Let Medicare Patients Decide Which Accountable Care Organization to Join

Woman Using Exercise MachineA similar version of this Health Alert appeared at Forbes.

One of the reasons people rebelled against Obamacare was that it financed the growth of government-run health care through drastic cuts to Medicare. According to the Congressional Budget Office (CBO), Medicare spending will see a $455 billion cut over the next decade, which would finance almost half of Obamacare spending.

Most of the Medicare cuts were simply reducing the fees Medicare pays doctors and hospitals. These payment mechanisms would make a Soviet bureaucrat blush. William Hsiao, the economist who designed the Medicare Prospective Payment System, determined Medicare’s fees as follows:

“He put together a large team that interviewed and surveyed thousands of physicians from almost two dozen specialties. They analyzed what was involved in everything from 45 minutes of psychotherapy for a patient with panic attacks to a hysterectomy for a woman with cervical cancer. They determined that the hysterectomy takes about twice as much time as the session of psychotherapy, 3.8 times as much mental effort, 4.47 times as much technical skill and physical effort, and 4.24 times as much risk. The total calculation: 4.99 times as much work. Eventually, Hsiao and his team arrived at a relative value for every single thing doctors do.” (Rick Mayes and Robert A. Berenson, Medicare Prospective Payment and the Shaping of U.S. Health Care, Baltimore: Johns Hopkins University Press, 2006, p. 86.)

Instead of Fee-For-Service (FFS), Medicare planners and their academic supporters endorse various bureaucratic methods of paying for “value” – as perceived by the government. Indeed, Sylvia Burwell, U.S. Secretary of Health & Human Services, recently expressed the – ahem – aspirational goal of tying 85 percent of Medicare’s payments to value by 2016, and 90 percent by 2018.

One loudly trumpeted tool to create value in Medicare is the Accountable Care Organization (ACO). Unfortunately, ACOs are underwhelming and soon likely to fall off the radar screen.

The ACO model never fooled the CBO, which estimated that in 2010 they would only save $4.9 billion through 2019 – just 11 percent of the total cuts to Medicare incorporated within Obamacare. ACOs are complicated contracts whereby the government and provider organizations agree to share the gains the provider organization wrings out of Medicare costs.

Although we only have two years of Medicare ACO experience,  their supporters are already starting to panic that ACOs are “at risk,” according to the title of a recent paper by scholars from Dartmouth College, Dartmouth-Hitchcock Health, and the Campaign to Fix The Debt. Total savings for Medicare ACOs last year were $417 million, less than one percent of Medicare spending.

At the risk of over simplifying: Benchmarks (from which savings are determined) are based on three-year trends in national spending. This means that the least efficient and most expensive provider organizations have the most opportunity to profit from an ACO contract. However, once the first three-year period is finished, each ACO’s benchmark will ratchet up, so that it ends up “chasing its own tail,” as the Dartmouth scholars put it. The low-hanging fruit will be gone in a year or two. No wonder over two-thirds of executives of ACOs have indicated  they will not sign up for the next three-year round of ACOs.

By far, the worst feature of ACOs is the way Medicare “attributes” Medicare beneficiaries. (In normal English, we would use the verb “assign,” but because the administration does not want to be perceived as bossing around Medicare beneficiaries, it prefers to “attribute” them.) Some 7.8 million Medicare beneficiaries are attributed to ACOs. However, seniors do not decide which ACO to join. Even ACOs themselves do not decide. In almost all cases, Medicare attributes the senior to the ACO after the year is over!

As a result, provider organizations cannot really manage their ACOs: Two-thirds of ACO patients make their first visit to a specialist who is not in the ACO. Regulations restrict ACOs’ ability to communicate their preferred providers to patients, because the government wants to avoid the criticism that it is driving seniors into narrow networks.

The Dartmouth scholars and the Medicare Payment Advisory Commission (MedPAC) have endorsed the idea of allowing patients to “attest” that they want to belong to a given ACO, and that the ACO be allowed to communicate freely with them and reduce costs by tweaking deductibles and coinsurance to encourage patients to stay within the ACO for specialist treatment. This is a very mild version of my proposal to allow seniors to profit directly from saving Medicare money. Nevertheless, it would be a significant step in the right direction, which the Administration should pursue.

Comments (16)

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  1. James R Chaillet, Jr MD says:

    The whole concept is silly. If the government wants to save money by controlling access, then either encourage or force (which I don’t recommend) Medicare recipients into Medicare Advantage plans. Here, the insurance company, such as UnitedHealthCare, also has an incentive to manage the cost of care. It can and does, work to some degree with hospitals, physicians and other providers, to better coordinate care and to substitute less expensive services where appropriate.

    I’m not saying the insurance companies do a great job or that all the incentives are properly aligned;( I was a medical director of a staff model HMO for 12 years) just that there is already a means within the array of Medicare products to better manage and coordinate care. And Medicare can and likely will over time decrease the capitation fees to the Medicare Advantage plans.

    If the Medicare population doesn’t want to be managed, it can stick with Medicare A, B and D and Medicare Supplement Plans and pay somewhat more.

