But ACOs could pave the way for more significant cost-cutting based on competition.
By KEN TERRY
The Medicare Shared Savings Program (MSSP), it was revealed recently, achieved a net savings of $314 million in 2017. Although laudable, this victory represents a rounding error on what Medicare spent in 2017 and is far less than the growth in Medicare spending for that year. It also follows two years of net losses for the MSSP, so it’s clearly way too soon for anyone to claim that the program is a success.
The same is true of accountable care organizations (ACOs). About a third of the 472 ACOs in the MSSP received a total of $780 million in shared savings from the Centers for Medicare and Medicaid Services (CMS) in 2017 out of the program’s gross savings of nearly $1.1 billion. The other MSSP ACOs received nothing, either because they didn’t save money or because their savings were insufficient to qualify them for bonuses. It is not known how many of the 838 ACOs that contracted with CMS and/or commercial insurers in 2016 cut health spending or by how much. What is known is that organizations that take financial risk have a greater incentive to cut costs than those that don’t. Less than one in five MSSP participants are doing so today, but half of all ACOs have at least one contract that includes downside risk.
As ACOS gain more experience and expand into financial risk, it is possible they will have a bigger impact. In fact, the ACOs that received MSSP bonuses in 2017 tended to be those that had participated in the program longer—an indication that experience does make a difference.
However, ACOs on their own will never be the silver bullet that finally kills out-of-control health spending. To begin with, 58 percent of ACOs are led by or include hospitals, which have no real incentive to cut payers’ costs. Even if some hospitals receive a share of savings from the MSSP and/or private insurers, that’s still a drop in the bucket compared to the amount of revenue they can generate by filling beds instead of emptying them. So it’s not surprising that physician-led ACOs are usually more profitable than those helmed by hospitals.
Some of these physician-run ACOs have done remarkably well in cutting costs, particularly in areas where healthcare is riddled with waste. In south Texas, for example, the 24-physician Rio Grande Valley Health Alliance (RGVHA) saved Medicare nearly $13.5 million and earned $9.4 million of that in 2017. (The ACO was in the risk-based track 3 of the MSSP, so it received 75% of the savings.) RGVHA achieved this victory through solid physician support, the hiring of nurse coordinators, the intelligent use of data and analytics, and plain old street smarts. However, the latest MSSP data shows that most ACOs are not as skilled in managing care as RGVHA is.
Wanted: Provider Competition
What could significantly drive down health costs is competition among providers, which is currently rare. Hospitals in metropolitan areas do compete for high-ticket surgical and cancer cases through advertising, but not on the basis of published cost and quality data. Although Medicare and some states post healthcare provider scorecards online, there is no evidence that many doctors and patients use them. Geography is still destiny for most people when they get sick. Meanwhile, hospitals around the country are merging furiously, reducing competition and driving up healthcare prices in many cases.
The large physician groups owned by healthcare systems are also not competing with one another, because they’re usually in different areas. The remaining independent practices feel competition from the hospital groups, but many join with them in ACOs. The ACOs themselves tend to occupy separate geographical areas as well, so there’s little competition among them.
The Government’s Role
What could change this? Not the market, which is moving in the direction of bigger healthcare organizations that have less and less incentive to cut costs. One exception is readmissions: because CMS penalizes hospitals financially for avoidable readmissions, institutions are using a variety of techniques to reduce readmission rates. While this doesn’t prove anything about the relative impact of the market vs. government regulation, it does suggest that the government has an important role to play in reordering the market to curb health costs.
CMS has already moved in that direction with the MSSP. MSSP participants are currently limited to six years of upside-only risk, after which they must take downside risk, as well, and CMS has proposed decreasing the risk phase-in period to two years. That still won’t result in competition that could shrink health spending substantially. Nevertheless, successful risk-taking ACOs might be the key to making the transition to a competitive market. One reason is that they include thousands of physicians who have learned how to manage care. In addition, these ACOs have been shown to save more money than ACOs that only share in savings, not losses.
An Alternative Approach
In the current political climate, it is unlikely that the federal government will make significant moves to encourage competition among providers, because that would require a much stricter application of antitrust laws and the breakup of large healthcare organizations. Nevertheless, with the possibility of Democrats taking control of Washington in 2020, it’s worthwhile contemplating how ACOs might pave the way to more competitive healthcare delivery as part of a transition to a single-payer system or some other form of universal healthcare.
Here’s how it might work: First, the MSSP would limit ACOs—some of which currently include hundreds of doctors—to perhaps 50 primary care physicians. (Specialists would have to be treated differently, but there isn’t enough space here to discuss that topic.) As a result of such an edict, there would immediately be competing groups in many metropolitan areas. Second, Congress would have to pass a law requiring hospitals to divest their employed groups. This would not be much of a sacrifice: if hospitals gave up their groups, they would no longer have to subsidize employed doctors, and most physicians restored to independence would continue to refer their patients to the same hospitals. The divested groups would also be split up into smaller units, each of which included no more than 50 primary care doctors. These practices would compete for patients with each other and with the ACOs.
Transparency is Key
The key to making this system successful is transparency. First, the cost and quality of the competing groups would be measured and published, as it was in a famous 1990s experiment in Minneapolis that was supported by local employers. Second, employees and other insured people would be given a financial incentive to use that information to select the groups that provided the best care at the lowest cost. Depending on how well the group they chose to get their care from performed, their share of the insurance premium would rise or fall.
The competing groups would be paid fee-for-service and would take upside and downside risk the way that ACOs do today, through bonuses and penalties. The ultimate financial responsibility for patient care would continue to be borne by payers. These payers would not include health plans, which would provide administrative services only to physician groups, as they do now for self-insured employers. This approach could work within a centralized single-payer system, such as Medicare for All, or within a regionally governed, multi-payer system that guaranteed universal access to healthcare.
Much more could be said about how such a system would be organized, governed and financed, but there’s no doubt that the government could create a viable system of managed competition and that ACOs could be the crucial bridge to the new system. When ACOs learn how to manage care, they could be instrumental in making the transition from the current wasteful, anti-competitive system of giant providers and insurers to a truly competitive market that could cut costs significantly while improving quality and outcomes.
Ken Terry is a former senior editor of Medical Economics and is author of Rx For Healthcare Reform (Vanderbilt University Press, 2007).
