Health Reform Part 2: Cost Control and Accountable Care Organizations

So the task force on Payment Reform issued a report declaring (without actually bother to prove) that our fee-for-service payment system, by which we reimburse physicians per visit or per procedure, was driving up costs by giving them an incentive to overtreat patients. This task force recommended we instead move to a system of “global capitation” whereby we pay physicians and hospitals a fixed amount for treating a patient for a whole year, removing this incentive. This report – which is 100% wrong in its assumption that fee-for-service is a significant cause of rising health care costs – is the basis for the expected next round of health reform.

Next came the two very good studies looking at the causes of rising costs in Massachusetts: one by the Division of Health Care Finance and Policy, the other by the Attorney General’s office. They both came to the same conclusion: our costs were not rising because doctors or hospitals were overtreating patients, or because the quantity of care was rising from year to year; our costs were going up because the price of providing the same exact procedure, or the same exact visit, were going up from year to year. In fact, the AG’s report found that providers being paid on a per-patient basis were actually among the most expensive in the state; this finding was accompanied by one of the most politically tactful comments you will ever encounter, reflecting that the state’s proposals for global payment reform have no evidence in current reality.

When you go to a doctor, you expect evidence-based medicine, but don’t hold your breath for evidence-based health policy. The rush is now on to implement “Accountable Care Organizations,” which will prevent our health providers from overtreating patients – a problem that all of the state’s own research, in addition to virtually all national research and all international research tells us is not the actual problem. A very balanced 2009 review of the evidence on Accountable Care Organizations by the Urban Institute concludes that there is little evidence they will have a large impact on costs, but the jury is still out and more experiments will be necessary to know more.

What we do know is that the version of ACOs being pushed in Massachusetts essentially revives two policies of the managed care revolution in the 1990s that were largely abandoned after massive patient and provider push-back: capitation and limited networks.

“Capitation” is the practice of paying providers a fixed amount to care for a patient over the course of the year: that amount will not go up or down, no matter how healthy or sick the patient becomes. What this means is that instead of insurance companies bearing the risk for a patient, providers bear the risk. If a patient is healthier than expected and uses little care, the provider will make money off of that patient; if the patient is sicker than expected or suffers an unexpected accident, the provider will lose money. The obvious problem is that, just as insurance companies have an incentive to avoid the sick when they bear the risk for patients, moving to a capitation system means that providers now have an incentive to avoid the sick or to undertreat them. This led to a backlash when managed care companies first introduced capitation in the 1990s, and it is now an uncommon practice in Massachusetts.

Limited networks were also a hallmark of early managed care, forcing patients to receive care only from a limited number of hospitals and doctors. While this sounds like a fine way to reduce costs, it is fine only until you change jobs and have to leave the physicians you know and trust because they are out of network. Limited networks are an intentional barrier to access – they do not exist in countries with universal health care (that, is, all of the rest of them in the developed world) – and they undermine continuity of care, which is considered incredibly important for quality of care in the medical world. Limited networks have also become unusual in Massachusetts, but they would be imposed on virtually everyone if the proposal for accountable care organizations were implemented.

The Boston Globe has covered payment reform extensively and has done, I think it’s fair to say, a horrible job. They have accurately covered the politics of payment reform, but have not looked at the evidence – for and against – of whether it will actually work to control costs. Health care costs are the top economic issue for virtually all small businesses, and for most households in the state. Residents deserve news that actually attempts to sort legitimate cost control from snake oil, but they’re not getting it. The march for payment reform seems to have taken on a life of its own, despite the state’s own diligent work establishing that fee-for-service is not driving up costs. The bill will be an opportunity for public advocacy by those who are affected by rising health care costs – let’s hope it’s not a wasted opportunity.

Benjamin Day is the Executive Director of Mass-Care: The Massachusetts Campaign for Single Payer Health Care, and serves as the statewide coordinator for Massachusetts Physicians for a National Health Program.

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