Accountable Care Organizations May Have Difficulty Avoiding The Failures Of Integrated Delivery Networks Of The 1990s

By Lawton R. Burns and Mark V. Pauly
Health Affairs, November 2012

Abstract

Accountable care organizations are intended to improve the quality and lower the cost of health care through several mechanisms, such as disease management programs, care coordination, and aligning financial incentives for hospitals and physicians. Providers employed several of these mechanisms in forming the integrated delivery networks of the 1990s. The networks failed, however, because of heavy financial losses stemming from hospitals’ purchase of physician practices and their inability to align incentives, garner capitated contracts, and develop the infrastructure to manage risk. Although the current mechanisms underlying accountable care organizations continue to evolve, whether and how they will have an impact on quality and costs remains open to question. Care coordination and information technology are proving more complicated and expensive to implement than anticipated, providers may lack the ability to implement these mechanisms, and primary care providers are in short supply. As in the 1990s, success depends on targeting specific populations, such as people with multiple chronic conditions who need and may benefit from coordinated care.

Future Directions

What does that imply for the emergence, performance, and success of accountable care organizations? It requires a reconsideration of our earlier conjecture that the organizations will be more likely to improve quality than to lower costs. With intense financial pressure from Medicare generated by lower Medicare payments, the organizations may be forced to limit costs — and, if they cannot do so by ridding their systems of waste, perhaps to do so by achieving fewer quality improvements.

More generally, Medicare may wish to use accountable care organizations to contain costs. In effect, the organizations will be told, “Here is how much money you will get per patient, and you are not allowed to charge any more; do the best you can with that.”

This draconian incentive system will truly constitute a test of how much waste there is in the system.

http://content.healthaffairs.org/content/31/11/2407.abstract

The Affordable Care Act includes several measures supposedly to control health care spending, but analysis of the health policy literature to date suggests that none of these will have more than a negligible impact. Most hope is held out for accountable care organizations (ACOs), but this report by Burns and Pauly suggests that these new entities include many of the flaws of previous similar efforts, primarily the failed integrated delivery networks of the 1990s.

In reading their full article you will understand better why we cannot expect dramatic results from ACOs and the mechanisms that they would use such as disease management, care coordination, realignment of financial incentives, health information technology, electronic health records, computerized physician order entry, clinical decision support systems, and especially the Medicare shared savings program.

As opposed to well established integrated health systems like Kaiser Permanente, these new systems will be formed from the existing health care community. The authors explain that there is no guidebook to develop and implement a coherent system by combing the existing professionals and institutions. Efforts will require considerable money and time. New personnel such as care coordinators and information technology staff will be required. As they state, “We have seen no model of a ‘flat’ accountable care organization — one requiring no increase in numbers or layers of staffing.” And it will be difficult “to ensure that all changes are internally congruent.”

Although most agree that there is a need for reinforcement of our primary care infrastructure, the authors provide evidence that the demands of care coordination under ACOs will cause a reduction in time spent on direct patient care. One study indicated that care coordination would require an additional 3.2 weeks per year of physician time.

The successful Kaiser and Group Health models took many decades to develop. You cannot suddenly take the existing fragmented delivery system and create competing, truly integrated systems in each community. That is what was wrong with Enthoven’s managed competition model, and that is what is wrong with the incipient accountable care organization model.

The greatest risk of ACOs seems to be that Medicare will use them to help meet the political goal of “reducing entitlement spending,” sacrificing the emphasis on quality because of cost considerations, and applying pressure to ratchet down spending. The latter is particularly a problem because private health systems are not very adept at identifying and ferreting out waste, rather they reduce spending primarily by impairing access. Selectively limiting Medicare spending will further compound access problems by a reduction in the numbers of willing providers, likely diminishing public support of Medicare.

In contrast, a single payer system is designed to reduce the abundance of identifiable waste, especially administrative, while improving both quality and access. It would be fine to continue with a demonstration project studying integration of health care to see if such delivery system reform could improve quality, but we don’t want to allow that to displace the much needed financing and health system reforms of single payer. That’s where we would have the greatest return on quality, access and costs.