Pioneer ACO Program Results: Why Saving Money for CMS Doesn't Mean The Business Model is Viable

According to South Dakota researchers, the predator status of Tyrannosaurus rex can no longer be questioned. After finding one of its teeth embedded in the healed spine of a Hadrosaurus, paleontologists now believe T rex was a fearsome hunter, not an carrion munching opportunist. 

But, asks the Disease Management Care Blog, how do we really know that that Hadrosaurus wasn't  pretending to be dead when the T rex took its bite?  Alternatively, the Hadrosaurus could have been sleeping and only looked dead to a slow-witted and lazy T rex. 

Dino doubts, says the DMCB, remain.

Such is the level of skepticism that the DMCB is bringing to its reading of the recent CMS press release describing the initial results of the Pioneer ACO program.  CMS says "positive" and "promising." The DMCB says "problematic" wonders if, like the T rex dilemma, there isn't an alternative interpretation.

The DMCB explains.

Recall that the Pioneer ACO program is designed to test whether large integrated organizations can be successfully rewarded for reducing health care costs through a program of "shared savings."  Under the program, if the savings exceed a minimum threshold, CMS will remit a portion of the upside savings back to the participating organizations.

According to the press release, the health care costs for the 669,000 Medicare beneficiaries cared for by the 32 Pioneer ACO program providers grew only .3% versus .8% for a parallel group of "similar beneficiaries." 13 organizations exceeded the savings threshold, which will lead to Uncle Sam writing checks for $76 million in shared savings.

This front page article in The Wall Street Journal has more detail. It says 18 of the 32 reduced health care costs, which leads the DMCB to conclude that five otherwise "successful" participants did not cross the required savings threshold. Two participants lost money. That, in turn, suggests the remainder, or twelve, broke even.

Details on how each individual institution fared are not readily available.  According to WSJ, Boston's Partners Healthcare reduced Medicare claims expense by $14 million.  They will be rewarded with a shared savings check of $7 million. Wisconsin's Bellin-ThedaCare will get "several million."

Good "win-win" news for the Pioneer organizations, CMS, Uncle Sam and U.S. taxpayers, right? A critical mass (40%) achieved millions in shared savings, which means proof of concept met and that a key part of Obamacare is successful, right?

"Not exactly," says the DMCB.

It figures 100% of the participating organizations had to each invest millions for personnel and other infrastructure to pursue the Medicare savings in the first place.  In other words, they were in the red before Pioneer even began.  That means that, in addition to the two participating organizations that lost money, the 12 that "broke even" as well as the 5 that did not make threshold also lost millions. 

That's 19 losers or almost 60% of the participating organizations.

In addition, it's possible that for some of the 13 "winners" that the shared savings awards won't  match their up-front multi-million dollar investment either.  Assuming that's true, it's possible that as many as two thirds of the Pioneer organizations lost money. No wonder 9 of the participants have signaled a desire to exit the program.

The DMCB's dinosaur analogy may be apt.  Given a two out of three likelihood of losing millions in the first year of operations, ACOs may just be too big and complicated to survive in the current health care environment.  Nonetheless, the Pioneer program will continue and the DMCB will stay tuned for the Year 2 results.

In the meantime, the DMCB wishes CMS good luck in using these "positive" and "promising" results to expand the program anytime in the near - or distant - future.  

Prospective Payment Good, Fee For Service Bad, Right? Unless You're a Patient That Is.....

Applying the brake in the name of patient care?

The Disease Management Care Blog poses a simple question: knowing that, despite the best of care, things can occasionally go wrong following surgery (for example, inpatient MRSA infections can still happen and readmission rates will never go to zero), do you really want your doctor or hospital to not be paid for the additional care that you may require?

Go to the websites of organizations like Robert Wood Johnson or The Brookings Institution and you'll find impressive expert papers that extol a variety of "payment reforms" designed to "align incentives," "reduce waste" and "achieve cost savings."  Dig into these reforms and readers will encounter admiration for payment approaches like "prospective payment," case-based," "bundling," and "shared savings."  You'll also find a deep disdain for "fee-for-service" (FFS). 

