ACOs, ‘HMO lite’ or ‘DNA of the Transformation’?

By Gregg A. Masters, MPH

I am regularly amused by some in the popular press as well as guerrilla social media theater (myself included in that bucket) by the continued doubt if not outright dismissal of ACOs as the central spine if not fulfillment DNA of ‘the new, new thing/imperative’, i.e., to manifest the ‘triple aim’ as the sustainable healthcare ecosystem.

In the last 24 hours I interacted with one of those credible voices following a heads-up to the blog post: ‘Smart Money, ACOs and Risk Savvy Medical Managers’, where I argue that ‘smart money’ is betting on (and walking the talk) of ACO implementation, to wit the following tweets were then exchanged (Note: Dan had sent me the ‘eye porn’ headline titled ‘Are ACOs Doomed to Fail’ which was in part the impetus for the smart money post). After reading the post Dan offers:

Dan Munro @danmunro: Solid points – but endorsements “aren’t the droids we’re looking for.” Think Tom Cruise and “SHOW ME THE MONEY!” 😉

Gregg Masters @2healthguru: @danmunro See:… AND Huge impact. Only beginning. #ACOchat

Dan Munro @danmunro: @2healthguru … but the underlying payment mechanism is still FFS – and “shared savings” will vary widely & be small:

Dan Munro @danmunro: @2healthguru It’s a debate we all need. I just feel like we’re still playing around the edges. Any form of capitation only goes so far.

Well I’m not sure what metric my friend used to judge something as ‘varied’ and ‘small’, but for those of us previously operationally tasked with managing bed day utilization, admit rates, and by definition readmission, consistent with quality measures, these are not small numbers reported by the collaboration between Aetna and NovaHealth, an independent physician association based in Portland, Maine:

The patient population in the pilot program had 50 percent fewer hospital days per 1,000 patients, 45 percent fewer admissions, and 56 percent fewer readmissions than statewide unmanaged Medicare populations.

You don’t have to be a math whiz to grasp the economic significance of 50%, 45% and 56% reductions in major indices of hospital utilization. Whether per case or per diem calculations we’re talking serious savings to the payor [Medicare, or the Medicare Advantage risk contractor]. Such impact via ACO pilots dwarf the soft savings assumptions embedded in the Medicare Shared Savings Program since most projections are leaning on the modest results produced to date via the Physician Group Practice Demonstration Project which notes:

in Program Year 2, the cost per Medicare beneficiary were reduced by only $120 (1.2 percent) as compared with the base year. Whereas the groups earning bonuses reduced expenditures an average of $334 per person in Program Year 2.

So to the Dan’s of the world, up your sights as to the possibilities here! It’s time to be the change we seek, and stop looking for reasons to fail, up to and including finding empirical reasons to manage to mediocrity vs. the achieve the win within the reach of like minded, passionate and collaborative people.

Editors note: I will be interviewing Charles Kennedy, MD, CEO of Aetna’s Accountable Care Solutions Group, on Wednesday, November 14th, 2012 at 3:30PM Pacific time, listen here.


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  1. … and it also doesn’t take a statistics whiz to know that you can “cook” any math to produce any result you’d like. The argument still stands. ACO’s are still based on our Fee-for-Service pricing models – so – unless and until we change those – we’re not going to make much of a dent (if any) on $3 trillion per year – growing at 5% per year – and with 30 million still uninsured by 2020 (yes – even with ACA).

    In January of this year, for example, the Congressional Budget Office released their findings based on 10 years worth of data:

    “In the past two decades, Medicare has conducted two broad categories of demonstrations aimed at enhancing the quality of health care and improving the efficiency of health care delivery in its fee-for-service program:

    * Disease management and care coordination demonstrations have sought to improve the quality of care of beneficiaries with chronic illnesses and those whose health care is expected to be particularly costly.

    * Value-based payment demonstrations have given health care providers financial incentives to improve the quality and efficiency of care rather than payments based strictly on the volume and intensity of services delivered.

    CBO reviewed the outcomes of 10 major demonstrations that have been evaluated by independent researchers. The evaluations show that most programs have not reduced Medicare spending. Programs in which care managers had substantial direct interaction with physicians and significant in-person interaction with patients were more likely to reduce Medicare spending than other programs, but on average even those programs did not achieve enough savings to offset their fees.”

    I don’t agree (and never suggested) that ACO’s are mythical unicorns. There are many ACO in existence – as the result of millions already spent on legally binding contracts. That doesn’t mean they solve core, systemic problems – and it doesn’t mean we should think of them as anything other than what they really are – “experimental.”

    If you need help asking Charles Kennedy the tough questions – I’m available.

    1. Thanks Dan! You did say ‘show me the money’, which I did. Yet you equivocate as to the real impact of ACOs. Your skepticism is not unique, which I point out. See Avik Roy’s dubious posts on as an example.

      The dialogue is healthy. I suspect, we’ll see more and more of the private market ACO arrangements continue to rack up similar results (your comments about data manipulation notwithstanding) here-to-fore seen only in simulation or ‘what-if’ proforma exercises. I have more faith and am considerably more predisposed to ACOs delivering where you apparently share a different view. It’s all good. Thanks for your comments!

      And I agree about incentive alignment. We remain square in the middle of schizophrenic financial incentives. Unfortunately, you can not capitate a fee for services medical group or physician network, real or virtual, without an blood bath. There is more upside to be expected from medical groups, IPAs, and IDNs built on an
      HMO Chassis’, yet you can not start there. Perhaps one way is via a transitional vehicle, like an ACO, with soft and progressively increasing skin in the game risk participation as the experience and culture builds.

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