Flexible Partnerships in Accountable Care Organizations

To follow up on my post last week on Accountable Care Organizations and shared-savings programs, today’s post is on another Health Affairs paper, this one by Jeff Goldsmith: “Accountable Care Organizations: The Case for Flexible Partnerships Between Health Plans and Providers” (January 2011).

Goldsmith announces his views of the ACO program as early as the paper abstract: “[T]he dismal history of provider-led attempts to manage costs suggests that this program is unlikely to accomplish its objectives.” Building upon the insight that hospitals “are likely to dominate the ACO contracting process” due to the nature and objectives of the ACO process, he provides the following reasons for this opinion:

1. “Hospitals wishing to become accountable care organizations will have to make sizable investments… to function according to that model”,
2. “[H]ospitals are experiencing larger economic losses on the practices they are acquiring now than hospitals did in the wave of acquisitions in the 1990s”, which had already ended in “catastrophic economic losses”.

Goldsmith’s view is that these costs and losses “are likely to exceed the potential gain-sharing opportunities.” He also points out that hospital-physician collaboration has a troubled history, including mistrust, infrastructure constraints, weak incentives and income redistribution (because ACO incentives are added to the traditional fee-for-service structure) and lack of patient involvement, among others.

What he suggests in his paper is “a more flexible payment model… that would divide health care services into three categories: long-term, low-intensity primary care; unscheduled care, including unscheduled emergency services; and major clinical interventions.” The key idea is that “each category of care would be paid for differently” to reflect the different amounts of financial risk.

Specifically,

• Primary care would be delivered through the concept of medical home (“an enhanced primary care model that incorporates clinical information technology; more continuous, low-intensity contact with patients… and medical management and support services provided by advanced practice nurses and nurse educators.”) Services in this model would be paid through subscriptions, i.e., physicians would be paid a risk-adjusted amount per enrolled patient per month.
• Unscheduled care “would continue to be paid for essentially as [it is] today: fee-for-service with cost sharing for patients.”
• Specialty care represents the most expensive component of health costs and should be paid by “a single, severity-adjusted payment when a diagnosis has been made and a clinical approach chosen.” This would require a “precise division of clinical responsibilities”, since specialty care is usually provided by teams of specialists. The author anticipates that “specialty care marts” centered on specific conditions or specific populations of patients could play a significant role in providing effective treatment.

An appealing feature of this approach, in Goldsmith’s opinion, is that it has fewer barriers to adoption than the ACO system. Most importantly, it would replace the fee-for-service system rather than overlaying it and thus has the potential to significantly transform healthcare payment models.