Accountable Care Organizations (ACOs): Negative Reaction Among Physicians

Preface: In Health Reform and the Decline of Physician Private Practices, a white paper released in October, 2010, based on a study and survey sponsored by the Physicians Foundation and carried out by Merritt Hawkins, 2400 physicians were asked this question,

”Health Reform provides pilot projects to test ‘bundled payments’ for episodic care. What is your view of bundled payments with these results."

• A generally good idea 11%

• A generally bad idea 68%

• Unsure 21%

“Bundled payments” are a euphemism for "capitated payments,” fixed federal reimbursements to doctors and hospitals for providing care for defined Medicare populations. The health reform law encourages pilot projects to test the effectiveness of accountable care organizations (ACOs) in improving quality and reducing costs by aligning the financial interests of doctors and hospitals.

Doctors are skeptical about ACOs. Among the skeptics is Daniel “Stormy” Johnson, MD, former AMA president who wrote this assessment of ACOs for the Heritage Foundation, for which he is a visiting fellow.

Patient: Beware of Accountable Care Organization

Published on October 27, 2010 by Daniel Johnson, M.D.

There is much to dislike about this year's massive federal overhaul of the nation's health care system. One of Obamacare's potentially most dangerous — and least discussed — features is its call for government-sponsored accountable care organizations (ACOs).

What exactly is an ACO? What are the potential problems?

Conceptually, a typical ACO would be a health care cooperative involving a group of physicians, allied health care professionals and one or more hospitals, all working together to deliver appropriate care in the appropriate setting at the appropriate time in a person's illness or injury. Treatments would rely on evidence-based protocols and cost-effective preventive measures wherever possible. Moreover, the carefully integrated ACO would rely on a state-of-the-art electronic information and patient medical record system.

The payment method is much less clear — primarily because medical payment issues are radioactive. But "capitation" seems the most likely mechanism. Under this approach, the ACO receives, upfront, a set amount of money per beneficiary for the provision of all services. Beneficiaries would have no out-of-pocket expense, with the possible exception of a small co-payment.

It all sounds wonderful and, in fact, ACOs should be one of the options available for patients to choose in a new free market for health insurance. But ACOs may prove far more popular among certain physicians, wonks and bureaucrats than among the general population of health care consumers.

Physicians in primary care specialties such as family practice, internal medicine and pediatrics find ACOs appealing because their services have been historically underappreciated and undercompensated. They have a strong and understandable interest in pursuing a mechanism that may correct this problem.

Many health care policy analysts feel that current physician payment incentives are wrong. Physicians are paid more for doing more work. The tacit assumption: This encourages physicians to pad their wallets by doing more than necessary. These analysts want to reverse the incentives so physicians are paid more for doing less work.

If you assume all want to "game the system," it's a tricky call. Suppose you were ill. Would you rather have a doctor who'll give you the care you need, plus a little extra, or one who'd skimp a bit on the care? Both doctors would be wrong, of course; each should give the appropriate care. But to say one is ethically, morally or otherwise superior to the other is simply not correct.

Among the power elite in Washington, ACOs have great appeal as a mechanism through which they can exercise benevolent control. The unspoken premise of Obamacare is that government officials know far better than we do what is good for us. In their heart of hearts, most Obamacare proponents probably prefer a single-payer system. ACOs may be used as a cornerstone for building just such a system.

Consider how capitation, as opposed to fee-for-service, lends itself to promoting a single-payer-style treatment system. A capitated system requires both physicians and patients to be more sophisticated and knowledgeable about treatment options and the cost of each service. If a patient has back pain and the physician suggests an MRI, a patient with a health savings account (HSA) can ask, "How much does that cost?"

In a capitated system, if the system won't cover MRIs, the physician may not even suggest it; thus, the patient may not know that the option exists.

If ACOs become the only possibility for organizing, financing and delivering care, physicians and patients alike will find themselves in a treatment straightjacket. Thus, government should not give ACOs a competitive edge. If the ACO is such a good idea, let it develop in an open pluralistic market with no subsidy or other government advantage.

Recall that under President Nixon, the HMO concept was introduced with a significant financial advantage provided by Congress. As the government-assisted mechanism moved along, it ultimately became necessary for state legislatures across the country to enact laws protecting patients from this good idea.

Certainly our system needs major improvement. But Obamacare is not the answer. The three main issues in health care reform are cost, access and quality — and cost trumps the other two.

The heart of the cost problem is a simple dilemma: The person consuming the services (the patient) is insulated from the cost of those services because someone else is paying for them. Neither Obamacare in general nor ACOs in particular address that very important point.

Instead of limiting beneficiaries' choice to a mechanism that will insulate them from actual costs and permit paternalistic central control over every decision made by physicians in the care of their patients, we should be advocating expanding choice. Instead of assuming that patients are too stupid to choose how they receive treatment, we should put them in the driver's seat. With their doctor riding shotgun.

Dr. Daniel H. Johnson Jr. is a visiting fellow at the Heritage Foundation

Tweet: 68% of doctors dislike the idea of physicians sharing revenues with hospitals for treating Medicare patients @rreecemd