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

October 18, 2012

Dr. Yes on ACOs

Filed under: Uncategorized — David Dranove and Craig Garthwaite (from Oct 11, 2013) @ 10:41 am

Last week I attended a conference on health policy at the University of Chicago, where I moderated a panel that examined implementation of the Affordable Care Act. For much of our time, the panel focused on Accountable Care Organizations. Panelists and attendees wondered whether ACOs would meet the same fate as Integrated Delivery Systems of the 1990s. Some in the audience mentioned that when it comes to integration, electronic medical records could be a game change. EMRs could be used to monitor and reward cost saving decision making, for example. But most ACOs are still figuring out how to use EMRs for clinical decision making; their use in helping managerial decision making remains far off.

As more and more speakers expressed skepticism about the future of ACOs, a physician in the audience offered a truly fresh perspective, one that makes me feel much more optimistic. I never learned this physician’s name, so I will call him Dr. Yes. Before I summarize Dr. Yes’ argument, it is helpful to turn back the clock to the late 1990s, when IDSs were taking the health industry by storm. Perhaps the defining feature of IDSs in the 1990s was the integration of hospitals and primary care physician practices. This strategy failed in large part due to classic agency problems. In a nutshell, an agency relationship can fail because of incentive problems (the principal is unable to effectively motivate the agent) or selection problems (the principal employs the wrong type of agent.) IDSs suffered both. When hospitals acquired physician practices, they converted entrepreneurs into employees who resisted any kind of incentive payments. As employees, primary care physicians did not work as hard or show as much commitment to their practices. Moreover, those physicians most eager to give up their autonomy were those looking to dial down their practices and lead the “quiet life.” In these ways, IDSs experienced both incentive and selection problems, with devastating results.

According to Dr. Yes, today’s physician is totally different from the physician of the 1990s. And those differences bode well for ACOs. Without mincing words, he said that today’s physician is fed up with private practice. Physicians face uncertain Medicare reimbursements and enormous pricing pressures from private insurers. They are told that they have to demonstrate quality but lack the data systems to do so. Solo and small group practices are virtually nonexistent so most physicians are already parts of large organizations. And patients with large deductibles are turning the physician/patient relationship into a business relationship. Dr. Yes might have added that the majority of new physicians have vastly different expectations about lifestyles and incomes than the previous generation. In the 1990s, medicine was being transformed into a business. Today, it is a business.

As ACOs acquire physician practices, they will find many willing partners, not just the self-selected few that are one step removed from early retirement. As employees, today’s physicians will expect pay for performance bonuses and welcome the opportunity to craft P4P schemes with their employers, rather than accept those imposed by insurers. If Dr. Yes is correct, today’s physicians will want to make ACOs work; they are ready for the business challenge. This stands in stark contrast to the many physicians who joined IDSs in the 1990s seemingly as a way to avoid work.

The ACO train has left the station and there seems to be no stopping it. For all of our sakes, I hope that Dr. Yes is right. Right or wrong, it does appear that a new generation of physicians will be key to ACO success.

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