June 3, 2011
by Tevi Troy
If there was one element of the controversial Obama health care law that Republicans could have embraced as part of a bipartisan compromise, it was the concept of the Accountable Care Organization, a grouping of doctors and hospitals that provide treatment in a more efficient and cost-effective manner. Republicans, in fact, even included ACOs as part of the Patient Choice Act, their alternative to the health care bill.
While this GOP alternative had very few points of overlap with President Barack Obama's health care law, it did call for ACOs that could "improve payment to physicians, hospitals, pharmacists and nurses for demonstrable improvements in quality and patient satisfaction while reducing costs."
Unfortunately, when the Obama administration came forth with its proposed rule governing ACOs on March 31, it landed with a resounding thud. As The Washington Post noted in a piece about ACOs, "major groups of hospitals and doctors are skeptical of the government's plans." Instead of flexible organizations that encourage teamwork as a way of saving both providers and the government money, the Obama administration came up with an over-directed, 400-page proposal that provides economic disincentives to create ACOs and hoped-for cost-saving alliances.
One of the most onerous requirements is that ACOs have to track 65 different quality measures, an expensive proposition. The Centers for Medicare & Medicaid Services estimates that forming an ACO will require an initial investment of $1.8 million. An analysis by the American Hospital Association shows that startup costs will actually be in the $11.6 million to $26.1 million range.
Beyond the initial investment, the basic problem with the rule is that it will not encourage so-called normal organizations that face cost challenges to create ACOs. The combination of the difficulties in living up to the rule's 65 standards, the costly initial investment and the potential penalties for not meeting those standards make participation far too risky. This is why the American Medical Group Association wrote a letter to CMS Administrator Don Berwick informing him that an overwhelming 93 percent of AMGA members would not enroll in an ACO under the proposed rule. As AMGA head Don Fisher — whose organization is sympathetic to ACOs — wrote to Berwick, the proposed rule "is overly prescriptive, operationally burdensome, and the incentives are too difficult to achieve to make this voluntary program attractive."
The initial reaction to the rule was that most organizations would not join ACOs, but that hyperefficient model organizations such as the Cleveland Clinic, Geisinger Health System and the Mayo Clinic would. This would be problematic in itself — another instance of regulations that help well-off entities that can afford to handle them. But a recent report in Congressional Quarterly revealed that even these elite health systems, which are fans of the ACO concept, were wary of the new rule and, therefore, are unlikely to participate. According to CQ's Rebecca Adams, "officials at those tightly organized institutions have so many concerns with the proposed rule to create ACOs that they doubt that they will participate." As Geisinger's Thomas Graf put it, the fine print on the regulations seems "to be very prescriptive and restrictive with a fair amount of administrative and regulatory oversight." The Mayo Clinic's Patricia Simmons summed up her view of the rule thusly: "There'd have to be substantial revisions for us to participate."
If only these top-flight institutions participated, the proposal would not have been able to reform our health care delivery systems but would have at least provided a model for how high-functioning health providers could utilize ACOs to find important cost savings. But if even these organizations fail to play, the concept seems destined to suffer an ignominious and premature demise. As a health staffer for a Republican senator who is a fan of ACOs asked me, "How did they manage to screw this one up?"
Berwick has been engaging in a full-court press of ACO interviews and conference calls, in which he has been offering sweeteners to encourage ACO participation by industry despite their concerns. Even this effort, though, appears unlikely to succeed. While Berwick notes that he is open to suggestions for how to improve the draft rule — the comment period closes June 6 – he is less willing to address the question of the ACO rule's unpopularity. In a recent TV interview, he dodged a question on the subject, saying, "We need a payment system that doesn't say the more you do, the better you get paid, but the better you do, the better you get paid." This does not bode well for those hoping CMS will reissue a vastly improved revised rule.
ACOs remain a good idea, and the concept has been embraced on both sides of the aisle. At this point, though, the Obama administration needs to rethink its approach in order to recapture ACOs' bipartisan appeal. Given how flawed the initial draft was, though, they may want to think about starting the whole process from scratch.
Tevi Troy is a Senior Fellow at Hudson Institute and served as the Deputy Secretary of the U.S. Department of Health and Human Services from 2007 until 2009.
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