In the mid-90s I was a partner in a company that managed practices and did network contracting using a “risk model,” where the delivery system, not the insurer was ultimately responsible for the cost of the services delivered. The theory was that if the deliverers of care had “skin in the game,” that they would control the costs by minimizing unnecessary referrals, testing and hospitalizations. Sound like the accountable care organizations (ACO) that are part of the Affordable Care Act now in place? Well, it is. And while the theory is sound, there are some issues to address.
Lessons to be learned from our ACO experiences
First, you cannot control individual elements in a delivery system unless you:
1. Own them;
2. Have so strong an economic influence on them that you “de facto” own them; or
3. Have strong incentives that overcome other economic incentives (the more you do the more you earn; “the eat what you kill model”).
Second, if the delivery system has dominant market share then the delivery costs rise. Conversely, if it does not, then the system will be constantly working against itself, as readjustments are made to reduce cost.
Third, there are always medical costs that occur outside of a closed system — medical events that occur as people travel or move, or use resources that for many reasons are not a part of the system. Such unforeseen expenses cannot be controlled, but we know inevitably they will occur.
Lastly, if you do not control all the information regarding costs, as payers do, then you cannot manage the global delivery cost. Like accounting, global medical costs are not based on cash accounting; they are based on an accrual system. There is a need to account for occurrences that have not yet happened — Incurred but Not Reported (IBNR). This is the magic piece that makes accounting for costs in real time an estimate, not a reality.
So, what are the conclusions from our experiences?
1. The only effective way to really do ACOs is to have a large delivery system with all the pieces in place and with very large numbers of patients. To prevent spikes in costs, not only do you need reinsurance for those occurrences that are infrequent, but also for extremely expensive (transplants, serious cancer treatments, long term cases). You also need more than 5,000 people to even out the bumps and issues regarding adverse selection of patient populations; the larger the population, the better.
2. Productivity today is largely measured by the volume of work. Just signing up disparate elements into a single delivery system requires more “teeth” than just small potential bonuses to providers that will not have any real impact on the revenue/income of any part of the system.
3. The most logical way to create enough of an incentive is to make the delivery system an equity vehicle. In other words, each of the deliverers of care not only gets paid to do their job, but they realize a piece of the pie that is a multiple of the savings that they can generate and the effectiveness of the delivery. Unfortunately, private companies are driven by cost alone and not by effective healthcare delivery. They need to get incentives not only for cost containment but for the excellence of the care that they deliver. There are few if any provider equity model approaches to ACOs today.
How do you incentivize excellence?
To incentivize excellence, some systems use surveys and patient ratings. Some use basic health parameters — the percent of those with a particular condition that do a particular thing as driven by the doctors, while others use outcome measures. While important, it is difficult to develop a great measurement system.
How can you measure excellence in diverse populations? To put everyone on an even playing field, you need to eliminate “cherry picking” the patients in networks. This is also not an easy goal to accomplish. So must you require physicians to take on all patients?
Which brings us to discussing how concierge care fits into these models? Full concierge programs are inconsistent with ACOs. However, hybrid concierge works along with ACOs in that they offer a patient a choice to have more personal care at the primary level. Patients can get more support services than will generally be available in the ACO model.
We’re moving forward with new models in healthcare; the time to start looking and exploring how to improve our evolving system is now.
In my next blog post, I'll offer additional thoughts and observations on concierge care and ACOs.