Are ACO’s Good or Bad for Competition?

By Naveen aka @naveen101

Earlier this week, I sat in on a roundtable discussion of health insurance plan CEO’s from around the country. The topic jumped from Medicare Advantage bonus payments to general quality improvement, to the insurance industry’s perception by Joe Q. Public, and of course, what role health plans will end up playing in Accountable Care Organizations (ACO).

As any insurance executive would rightly observe, the conversation to date has largely revolved around the providers of care. Because ACOs were designed as much to control health care spending as they were to improve quality, discussions often oversimplify them into a network of doctors and hospitals reimbursed with global capitation or bundled payments (fancy terms for a one time fee as opposed to a ‘fee for service’ itemized bill). The other details – advanced IT infrastructure, rigorous care management programs, skilled nurses and primary care providers, billing and claims competency, and marketing and communications activity, to name a few, are usually forgotten.  But eventually, this stuff will come up, and whoever is ready to roll will find themselves in high demand.

Hospitals and doctors seem to be more focused on getting the money. The early rumblings from the trenches indicate that the ACO craze is causing a shift towards market consolidation – providers of care are merging together, buying each other out and gaining share in their local markets. At my meeting, CEOs from Minneapolis to Seattle and Buffalo to Pittsburgh all reported the same trend in their markets. This is likely being done for a few reasons. The bigger a provider group, the better prices they can demand from insurance companies, as shown last year in a sophisticated study released by the office of Martha Coakley, the Massachusetts State Attorney General:

A. Price variations are not correlated to (1) quality of care, (2) the sickness or complexity of the population being served, (3) the extent to which a provider is responsible for caring for a large portion of patients on Medicare or Medicaid, or (4) whether a provider is an academic teaching or research facility.  Moreover, (5) price variations are not adequately explained by differences in hospital costs of delivering similar services at similar facilities.

B. Price variations are correlated to market leverage as measured by the relative market position of the hospital or provider group compared with other hospitals or provider groups within a geographic region or within a group of academic medical centers.

This means a few things. First, that if ACO’s are simply big groups with lots of clout in their market, they will likely screw over insurance companies on the commercial side to get better rates (I somehow doubt anybody will lose much sleep over this) – especially if Medicare ACO money incentivizes them to cost shift so they don’t exceed those spending targets. (Cost shifting in a nutshell: If a new knee costs $22,000 and Medicare says it will only pay $20,000, a hospital can bump up the price for private insurers like United or Aetna to $24,000 to make up for the difference.) So, any money ‘saved’ by the Medicare program would just be taken out of somebody else’s purse or wallet.

Second – and more importantly, Coakley found … (Read complete blog post, here).

Naveen Rao lives in Washington D.C., and consults in health care. The majority of his work is clinical quality improvement analytics for community-based health insurers, with broader involvements in clinical redesign efforts such as the medical home and increasingly, the accountable care organization.


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