Another day, another trendy bureaucratic health system "fix" from the authors of ObamaCare. The technocratic buzz this week centers on Accountable Care Organizations (ACOs), which are intended to reduce waste and increase the quality of care by encouraging systematic coordination between teams of doctors and specialists. Many of the problems ACOs are intended to address are real. But it's unlikely that ACOs are the solution; the end result may be to exacerbate many of the difficulties they're supposed to solve.
Just about everyone agrees that there are serious issues with the way the American health system administers care: Earlier this month, for example, the Government Accountability Office reported that Medicare spends an estimated $48 billion each year on "improper payments" to doctors and other health care providers. To put that in context: Medicare wastes almost four times what private health insurers make in profit each year. That's the astounding cost of fraud, carelessness, and mismanagement in Medicare today.
More generally, fee-for-service medicine—which pays doctors based on how much they do—encourages doctors to do more, and thus spend more, without performing much in the way of cost-benefit analysis. The fact that roughly 90 percent of all medical care is paid for by a third party—either a private insurer or a government program—only exacerbates the problems associated with the fee-for-service model.
ObamaCare's authors hoped to ameliorate some of these problems by calling for the creation of Accountable Care Organizations, in which doctors and specialists band together in order to provide coordinated care. These teams of providers are supposed to be given incentives to deliver the best care for the least cost; if care ends up costing less than expected, providers pocket the difference.
In theory, coordinating groups of medical providers and specialists is not a completely terrible idea. As Cato's Michael Cannon and Arnold Kling argued in 2009, the idea that doctors are "independent craftsmen is anachronistic." Medicine has become more complex over time, and it's reasonable to think that the delivery of care ought to follow suit:
When a patient has multiple ailments, there is no longer a simple doctor-patient or doctor-patient-specialist relationship. Instead, there are multiple specialists who have an impact on the patient, each with a set of interdependencies and difficult coordination issues that increase exponentially with the number of ailments involved.
Patients with multiple diagnoses require someone who can organize the efforts of multiple medical professionals. It is not unreasonable to imagine that delivering health care effectively, particularly for complex patients, could require a corporate model of organization.
Cannon and Kling focus on two problems: First, the ubiquity of fee-for-service payment, which they say is "heavily entrenched by Medicare, Medicaid, and [various] regulatory and tax distortions"; second, state licensing regulations that prevent private health care firms from implementing business-side innovations. These are real problems: The practice of medicine is both highly regulated and dominated by government-run payers like Medicare. As a result, health care delivery is built around those regulations and those payment systems rather than around the needs and wants of patients. Medicine is optimized to survive regulatory scrutiny, and to extract money from a payment system that isn't based on market-driven price signals.
Unfortunately, ObamaCare's ACOs don't do much to address these problems. Instead of freeing medical providers from the constraints of government regulations and payment systems, they add more requirements. Earlier today, the Obama administration released 427 pages of proposed new rules regarding the implementation of ACOs. These rules, according to Donald Berwick, the health policy superwonk now running the Centers for Medicare and Medicaid Services, "will define how physicians, hospitals, and other key constituents can adopt this new organizational form." In other words, the new rules constitute a detailed attempt by the federal government to tell primary care doctors, specialists, and other providers exactly how they should work together. Rather than encourage private, market-driven experimentation, ObamaCare's ACOs create yet another model of care built around satisfying government rules and regulations.
Will ACOs work? It's doubtful. Similar efforts have been made before. For the most part, they didn't pay off. Coordinated care pilot programs were run on a carefully selected group of high-performing medical institutions, and only half were able to achieve any savings—which suggests that these sorts of programs will be difficult, at best, to scale. As even Berwick carefully admits, "not all previous efforts at developing a model of shared savings have met expectations." But this time will be different, surely.
Government estimates suggest that ACOs could result in about $4.9 billion in savings over the next ten years—not a huge amount in terms of government spending, but not chump change either. Yet critics worry rather reasonably that they may actually make care more expensive. Why? Because consolidating providers gives them more market power. That makes it easier for them to negotiate higher reimbursements. Here's what The New York Times reported last November:
Consumer advocates fear that the health care law could worsen some of the very problems it was meant to solve — by reducing competition, driving up costs and creating incentives for doctors and hospitals to stint on care, in order to retain their cost-saving bonuses.
"The new law is already encouraging a wave of mergers, joint ventures and alliances in the health care industry," said Prof. Thomas L. Greaney, an expert on health and antitrust law at St. Louis University. "The risk that dominant providers and dominant insurers may exercise their market power, individually or jointly, has never been greater."
…They face a delicate task: balancing the potential benefits of clinical cooperation with the need to enforce fraud, abuse, and antitrust laws.
In the past, as S.M. Oliva reported for Reason last November, the Federal Trade Commission has gone after doctors who've tried to organize across practices, charging them with antitrust violations for coordinating care and payment. But ObamaCare is now pushing doctors to, well, band together to coordinate care and payment. The federal government's regulatory enforcers and health policy bureauwonks can't seem to coordinate their own positions. They should stop trying to decide at all. In a saner world, antitrust regulators wouldn't be attacking doctors for working together, and health bureaucrats wouldn't be telling providers of any stripe how and whether to coordinate their practices.