Forget ACOs, adopt modular payments instead

There's been a lot of recent chatter about creating accountable care organizations (ACOs) and their potential to significantly decrease healthcare costs. And by chatter, I mean disinterest, complaints and objections from health plans that fear these organizations will tip the balance of power too far in providers' favor.

Although some insurers, like Humana and Anthem, have embarked on pilot programs to test ACOs, most, I suspect, would like the whole arrangement to just disappear from the collective conscious of healthcare industry members. The primary fear? That accountable care organizations will become vehicles for price fixing or aggregating market power, according to AHIP.

A study in the New England Journal of Medicine agrees, concluding that "ACOs do little to address the problem of market concentration" and actually encourage mergers, joint ventures, and alliances that will exacerbate this problem. In fact, the study argues, market concentration has been a major problem spurring escalation of health insurance costs.

Additionally, dominant providers have used their market power for more than seeking higher reimbursements. There have been instances in which they have also limited health plans' ability to obtain and use cost and quality data that would enable them to shop more effectively, the study says.

Fearful insurers will be happy to hear, then, that a new study published in the journal Health Affairs suggests that accountable care organizations are likely to fail, or worse, will shift costs to private insurers.

Based on this study, insurers and other healthcare players shouldn't even attempt to set up ACO models. The problems with accountable care organizations are just too complicated and entrenched. They don't offer health insurance companies a real strategy to hold providers accountable for cost on behalf of their member populations; consolidated physician markets will force private insurance costs higher through cost shifting; and there is little incentive for competition among provider entities.

Instead, the study recommends insurers adopt a more flexible payment model that divides healthcare services into three categories--long-term, low-intensity primary care; unscheduled care; and major clinical interventions that usually involve hospitalization or organized outpatient care. Each category of care would be paid for differently.

Such modular payments would spread out risk among all participants. And as the study authors say, "Improving the way in which risk is shared between private health insurers and providers can encourage the changes in care management and coordination needed to make the healthcare system economically sustainable."

This approach relies on three diverse contracting methods--comprehensive, risk-focused payments for primary care; cost sharing for unscheduled episodic and emergency care; and bundled payments for acute interventions--to address three different types of clinical problems without necessarily linking them together. Both low-intensity and high-intensity clinical care would rely on using specified clinical pathways, unified payments, and improved coordination of care as the principal ways of saving money.

A modular payment system would replace the fee-for-service system, give patients and their families a greater choice of providers and, perhaps most importantly, foster competition among primary care providers and specialists to prevent providers from generating too much power in the healthcare industry.

That must be music to many insurers' ears. - Dina