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
Informing Patients about ACOs (FOIA for more detail)
Special ACOs and Insurance Issues
Technical Bonus Calculation and Risk Adjustment
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.
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.
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,
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.
B. Antitrust, Investment and Power
ACOs are largely sheltered from restrictions on antitrust, kickbacks, and referrals to financially related providers
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:
There is a revolving door between ACOs and the federal Department of Health and Human Services.
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.
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,
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%).
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 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
ACOs are entitled to exemptions from several laws, which for many years have promoted good care and prevented conflicts of interest:
The Justice Department has issued policies protecting ACO members from anti-trust enforcement if they cooperate in an ACO with up to 30% of the local market.
A. SUPPRESSION OF PUBLIC INFORMATION
Many doctors, hospitals, therapists, etc. have joined Accountable Care Organizations (ACOs). These have important features which patients need to understand. However Medicare does not let ACOs tell patients about some features, and requires very unclear wording for the others. ACOs cannot write their own wording:
Medicare has prepared a sign which is supposed to be posted at "a limited number of locations in each ACO" (Federal Register 11/2/11 p.67946) (42cfr425.312(a)). The sign virtually denies that Medicare discloses private information. It says:
B. NOTICES AND SIGNS AT THE POINT OF CARE
A patient arriving for an appointment may or may not suddenly see a sign that the doctor is in an ACO, with minimal explanation. Medicare's theory is that the patient can "seek care from another provider". The patient is supposed to decide suddenly whether to see the doctor, based on minimal information, often sick and in pain, and maybe facing a cancellation fee.
On June 8, 2016 Medicare gave me these standardized written notices and signs, which must be displayed to patients when they get care. I had requested these copies under the Freedom of Information Act in July 2013. They include:
Based on Medicare's rules, patients may have no effective notice. ACOs are permitted to mail notices to patients in advance. Otherwise patients will only learn about the ACO "when you visit the office. A poster with information about your doctor’s participation in an ACO will be displayed. At your request, the doctor will also give you this information in writing" (p.119 of Medicare and You Handbook, 2017, emphasis added). The poster/sign does not say that written information is available. The sign just says you can talk to your doctor or Medicare about it. Medicare in 2014 proposed making the sign more complex, with information on opting out of data disclosures (p.72789, 12/8/14), but the final rule (6/9/15) did not state whether they would change the sign, and disclosures are still not mentioned in the sign released in 2016.
Medicare's Written Information for Patients Makes These Points:
The main topics in these 19 points from Medicare are:
Revealing confidential medical information is the focus of items 1, 5, and 10-17.
The ACO's organizational structure, which may direct referrals to particular doctors, is the topic in items 3 and 9. However the material does not mention that doctors in ACOs can get kickbacks from referrals and can refer where the ACO doctor has a financial interest. Medicare approved waivers of referral and kickback rules for ACOs. So Medicare patients in ACOs are no longer protected by normal rules against kickbacks and "self-referrals," where the doctor has a financial interest. Furthermore, the Justice Department has issued policies protecting ACOs from anti-trust enforcement, similarly left unmentioned in the written material.
Medicare mentions quality of care in items 4 and 7. Medicare has a narrow and changing concept of the quality measures it looks for. The patient is not given any link or place to see what Medicare means by quality.
The ACO's incentive to cut costs is mentioned in items 6 and 7, without mentioning:
Readers will decide for themselves whether Medicare's wording covers what patients need to know. On the other hand, ACOs cannot decide for themselves. Medicare requires ACOs to use Medicare wording when giving information about the ACO (42cfr425.310(c)(1)), so they keep tight rein on the public spin about ACOs. However non-ACO members are not constrained in what they publicize.
C. REQUIRED WEB PAGE
Medicare requires ACO websites to have a page or pages showing staff, quality measures and "Shared Savings/Losses" (Public Reporting Format), though the web page does not have to be linked from anywhere, and sometimes can only be found if you know to search for it. Some also have an older page about "How Shared Savings Are Distributed." The examples below are from the biggest ACO, but Medicare requires every ACO to have the same wording.