  2. Lee says:

    The government has had their hands in medicare for years IOU’S.that were paid back . people in have paid into the program People in Obamacare have not.so they need to keep their damn off of it

    • SStone says:

      First of all it is the Affordable Care Act of 2010 and secondly yes they have also paid into the program. They are American citizens who pay taxes and Medicare payments taken out of their checks just like anyone else does. As far as the whole thing being ridiculous it is not, I have had better care since this whole thing started and many people who were ripping off Medicare and Medicaid (physicians, etc.) have been caught due to the transparency and the new regulations set out in this plan. Why don’t you do some real research before y start blaming people in the Obama administration for all of this not working. It is politics that are stopping it from working properly all because no one likes President Obama. Maybe because they are prejudiced or maybe because they had their hand in the cookie jar as well and do not want to get caught. As far as people paying more out of pocket if they are seniors the only people who can afford to do that are people who retire from the government jobs, so that is not a solution either. We are talking about people who live on less than $1000 a month income that this Affordable Care Act is supposed to target and no one of that level income can afford to pay out of pocket over what they are already spending on monthly bills (electricity., water, gas, medications, etc.).You all seem to think you can fix this by making people pay more out of pocket when in all actuality if they would just stop fighting it and give it a chance it would work but everyone wants it to fail so they are bucking at the opportunity to make it fail by saying negative things and doing things to get in the way of it really take effect and working in a positive manner. I am sick of all the negativity sometimes it makes me just want to crawl under a rock. Really grown men supposed to have Americans best interest at heart and all they think about is lining their own pockets. That is what it all boils down to in the long run. Sometimes all this mumbo jumbo talk just needs to get down to the nitty gritty people on Medicare and Medicaid are not the problem people ripping Medicare and Medicaid are the problem.

  3. Lee says:

    Correction Medicare was not paid back
    Sorry about that

  4. Jimbino says:

    Though I qualify for Medicare Parts B and D, I find them too expensive to maintain. Here I am in Brazil, having just gone to the local neighborhood clinic where I got prescriptions for Metformin and Nystatin.

    Both will be filled for free at the clinic downtown. Even better, I can get more meds cheap, over-the-counter, in Buenos Aires, through which I’ll pass before returning to the USSA and its socialized medicine.

    Amerikans need to get together and demand that their medical needs be served in Cuba, Mexico, Argentina, Brazil and Costa Rica, for starters.

    Last year, I got cataract surgery here in Brazil for half the USSA price; I’ll keep you suckers posted on what my dental care costs in Buenos Aires.

    • John Fembup says:

      Medicare does not cover any expenses that are incurred outside the U.S.

      If you plan to continue to reside outside the U.S., there’s no point for you to enroll in Medicare – even if you think it’s a great deal for you.

      • Joe Barnett says:

        John: An increasing number of seniors are retiring, or would like to retire, to countries where the cost of living is lower — Costa Rica, Panama, etc. It would help seniors financially if Medicare gave them a premium subsidy to purchase private coverage (or deposited money to a senior HSA). Since medical costs are lower in many countries, it could save Medicare money to encourage this trend.

        • John Fembup says:

          “Since medical costs are lower in many countries, it could save Medicare money to encourage this trend.”

          Medicare pays nothing for out-of-US costs now. Any new payments such as you suggest would be an additional cost to Medicare, not a savings.

          • If more people left the country for surgery, it would obviously reduce costs. They are not going to have the same procedure twice!

            • John Fembup says:

              But John, Joe Barnett is talking about people who retire, or would like to retire, outside the U.S. For those people, extending Medicare coverage would be an additional cost.

              You are talking about “medical tourism”. Yeah, I agree medical tourism might well produce some Medicare savings if Medicare ever agreed to try it. I’d love to see the policy debate on that – not to mention the resulting regs!

              • How could it increase the cost. If the U.S. changed the policy, more people might emigrate when they retire. Their medical care would be taken care of abroad, not the U.S., for less cost.

                Of course, all of their disposable income would also be spent outside the U.S., which would not be good for the U.S.

                However, for people living close to the Mexican or Canadian border, we might get the best of both worlds.

                • John Fembup says:

                  Sorry. I was stuck thinking in terms of the seniors already retiring abroad – not considering that more and more seniors would be incentivized to leave the country.

                  So yeah, that would save money.

                  But I must say, I don’t think very highly of a deliberate federal policy that encourages seniors to leave their home and country.

                  There must be money that can be saved on our medical delivery “system” without starting to nudge people from the lifeboat.

      • Pat says:

        I understand that if you live out of the U.S.A while retired and then for some reason want to come back to the U.S.A. for cancer treatment for instance (that is far superior to any other country) you better have been paying for your Medicare. Also, what if you decide you want to move back? You will pay a penalty in the form of higher premium payments, if you have not been paying all along. That goes for anyone who does not sign up at 65, whether you live here or not.

    • Thank you. What do you mean by Americans “getting together” to demand that their medical needs be served in Latin America? As you have shown, the individual can do it on his own.

      As Joe Barnett indicated, we’ve previously written about Medicare paying for medical tourism. I anticipate that if it did, many Americans would go to Mexico or Canada for surgery. (The Canadian hospitals would shove Canadians to the back of the queue to make room for Americans, because U.S. Medicare would likely still pay more than the single-payer provincial health plans. THe same would likely be the case for Mexico.)

      My only caveat is with respect to prescription drugs, where intellectual property is being stolen.