Prospective good, FFS bad, right? 

"Not always," replies the DMCB. It depends on your point of view. Like, if you're a patient.

The DMCB explains.

The DMCB learned long ago to simplistically think of provider payments in terms of "gas" and "brake" pedals.  FFS applies gas and accelerates provider services; that's because each time a "service" is provided it subsequently generates a "fee." 

In contrast to FFS, case payment, bundling and capitation apply the brakes, because providers receive the payments up-front. Since the money is in hand, providers have an economic incentive to preserve it and withhold services.  The DMCB thinks of "shared savings" in terms of brakes because the up-front payment is essentially held in escrow until the savings (versus a targeted level of utilization) are achieved.

The simplest example of how this can be applied is to hospitalization.  If hospitals are paid for each day that the patient is in a hospital, that's FFS (otherwise known in the industry as "per diem"). 

Instead of per diems, most hospitals are paid with a different payment mechanism based on "diagnosis related groups" (DRGs). Every time a patient is admitted, that generates a payment (similar to FFS).  That payment, however, is not pegged to the number of days the patient stays in the hospital. Instead, the payment is bundled to pay for the entire hospitalization.  That's why hospitals are always willing to admit patients (the gas) and then in a hurry to discharge them (the brakes).

Under the payment reforms championed by Robert Wood Johnson or The Brookings Institution, the inpatient payment bundling would be expanded to pay for the entire case after discharge from the hospital.  Under this system, if the case had to be readmitted, the hospital and providers are SOL.  After all, why should they be rewarded for shoddy care?

Unless, of course, you're the patient.  The DMCB worries that a one-size-fits all approach to payment policy could have unintended consequences. Patients battling unanticipated outcomes would likely prefer that their providers be incented to give additional care.  They want to be back in the hospital.

The payment policy may be good from the point of view of health reform, but it can be bad for patient care. 

The DMCB asks if we are on the verge of another round of unintended health care consequences.

We'll know soon enough when anecdotes of patients being inappropriately denied readmission begin to appear.

Why Can't A Single Small Physician Owned Group Enter Into A Shared Savings Contract?

Even the modest Disease Management Care Blog has to agree that its recent Patient Centered Primary Care Collaborative webinar on supporting care coordination within the medical home was a huge success.  Not only did it get to learn about the impressive work underway at North Shore-Long Island Jewish Health System, but the questions from a record 522 listeners helped the DMCB sharpen its focus.

Here’s one of the better questions that was emailed after the webinar was concluded:

What shared savings arrangements can happen on a small scale, for example a 4 doc office?

The (gently edited) DMCB reply:

None.

The month-to month variability in the insurance claims (think 95% confidence intervals) from a small practice makes it practically mathematically impossible to confidently compare an observed dollar amount to a target dollar amount. 

There are methods that can be applied to diminish the variability (such as censoring “excess” claims and using “risk adjustment”) but, at the end of a fiscal year, a lack of documented savings could be the result of either a) poor care coordination or b) an “underpowered” or mathematically suspect claims analysis.  The skeptical insurer will say it was the former and the screwed docs will say it was the latter.  When that happens, docs lose.

This is an example of the “law of large numbers” and why the shared risk arrangements in Medicare ACOs have to be based on a minimum of “5000” persons. By having that many observations, the variability is blunted and measures of central tendency hold up in an actuarial basis.

And then there are the two policy implications.  First of all, shared risk contract involving a relatively small practice is perilously close to the bad old days of capitation and HMOs, vs. the approach of spreading accountability across a large system that is armed with all the requisite care coordination resources  A four person group can’t match that.  Secondly, the insurers have little interest in putting together a payment system that could financially cripple a four person clinical practice, especially if it's primary care.

The DMCB will examine accountable-like arrangements for a small group practice in a future post.