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ACOs or Free Market?


Are ACOs and value-based payments panacea or placebo? That was the question put to some of Nashville’s top healthcare economics and policy gurus at the Aug. 20 Health:Further conference produced by Jumpstart Foundry.

Moderated by Jim Lackey, chairman and CEO of Complete Holdings Group, the friendly debate took place between Larry Van Horn, executive director of Health Affairs and associate professor of Economics at Vanderbilt University’s Owen Graduate School of Management, and Richard Cowart, chair of Baker Donelson Bearman Caldwell & Berkowitz’s Health Law and Public Policy Departments.


ACOs 101

As defined by Centers for Medicare and Medicaid Services, accountable care organizations (ACOs) are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated, high quality care to the Medicare patients they serve. Theoretically, coordinated care helps ensure patients, especially the chronically ill, get the right care at the right time in the right setting … with a triple aim of reducing errors and improving outcomes while avoiding unnecessary duplication of services and delivering care in a more cost effective manner.

When an ACO succeeds in delivering quality care while spending healthcare dollars more wisely, the ACO partners share in the savings the model has achieved for the Medicare program in a classic win/win/win for patient, provider and payer.

Under CMS, ACOs agree to manage all of the healthcare needs for a minimum of 5,000 Medicare beneficiaries for at least three years. While the exact number of ACOs fluctuates, common estimates range from 500-700, including more than 150 non-Medicare ACOs.


ACO vs. Free Market

Cowart, who leaned in favor of ACOs, noted the Medicare/Medicaid programs, now celebrating 50 years, have evolved to include parts A-D, with the most recent Pharmaceutical Drug Benefit (Part D) added 10 years ago.

With the numerous moving parts, Cowart said, “Nine years ago, ACOs provided a way to sit in the middle and discuss how to engage everyone as a team. There needs to be a pluralistic pricing model for a robust future. We don’t need two bookends; we need something in the middle.”

A free market proponent, Van Horn noted that healthcare spending represents 18.5 percent of the nation’s GDP, with 12-13 percent of expenses paid out-of-pocket. “There’s nothing wrong with a fee-for-service model. It pains me to think about the central payer,” said Van Horn, who also co-directs the Nashville Health Care Council Fellows program.

“The ACO doesn’t start with how we solve customer’s problems. Would it be better to create an ACO or allow easy access to innovation to solve problems?” he asked, noting that what an ACO deems “value” might not align with the average citizen’s idea of value.

“We’re broke as a country,” Van Horn stated. “We need to pull back the amount of healthcare consumed in the U.S.” He theorized a free market healthcare supply would regulate itself or drop to reflect a decreased demand and that spending more out of pocket would reduce overall expenses.

"You've got two competing models, " he said. "One is driven by supply-side, and that's population health, accountable care organizations, value-based stuff … and the industry is all headlong on this. On the parallel side, you've got demand changes affecting consumers — high-deductible plans, defined contributions. It's a race to see who's going to win, and I think demand changes are winning."


No “One Size Fits All”

But the idea of healthcare without federal involvement isn’t a welcome concept to all. “Pulling government out of healthcare would mean a total collapse,” Cowart predicted. “The self-pay system is nuts. We need some private and some government.”

Cowart added the notion of a private market driven by consumer technology simply wouldn’t hold up across the board, especially among elderly patients who lack the tech skills needed to navigate healthcare online.

Still, even ACO proponents agree there are weaknesses and that the government-based payment model might not be sustainable as is. According to Cowart, the 1990s was a great … albeit cautionary … experiment in groups wandering into areas outside their core competencies, and he urged the industry not to go there again.

He also agreed that the fatal flaw of many ACOs is not really knowing their population – a view shared by Van Horn. “They can’t know the population because the population doesn’t stand still … 15 percent of Americans move yearly,” pointed out Van Horn.

“None is the equilibrium when the dust settles,” he continued. “The private sector is key in solving problems.” And while many providers might consider another network competition, Van Horn said to think again. “HCA isn’t your competition,” he said. “Wal-Mart is. Teledoc is.”

But patient experience matters, Cowart countered, and clinical enterprise can do what big box retailers can’t. “The core of healthcare is chronic disease and seniors, and public policy demands that government be involved,” said Cowart. He added that he is supportive of tax-favored vouchers to buy coverage off of private exchanges and to utilize emerging tools like health data analytics to provide population health insights to improve quality.

“In an ACO, quality is defined by the industry, not consumers,” Van Horn argued. “You can’t trust any ACO to solve problems of where I should get care, or what I should pay.”

He continued, "Let the private market create such amazing solutions that Medicare beneficiaries want to buy it. ACOs are antithetical to innovative companies. High-deductible plans increase pain points, cutting down on demand and lowering costs."

While the debate will continue, most people in healthcare are in agreement that the time is ripe for innovation and transformation in delivery and reimbursement.

No matter which side you land on, Cowart concluded, “It’s a very exciting time.”



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