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The Other Side of Health Care Reform

Added by Hawley Troxell in Health Law, News on June 24, 2013

As health care reform inches closer to full implementation, most of the media focus has been on the new laws and systems being put in place to increase the portion of the population who is covered by health insurance. That focus is understandable, given the sometimes-significant changes in store for many businesses and individuals. But decreasing the ranks of the uninsured is not the only long-term objective of the Patient Protection and Affordable Care Act (PPACA). Nor is it the only metric by which PPACA’s success will be judged, or the only effect of health reform that will be felt in Idaho.

The PPACA has another primary goal: to control health care spending. While that objective has not received as much attention as the individual mandate or the health insurance exchange, it is no less important. Indeed, reducing health care spending is a cornerstone of the PPACA, on which its ultimate success may turn.

We have all heard by now that Americans spend a lot — perhaps far too much — on health care, and that health care spending has increased rapidly. The PPACA seeks to control those costs — to “bend the curve” of health care spending — through a variety of initiatives, one of which is the creation of a new organization, the Accountable Care Organization (ACO), which, seeks to encourage hospitals and providers to coordinate care to reduce costs and improve care by promising them a cut of the savings.

According to the Center for Medicare and Medicaid Services, ACOs are “groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients.” ACOs who participate in the Medicare Shared Savings Plan can keep a portion of what they save if they meet benchmarks for costs and quality. Among other things, the quality benchmark will depend on feedback from patient experience surveys.

The decision to form or create or participate in an ACO is voluntary, and it’s not for everyone. For one, an ACO must include at least 5,000 fee-for-service Medicare beneficiaries. As a result, although hundreds of ACOs have formed nationwide, in Idaho, only St. Luke’s has, to date, enrolled as a Medicare ACO.

The idea behind the ACO is the realignment of incentives to correct an imbalance of incentives in the traditional fee-for-service model of health care payment, which many finger as a principal culprit in driving increased health care costs. When health care providers and hospitals are paid based on the amount and number of services they perform, the argument goes, the monetary incentive points in one direction: perform more services. And when a third party insurer, rather than the patient, is paying for those services, the patient has little or no financial incentive to press for less. Add in the effects of defensive medicine, and the incentives align to encourage excessive medical services. At least in theory.

In theory, then, the ACO helps solve this problem, because Medicare remains, for the most part, a fee-for-service payor. While the advent of the ACO does not change that fact, it does seek to encourage less costly and better — rather than simply more — care by promising money for quality and savings and thereby changing the alignment of incentives.

And in theory, nobody can argue with the promise of the ACO: better health outcomes at lower cost. But in practice, the jury is still out because ACOs are in their infancy. Advocates point to large institutions like Kaiser Permanente as the model for what coordinated care and better incentives can produce. But critics recall other HMOs that sought to change the fee-for-service system but fell short of expectations.

Because it is early, there is not yet a ready answer to the question: how will the ACO model affect health care? If it works — if the ACO model leads to more coordinated care, less duplicative services, and better outcomes at lower cost — it will spread. But it will take time — perhaps many years — before we know whether the model is successful.

In the short run, if your provider or hospital is part of an ACO, you may or may not notice much difference in your treatment. But you’ll probably get asked to complete a patient experience survey. And there may be more riding on that survey than you think.

This article was featured in the Idaho Business Review.