ACOs: a Triumph of Hope over Experience

By: Paul Hewitt & Joel White


The New Year ushered in what the Obama Administration hopes will be the first of hundreds, perhaps thousands, of Accountable Care Organizations (ACOs) that share the rewards of delivering services to Medicare beneficiaries more efficiently than the dismal average. On December 19, the Centers for Medicare and Medicaid Services (CMS) named 32 Pioneer ACOs whose three-year test run officially began on January 1. All eyes will be on these early adopters for their success in cutting costs and improving patient outcomes. Many, however, will be watching ACOs for another reason: their potential to accelerate the already untenable rate of increase in private premiums.

ACOs are designed to address a great flaw in American medicine: providers rarely make money by saving money. Medicare’s current fee-for-service policy indiscriminately funds all services broadly defined as “medically necessary,” including many dangerously wasteful practices. Not surprisingly, the result is a system that rewards volume while consistently producing suboptimal health outcomes.

CMS hopes that ACOs will reap productivity dividends via profit- and loss-sharing among integrated networks of hospitals and physician groups—a model inspired by, but less restrictive than, the narrow networks pioneered by health maintenance organizations. According to this vision, a conscientious continuum of care would save money by eliminating the revolving door of complications, duplicative tests and readmissions that today constitute a major source of industry revenues.

Surgical Price Comparisons on the Web

One of the coauthors of this blog recently had a knee operation, a bit of arthroscopy that put him on crutches for four miserable (but hopefully worthwhile) weeks.  It gave us the opportunity to review bills and—uniquely—compare prices. 

What made this price comparison possible is the website of Surgery Center of Oklahoma. This is the one place on the Internet where patients can find real price quotes, including anesthesiology, for outpatient procedures ranging from Achilles repair to Uvulopalatopharyngoplasty. 

Surgery Center’s director, Dr. Keith Smith, recently appeared at a Council for Affordable Health Coverage event examining the role of competition in health markets—of which there is far too little these days.

The same meeting featured a presentation by Kerry Hicks, the Chief Executive Officer of HealthGrades, an independent service that ranks hospitals and physicians according to a variety of quality indicators.  If you have read that you are 73 percent lower chance of dying at 5-Star Hospital A than 1-Star Hospital B, that useful fact probably came from HealthGrades.

CAHC Joins More Than 200 Organizations In Urging Congress to Reject Changes to Medicare Prescription Drug Benefit

Imposing Medicaid’s Rebate Structure Would Reduce Access, Increase Out-of-Pocket Costs and Undercut Incentives for Competition

Read the Letter or [PDF]

Press Release

CAHC Letter to the Committee on Ways & Means [PDF]

Overview of the Medicare Part D Program [PDF]

Letter from Congress to Sec. Sebelius on Preserving the Part D Program [PDF]

Letter from Congress to Speaker Boehner and Leader Pelosi on Preserving the Part D Program [PDF]

JAMA Article in the Impact of Part D in Reducing Non-Drug Medical Spending [Abstract]

Health Costs Soar Again (ho-hum)

Imagine the outcry if it came to light that the Super Committee had decided to increase Medicare taxes by three percent of payroll—not at some distant point in the more prosperous future, but this year, in the midst of an economic slump. Economists, right and left, would condemn such folly. Members of both parties would decry the devastating impact on families and jobs. Cable news would luxuriate in a 24-7 froth of controversy.

Okay, stop imagining. In fact, new payroll deductions of this magnitude did take place this year. Only it wasn’t the clamor but the silence that was deafening.

We’re referring to the 2011 Employer Health Benefits Survey, released on September 27 by Kaiser/HRET. The survey’s headline was that family premiums had ballooned by 9.5 percent over the past year. This $1,303 increase is equal to 2.9 percent of the 2011 average wage, as calculated by the Social Security Administration.

A common misconception is that employers pick up the health insurance costs of their workers simply as a matter of social obligation. In reality, health benefits are a component of total compensation paid by employers. One way or another, working households bear all of the cost of their rising health premiums.

CAHC Provides Four Options for Congress to Help Restore Competitive Health Markets

Executive Director Joel White Proposes Measures to Bar Uncompetitive Practices

Friday September 9, 2011

In submitted testimony on health care industry consolidation at a hearing today by the Ways and Means Subcommittee on Health, Coalition for Affordable Health Coverage (CAHC) Executive Director Joel C. White warned that concentration was driving up the private premium costs, and proposed a series of measures designed to reduce or eliminate uncompetitive practices.

Read the full Press Release

Read CAHC's Statement to the Committee [PDF]

Read Rep. Herger's Opening Statement

See The Hill's Coverage of the Event

Nyce and Schieber Study: Treating Our Ills and Killing Our Prospects – A Summary

Americans have come to expect that their living standards will rise over time, and that their children will grow up to be better off than they were.  Underpinning the American Dream is the growth in productivity—increasing output per worker per hour.  A new study commissioned by the Coalition for Affordable Health Coverage (CAHC) by Sylvester Schieber and Steven Nyce^† finds that health insurance premiums grew 2-3 times faster than productivity during the 2000s, absorbing a large and growing share of cash incomes in the process.  Without steps to rein in runaway medical spending, rising health premiums will usher in an era of flat or falling living standards.

Among the study findings: 

• If health costs continue growing at past rates between now and 2030, they will absorb roughly half of productivity gains for the bottom 60 percent of wage earners, leaving few resources to address massive shortfalls in Social Security and Medicare.

• If workers respond to the individual mandate in the Patient Protection and Affordable Healthcare Act of 2010 (PPACA) by enrolling in their employer health plans, the rise in employer costs will absorb more than 100 percent of productivity gains for the bottom 25 percent of wage earners—creating strong disincentives to hire or retain the low skilled.

• If the extra demand created by PPACA accelerates medical inflation, as happened during the implementation of Medicare in the 1960s, many workers will face the prospects of no pay increases in future years.  In that case, the combined effect of rising health costs and addressing the shortfalls in Social Security and Medicare will cause household living standards to fall for the indefinite future.