Code Red: Two Economists Examine the U.S. Healthcare System

July 13, 2011

Trying Too Hard to Save Medicare

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 4:41 pm

In the latest edition of Health Affairs, Dr. Francis Crosson, chair of the Council of Accountable Physician Practices and senior fellow at Kaiser Institute of Health Policy, offers an impassioned defense of Accountable Care Organizations. Crosson’s main point is in his title: “The Concept is Too Vitally Important to Fail.” He adds:

“The accountable care organization model is intended as an option both for Medicare and for non-Medicare, commercial health care services. However, the general model and the specific shared savings model proposed for Medicare have come under criticism. Much of the criticism is valid and should be addressed. However, none should serve to prevent the evolution of this model.”

If the concept is “It sure would be nice to hold down costs and improve quality” then how can I argue? Who wants to argue against God, Mother or Country? But if the concept is “The only way to save the healthcare system is to organize everyone into ACOs,” well forgive me for disagreeing.

Accountable care organizations are the creation of the government. As such they come with a set of rules. There are rules about who can organize ACOs and who cannot and the extent to which ACOs must be integrated. There are rules about how costs will be shared between the government and the ACOs. There are 65 pay for performance quality measures. And there are still pending rules that may allow ACOs to skirt antitrust laws. Once these rules are in place, they will evolve slowly if at all, even if newer and better ways to deliver care emerge. (More to the point, rules will squelch incentives to develop newer and better ways to deliver care.)

Are these even approximately the right rules? They were not designed by politicians, thank goodness. They were largely designed by academics and policy wonks, and not just any academics and policy wonks, but some of the best and the brightest. I know many of them – some are my friends and a few are as smart as I am, perhaps even smarter. The academic policy crowd may be smart but this entire approach to policy would benefit from a little bit of humility. Consider that many of those declaiming “ACOs or bust” were saying the same thing about integrated delivery systems in the 1990s. Are their memories that short? (Dr. Crosson continues to be a huge supporter of IDSs.)

There is another set of academics that is highly skeptical of integrated models, including ACOs. Many, like myself and Wharton’s Rob Burns, are associated with business schools and work in the field of business strategy. Does our background inform us in ways that academics from other disciplines do not? Perhaps so. (Dr. Crosson’s arguments in support of integration seem to gloss over basic business strategy issues.) Our research has taught us to have reservations about integrated delivery models, and this is not second guessing. We were first guessing in the 1990s, questioning the wisdom of integration at a time when many academics and policy wonks were singing its praises.

I believe strongly in viewing ACOs through the lens of business strategy and when I do I remain skeptical. But I am not presumptuous enough to claim that I know the truth. Nor would I set national policy based on how I view the world. I don’t know for certain whether integration or virtual organizations or something in-between will work best. But I do know how we can find out – put them to the market test. (That is how we learned that 1990s-style IDSs did not work.) Give seniors vouchers and let them face the marginal costs of their decisions. Risk-adjust Medicare payments to plans and do whatever else is necessary to limit selection. Get rid of tax subsidies for private insurance. Publish plan level quality data – there are some amazing advances in patient reported outcomes data that would provide meaningful comparisons. These are all reasonable government intrusions, providing a context for competition but leaving plans free to choose how they wish to create value for their enrollees. If they want to continue paying fee for service to independent providers, let them. Others may have narrow networks with gatekeepers. Integrated organizations may emerge and maybe one of them will dust off the rules that were written for ACOs and give them a try. If Dr. Crosson is correct, that organization will succeed and grow.

1 Comment

  1. Agreed. Is there a more detailed analysis that you have available?

    Comment by Parijat Sharma — July 20, 2011 @ 10:27 pm


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