In a critique of Accountable Care Organizations last October, I wrote:

“Now comes news that three more of the original groups will jump ship, leaving only 19 of the original 32 still on board. A nearly 50% attrition rate should be seen as a death knell for the concept, as these were likely the best of the best, and the inducements most generous. Reasonable people would head back to the drawing board. But we are dealing with government bureaucrats, health policy wonks, and administrators. They will damn the torpedoes and push on at flank speed.”

And, as sure as eggs, that is exactly what is happening. Last month, amid fanfare, the Secretary of Health and Human Services Sylvia Mathews Burwell announced plans to move 50% of Medicare spending into Accountable Care Organizations and other forms of so-called “payment for value.”  This initiative is being pushed through by special interests that expect to benefit. Patients and practicing physicians, the people most affected, are simply not represented.

Reporting from the Wall Street Journal suggests who will benefit from this approach: “The secretary on Monday was flanked by top insurance industry, health system, medical association and consumer-group executives as she announced a goal that she described as historic.”

Ms. Burwell is not content with destroying only Medicare, according to Medscape, “Burwell also announced the creation of a Health Care Payment and Learning and Action Network that would work with private health insurers, providers, employers, and state Medicaid programs to hasten the spread of alternative payment models outside Medicare.”

Medscape quotes Douglas Henley, CEO of the Academy of Family Physicians, and Robert Wah, president of the American Medical Association as saying: “We’re on board, and we’re committed to changing how we pay for and deliver care to achieve better health.” The HHS plan “aligns with the [AMA’s] commitment to work toward innovative care delivery reform that will promote high-quality and efficient care for our nation’s seniors who count on Medicare, while reducing the administrative and regulatory burdens physicians face today.”

And so the leaders of “organized medicine” are on board with policies that will lead to the destruction of private medical practice, which depends completely on the much-maligned fee-for-service payment mechanism.  Perhaps they don’t fully comprehend the implications of what they are endorsing. The fee-for-service private medical system has been the bedrock of American medical care. Far from driving up costs, it is the one part of the system holding down costs. The third party payment system, by removing the price signal at the point of service, is what drives up costs. And the never-ending regulations and hurdles from third party payers, both private and governmental, impose costs on medical transactions.

A better plan

A direct pay (non third party) medical practice is a model of efficiency. A patient visits the doctor, and pays directly for the visit at the point of service. No bill to an insurance company is generated (though the patient may choose to submit a claim). Personnel dedicated to billing, obtaining various prior authorizations, and following up on denied claims, are eliminated.

Any incentive to churn the system to increase profits is opposed by the patient’s ability to pay, and reluctance to submit to possibly unnecessary or excessive treatments. And the physician is honor bound by a code of ethics not to harm the patient with over treatment.

The fee-for-service system aligns payment without actually providing a service for a patient. Arguably, this is exactly what patients want, especially when they are facing serious disease. Patients expect timely care from a doctor who is representing their best interests.  The ACO, like its predecessor, the HMO, provides the opposite.
HMOs, ACOs, and “bundling” share a common trait: A fixed sum is available to provide medical care to a patient. Spend less, and keep the difference as profit; spend more, and incur a loss. If you were diagnosed with kidney disease, cancer, or heart failure, which system would you prefer?

In nephrology, we have seen how bundling works in practice. The original “bundle” wasn’t indexed for inflation, which led to expansion of non-bundle spending on erythropoiesis-stimulating agents, iron, and vitamin D analogues, with guideline-driven over-prescription becoming the norm. When these drugs were added to the bundle, their use immediately declined, and cheaper alternatives (e.g., oral calcitriol) were substituted. Pressure to keep hemoglobin levels within a narrow range (again, based on faulty guidelines) led to an increase in transfusions. Substantial lobbying kept certain dialysis-related drugs outside the bundle (cinacalcet, phosphate binders), which will certainly stimulate their sales. None of this maneuvering improves patient care or saves money.

ACOs must fail because they 1) are based on false assumptions; 2) are top-down and administratively top-heavy, 3) create “savings” that become profit (no real savings); 4) rely on problematic electronic health records; 5) will use so-called quality benchmarks that will end up harming individual patients.
The push for ACOs continues the assault on private practice, which is the last refuge of high quality, individualized care. Physicians and patients must stand up in opposition.