Stop the failed experiment of organizing responsible care
Fn the past half-century, Congress has taken essentially the same approach to reducing health care costs, an approach that was called “managed care” in the mid-1980s. Based on the assumption that health care costs in the US are double that of other wealthy countries because doctors order services that patients don’t need, the solution is to ‘manage’ doctors and provide financial incentives that push them to cut back on services.
The managed care approach has not only failed to cut costs, it has contributed to healthcare inflation by encouraging mergers and increasing administrative costs. The failure of the organization responsible for care (CAO), a major iteration of managed care, illustrates the problem.
The ACO label was invented at a meeting in 2006 of the Advisory Commission on Medicare Payment (MedPAC). The concept was tested between 2005 and 2010 in the Group of Physician Practice Demonstration (PGP). In 2009, even as the first results of the PGP project showed that the concept of responsible care would not work, the Congress added provisions to the Affordable Care Act requiring the Centers for Medicare and Medicaid Services (CMS) to insert responsible care organizations into the traditional Medicare program.
ACOs are chains of hospital clinics that sign contracts with insurers (in the case of Medicare, with CMS) to share the financial risk. This means that a responsible care organization shares the profits with CMS if profits are made and shares the losses if losses occur. They work like this: CMS sets spending targets for responsible healthcare organizations at the start of each year. At the end of the year, CMS sends ACOs who have spent less than their target a âshared savings paymentâ. In some programs, ACOs that exceed their target pay a penalty to the CMS.
In an article published online This month in the Journal of General Internal Medicine, we reviewed the evaluations of the four Medicare responsible care experiments that CMS has conducted since 2005. All four did not impact Medicare spending; their impacts ranged from tiny savings of a few tenths of a percent to equally minimal losses. If we include in our calculations the costs that responsible care organizations incur in their futile efforts to reduce Medicare spending, such as contracting insurance companies to manage risk and hiring more nurses, these organizations to augment Health care costs.
ACOs are supposed to work best for a population living with many chronic conditions, such as people enrolled in Medicare. While these programs cannot reduce Medicare costs, they clearly cannot reduce costs for the whole country.
Why have responsible healthcare organizations failed?
We see two main reasons for the failure of responsible healthcare organizations: the diagnosis was wrong and the prescription was wrong.
The key assumption underlying the country’s managed care experience is that the costs of health care in the United States are high because Americans receive too many medical services, and this overuse is caused by the method of compensation. fee-for-service to pay doctors. Fee-for-service creates a financial incentive for physicians to order more tests and perform more procedures, which physicians would have caved in. In any case, this was the diagnosis promoted in the early 1970s by supporters of the health maintenance organizations, an early form of managed care, and that is the diagnosis proposed today by ACO supporters.
In its version of June 2009 “Report to Congress” for example, the Medicare Payment Advisory Commission asserted that âthe role of the ACO is to create a set of incentives strong enough to overcome the incentives in the [fee-for-service] system to increase the volumeâ¦. “
But the assumption that overuse is widespread and that all overuse is caused by physicians giving in to fee-for-service incentives is wrong. Over the past two decades, research has clearly shown that overuse of medical care is not the reason health care costs are rising. Per capita health care costs in the United States are high compared to other countries because the the prices at which medical services and drugs are sold are excessive.
In any sector of the economy, total expenditure is a function of price and quantity (or volume). The price multiplied by the quantity gives the total expenditure. US policymakers have focused on the quantity factor when they should have focused on the price factor. In a well-titled Health Affairs article, “These are the prices, stupid” health policy expert Gerard F. Anderson and colleagues concluded that (emphasis added) “The difference in expenses [between the US and other countries] is mainly caused by higher prices for health care goods and services in the United States.
Why are American prices so high? Because the relentless consolidation of its health system gives those who sell medical services and drugs the power to raise prices. And the huge cost of administering the country’s incredibly complex healthcare system is motivating sellers to raise prices: Excessive administrative costs represent 15% of the $ 4 trillion the United States spends annually on health care – more than $ 2,000 per person.
The care organization solution failed not only because it tackled the wrong problem (overuse rather than excessive prices and inefficiency) but also because these organizations were never clearly defined. Since the ACO label was concocted by the Medicare Payment Advisory Commission at its meeting on November 9, 2006, responsible healthcare organizations have always been “defined” according to the aspirations of their promoters.
The after the “definition” by Mark McClellan, a former CMS administrator and former FDA commissioner, and his colleagues, supporters of a responsible care organization, are typical: while caring for a defined patient population. Can it be more vague than that? âProvidersâ are âaccountableâ (by unidentified parties using unidentified means) for âmeasured improvementsâ (measured at an unknown cost to providers and the measurer) in the âcost and qualityâ of health care supplied to a (bad) Â»defined population.
In addition to being vague, the ACO proposal failed because it was based on a false premise: doctors work mostly for money and may be made to stop ordering unnecessary services if they could earn money. ‘money by doing it. But most doctors don’t primarily work for money. They are motivated to provide high quality care, solve complex problems and watch their patients thrive. Behavioral economists call these motivations intrinsic – and they are undermined by the monetary penalties and rewards deployed by responsible care organizations.
These two flaws in the ACO’s proposal – a misdiagnosis coupled with an ill-defined and unproven prescription – have hampered the experience of managed care since health maintenance organizations have been formalized in the 1970s. The widespread adoption of cost containment tactics launched by these organizations was the main cause of explosive growth in administrative costs and mergers, both of which drove up prices, which began in the late 1980s.
Health maintenance organizations, accountable care organizations and other managed care âreformsâ have not only failed – they have turned against them, compounding the problem they were meant to solve.
It is high time to abandon managed care. Rather, we should build on lessons learned from other countries that have adopted single-payer systems, price controls and universal coverage with uniform benefits. The results in cost control and longevity are impressive.
Kip Sullivan is a member of the Advisory Board for Health Care for All Minnesota. James G. Kahn is Professor Emeritus of Health Policy at the University of California, San Francisco.