For those — including me — who believe the Obama administration isn’t serious about controlling federal health spending, its proposal for “Accountable Care Organizations” (ACOs) is an instructive case in point. On paper, ACOs seem a spectacular idea. They promise better care at lower cost. What’s not to like? Unfortunately, the rhetoric obscures the reality. Participation in the program may be modest, and savings are likely to be minuscule. ACOs make for good press releases and bad public policy. They give the impression that the administration is “doing something” about health spending when it isn’t.
An ACO would be a network of hospitals, doctors and other health-care providers. The idea is that by “coordinating” care more closely, the network can improve health outcomes — particularly among patients with chronic conditions such as arthritis, high blood pressure or diabetes — while also lowering costs. Patients “often receive care from multiple physicians,” the administration notes, and this can lead “to patients not getting the care they need, receiving duplicative care, and (being exposed to) medical errors.” The administration's proposal would apply to Medicare, and savings would be split between the government and the providers. The program is supposed to start next January. Everyone wins. Or so it seems.
Why, then, isn’t it likely to succeed? Answer: Because it promises to be a bureaucratic nightmare. Participation in the program is voluntary, so hospitals, doctors and other providers won’t sign up unless the regulations are simple and compliance costs are low. They aren’t. The Centers for Medicare and Medicaid Services (CMS), which would run the program, published its initial regulation in April. It ran 128 pages. Among other things, participating hospitals would have to submit reports on 65 different quality measures. In addition to the CMS regulations, hospitals and doctors would also have to follow elaborate guidelines from the Justice Department, Federal Trade Commission and Internal Revenue Service so that ACOs don't run afoul of antitrust or tax laws.
The proposed rules are so complex that, unless modified, almost no one may sign up. The American Medical Group Association — a trade association representing 390 hospitals and group practices serving about 110 million patients — surveyed its members and found that 93 percent said they wouldn’t participate. The proposed rule, said the group, is “overly prescriptive (and) operationally burdensome”; the “incentives are too difficult to achieve to make this voluntary program attractive.” The American Medical Association, representing doctors, said that the initial antitrust guidelines would discourage many physicians from joining.
And the government's Medicare savings? CMS actuaries offered three estimates for a three-year period: $170 million, $510 million and $960 million (the higher the estimate, the less likely it was to occur). Even the highest figure is only five-one-hundredths of 1 percent of the $1.842 trillion of Medicare’s estimated spending from 2012 to 2014. If CMS modifies its rules to make ACOs more attractive to hospitals and doctors, they would probably keep more of the savings — and Medicare less.
It's a good bet that what’s true of ACOs also applies to other cost-cutting ideas from the Obama administration, such as “bundled payments” and “comparative effectiveness research.” The concepts seem smart, but they're likely to suffer from micromanagement. They create jobs for lawyers and health-care “experts.” They sound impressive in speeches and op-ed pieces. But they don’t much “bend the cost curve,” and they mislead the public by suggesting that health spending is being controlled. It isn't.