for random variation. (ACOs which risk losses need 2% savings regardless of size.)

A doctor with a $21 million grant from Medicare to achieve "lower costs with better outcomes" says "Significant improvements in cost and quality may not be felt until fee-for-service falls below 50% of provider reimbursement," which means a ceiling on bonuses not 10%, but over 33%, leaving 33% for Medicare and 33% in direct costs, which is far too little to pay for needed care.

From a doctor's point of view, doctors are subject to "whatever cost-savings techniques the ACOs use, e.g., not accepting doctors who have too many elderly patients  or patients with expensive chronic diseases. The days of searching out rare and unusual diseases to care for are over: these unfortunates will be obliged to find  whatever comfort is available under the nearest bus. If the ACO is well managed from a fiscal perspective, providing participants will share in  the savings  as a second source of income. Quietly, with as little fanfare as possible, physicians and hospitals will be encouraged to avoid the sickest, oldest, and most complicated patients."

F. Cancer Doctors Worry ACOs Will Hurt Health

Cancer doctors have been especially concerned about quality and cuts, since cancer represents 1% of patients and 10% of medical costs.

Dr. Cary Presant, chair of the Medical Oncology Association of Southern California, said, "The unspoken word is 'try and find a way to get these patients to not utilize these drugs, and consider whether this patient who is going to be a big expense should go into a hospice earlier rather than later.'" Groups can also discourage expensive patients by limiting their appointments or recommending palliative care.

A similar concern applies to Medicare Advantage (Part C) plans. Newell Warde, RI Medical Society director described a big Medicare Advantage plan dropping specialists who served expensive patients. "They look at your patient mix... They’re not just dumping doctors. They’re dumping patients. These may be expensive patients."

Case Western researcher, Anish Mehta, and Dr. Roger Macklis, a Cleveland Clinic cancer doctor write, "cancer-specific guidelines are not included in the quality measurements... Oncologists may feel pressured to curb the use of costly drugs and expensive procedures. New treatments from across all branches of oncology—from proton therapy to hyperthermic intraperitoneal chemotherapy to sipuleucel-T—will now reflect directly on the PCP... Pathway-driven medicine may lead to bare-bones cancer care, significantly reducing the universe of treatment options used by specialists."

A cancer lobbyist, Matt Brow, wrote, "There is another great risk that the ACO will not be held to delivering quality oncology care in any way, leading to the desire to see oncologists use the least costly type of therapy or no therapy at all.”

At the same time Medicare creates a shortage of cancer doctors by not training as many as the number retiring.

Aside from ACOs, insurance plans for non-Medicare patients are beginning to exclude specialized cancer treatment centers.

Informing Patients about ACOs

Special ACOs and Insurance Issues

Press Announcement