As part of the 10 Ideas: Prescriptions for Health Reform series, an argument for encouraging the creation of more accountable care organizations in order to both stem rising costs and ensu
As part of the 10 Ideas: Prescriptions for Health Reform series, an argument for encouraging the creation of more accountable care organizations in order to both stem rising costs and ensure better care.
On March 26, the Supreme Court will begin to hear oral arguments regarding one of the most controversial pieces of legislation of Obama's administration: the Patient Protection and Affordable Care Act (PPACA) of 2010. The Supreme Court's decision will represent just one facet of a much larger debate about our health care system. This debate has permeated discussions throughout all levels of government, the current Republican primary season, and, most importantly, among patients and their families who are intimately familiar with our country's health care system. Unfortunately, our fee-for-service payment system gives the average American patient the worst of both worlds: high costs and suboptimal care. Fortunately, if policymakers can muster the political will, our country can change this payment structure and provide higher quality care at a lower cost for all Americans. To accomplish this goal, the United States should expand incentives for accountable care organizations (ACOs) throughout the health care system.
As David Walker explains in his book Comeback America, during the last 40 years, health care costs have grown 2.5 percent faster than the United States' GDP. Today, health care expenditures total 17 percent of our GDP. If costs continue to outpace our country's overall economic growth, the number will rise to an unsustainable 38 percent of GDP by 2075. Unfortunately, our country's current fee-for-service payment structure, in which physicians receive payment based on the number of services provided to a patient, contributes significantly to the rising cost of health care. The most costly 20 percent of hospital referral regions in the United States produce 80 percent of all hospital expenditures, and the high volume of services similar patients receive in these referral regions explains the vast differences in spending. Unless our country moves away from this form of payment, containing health care costs will be next to impossible.
Accountable care organizations (ACOs) are groups of health care providers who come together voluntarily to give coordinated care to Medicare patients. Current accountable care organizations exemplify the model's cost-effectiveness. For example, after three years as an ACO, the Medicare Physician Group Practice decreased expenditures by over 2 percent in half of its practices. Similarly, Community Care of North Carolina saved over $535 million in five years for its Medicaid and Children's Health Insurance Program. In Seattle, Group Health Cooperative also reduced costs, improved patient outcomes, and enhanced physician collaboration.
ACOs emphasize the quality of care over the quantity of treatments, which also contains costs. For example, the Mayo Clinic typically spends $40,000 less per Medicare patient compared to fee-for-service hospitals. As Mayo Clinic President Dr. Denis A. Cortese explains, "[Our physicians] have no financial incentive to do more than is necessary for the patient." Physicians receive payments based on a "defined clinical episode" or a "set period of management of a chronic condition." Unlike the fee-for-service system, this capitation payment encourages collaboration among physicians to prevent unnecessary medical expenditures, thereby promoting patient care over profit.
The fee-for-service system also decreases the quality of care received by patients. Ironically, an inverse relationship exists between high health care spending and high quality care. Stephen Jencks et. al, in their article "Change in the Quality of Care Delivered to Medicare Beneficiaries: 1998-1999 to 2000-2001," studied each state's quality of care in comparison to its annual Medicare spending per beneficiary. The states with the highest Medicare spending (about $8,000) ranked lowest in quality care. Conversely, the states that spent approximately $4,000 annually per patient ranked the highest. The Commonwealth Fund conducted a similar study that compared the differences between hospital referral regions' annual health expenditures and quality of care given to Medicare patients with three chronic diseases. The hospital referral regions that spent approximately $29,000 per patient annually scored the highest in quality of care. The regions that incurred the highest costs, approximately $75,000 per patient, scored lowest. In total, Shannon Brownlee, in Overtreated: Why Too Much Medicine Is Making Us Sicker and Poorer, estimates that unnecessary treatments and procedures kill 30,000 Americans annually -- the death toll equivalent of a 747 airliner crashing and killing everyone on board every single week. Unfortunately, the high volume care encouraged by our fee-for-service system does not increase the health of Americans.
An ACO measures and rewards high quality care and fewer preventable complications, rather than the number of services. Physicians must work collaboratively and strategically in order to avoid exceeding the capitation payment level and to provide the best possible care for a patient. As a result, ACOs foster "higher performance through information continuity, patient engagement, care coordination, team-oriented care delivery, continuous innovation and learning, and convenient access to care." Since ACOs have an incentive to keep patients as healthy as possible, their widespread implementation would also decrease the number of treatments, procedures, and hospital readmissions. As provided for in the PPACA, ACOs will coordinate and direct patient care across multiple disciplines while striving to contain costs and emphasize high quality care. However, the ACO provision extends only to Medicare and Medicaid. Without nation-wide implementation, health care costs will continue to rise.
Clearly, the status quo payment system fails to provide all patients with high quality care and increases health care costs unnecessarily. How can our country make ACOs the norm? First, few currently exist because neither payers nor physicians and hospitals have an incentive to implement payment reform. Payers are reluctant to embrace capitation payment systems unless more successful ACOs exist. Unfortunately, hospitals and physicians have few incentives to become ACOs because the fee-for-service system does not encourage integration. Without future incentives for both the payer and the provider, ACOs will remain a rarity instead of the norm. Secondly, policymakers must incentivize a national shift away from our fee-for-service system in the public and private sector alike. As Rick Mayes and Jessica Waldradt describe in "Pay-for-Performance Reimbursement in Health Care: Chasing Cost Control and Increased Quality through 'New and Improved' Payment Incentives," Medicare influences all other stakeholders in our country's health care system; if it takes the lead in payment reform nationally, the private sector will follow in its path. Medicare's change can also encourage the private sector to reform because it will "drive greater structural integration, which can increase the capacity for additional payment reform, and so on."
It's time for more policymakers to realize that, despite our country's phenomenal wealth and resources, our health care system often fails its patients. Widespread incentives to establish ACOs will help usher in a new era of health care policy in the United States marked by higher quality care and more cost-effective practices. The consequences of inaction are too great to ignore: without reform, the health care system will put an increasingly arduous burden on the economy, and patients across the country will continue to receive poor care.
Kate Lawrenz, a political science major, is a member of the University of Richmond chapter of the Roosevelt Institute Campus Network.