1. ACOs usually include group practices, and the required web page must list them by corporate name, like "Access Neurocare PC," not the individual doctors who work there.
2. Medicare and ACOs talk about quality care, but the quality standards do not measure deaths, cures, or good or bad outcomes from treatment. Patients will not realize how limited the quality measures are, since quality measures shown to patients must use Medicare's opaque wording, such as:
3. On this same obscure web page Medicare requires ACOs to tell patients the how many millions of dollars are "Shared Savings/Losses" without definition, and without context on how this compares to total spending. For example:
Special Types of Accountable Care Organizations
About 30 ACOs are Pioneer ACOs (Phase 0 in list) with even stronger incentives to save money than the more common "Shared Savings." Differences include:
About 35 ACOs are Advance Payment ACOs ("a" in list) where Medicare lends money to start and operate the ACO.
How Does Other Insurance Control Cost?
CIGNA health insurance has 66 ACOs, and Premier has 23. Blue Cross has them in New Jersey, and in an AQC program with 9 ACOs in Massachusetts. Aetna promotes the idea and has them in Arizona, San Diego, Maine, New Jersey (also here), Pennsylvania (also here), and Virginia (also here).
15% of people with health insurance from private employers have a flat fee per patient for each doctor, regardless of the amount of treatment provided (capitation).
Homeowners' insurance is like health insurance in that few people have big claims, and everyone wants low premiums. Companies frequently reword policies to avoid unexpected costs, and customers theoretically can compare policies, but often have gaps in coverage.
Many types of non-healthcare insurance have premiums based on experience or risk. These varying premiums (unlike Medicare) give incentives to reduce claims: car, workers' compensation, unemployment insurance, FDIC, etc.. The person buying the insurance thus chooses between higher risks, claims and premiums, or lower claims with lower premiums.
Some types of insurance collect property to reduce losses and provide a disincentive to claim: car, mortgage. Many claims are inherently unpleasant, so have incentives against overuse: sickness, death, car accidents, house damage, and theft.
Some insurance companies make it hard to collect: Social Security Disability Insurance initially denies claims, and the disabled need to appeal. Car insurance is regularly rated by Consumer Reports on claims services. Private health insurance faces frequent complaints from patients and providers about difficulty getting payments. Long term care insurance has a risk of being similar, but there is too little experience to compare the insurers.
Moral hazard is the risk that an insured person or company will incur extra risks and losses because of having insurance. Banks are subject to moral hazard because of FDIC and bailout funds. However people rarely get sick or want more invasive tests voluntarily, so moral hazard rarely applies to health insurance.
How Do Other Entitlement Programs Control Costs?
Governments reduce budgets and cut services of entitlement programs overtly or covertly. Home health services and services for foster children are targeted and reduced.
Advocates limit cuts by asking voters or courts to insist on more money. Prisons are overcrowded until prisoners get courts to order improvements.
Medical care is subject to malpractice suits as an incentive against cost-cutting, though these are expensive with expert testimony, and many states restrict awards for suffering, so they are not as useful for elderly (Medicare) patients as they are for highly paid younger patients who can claim lost earnings. Class actions may be a way to aggregate enough awards to make legal enforcement worthwhile.
ERISA preempts many claims for damages against employer-provided health insurance, even HMOs, though not necessarily against independent doctors and hospitals (legal history to 2003).
An ACO gets a bonus payment of up to 50% of the cost savings from Medicare Parts A and B for its patients. (If an ACO is willing to risk losses as well as bonuses (2-sided), they get up to 60% of the savings instead of 50% 42 CFR 425.606.
Medicare requires ACOs to have at least 5,000 Medicare patients. With 260 Medicare patients per doctor, this means at least 20 primary care doctors in each ACO. Most ACOs are larger. However 3-8 doctors give better care, because they take more responsibility and have fewer managerial distractions than big practices (Kussin 2011, p.36). With at least 20 doctors, each doctor has little effect on the ACO's bonus, so the ACO needs internal incentives to motivate doctors, such as reviews of doctors, limits on expensive procedures, and rewarding individual doctors for cutting their costs. Much like an HMO.
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