NEJM Study: Vertical consolidation may negate benefits of health care coordination

A study* of the early performance of Accountable Care Organizations (ACOs) formed under the ACA suggests that, in funding such programs, the ACA creators may have sawed at the branch they were sitting on.

The analysis of of ACOs in the Medicare Shared Savings Program (MSSP), by a team led by Harvard's J. Michael McWilliams*, looked at total Medicare Parts A and B spending and spending on patients with select specific conditions in participating ACOs that entered the program in 2012 and 2013. In the MSSP, the largestof the ACO programs, organizations take on no downside risk -- they stand only to gain if they keep spending below targets.

The study found modest reductions in spending compared to control groups by the 2012 cohort, and negligible reductions in the 2013 cohort. Most of the improvement was in two subgroups: those whose spending was higher than the regional average prior to the program launch, and those that were composed of independent physician groups rather than those owned by hospitals. The second finding throws up a red flag with respect to current trends:

we estimated substantially greater savings for independent primary care groups than for groups integrated with hospitals when comparing spending changes in ACOs with local concurrent changes. There are both theoretical considerations and previous observational studies that would support the pattern of savings that we observed. In particular, independent physician groups have stronger incentives to lower inpatient and hospital outpatient spending than groups integrated with hospitals because their shared-savings bonuses are not offset by forgone profits from reductions in hospital care. Our findings suggest that financial integration between physicians and hospitals, which may increase commercial health care prices,is not necessary for ACO success. Early signals from the MSSP, however, may not predict the long-term efficiencies from various organizational structures under new payment models

The problem is that the ACA turbo-charged an existing trend toward hospitals buying up physician groups.  Those buy-ups generate major price hikes, as Medicare pays more for procedures performed by doctors in hospital-owned facilities. Recognizing this, the Obama administration proposed in its 2015 budget legislation to eliminate discrepancies between payments to private practices and hospitals. The 'doc fix' bill passed later last year, revamping the Medicare payment formula, did provide that an "off-campus" practice owned by a hospital could not charge hospital rates. But that rule was not made retroactive: off-campus practices that were purchased prior to the law's enactment in November 2015 can continue to charge on-campus rates [updated/corrected, 4/19].

The strongest levers incentivizing or restraining consolidation may be wielded on the state and local level, including in the administration of federally funded programs. For example, a recent report by the Manhattan Institute's Paul Howard and Yevgeniy Feyman on how to foster competition in New York's healthcare market raised worries about incentives in the state's Delivery System Reform Incentive Payment (DSRIP) program -- a federally funded state grant for Medicaid reform programs. Howard and Feyman suggest (citing published FTC concerns) that some of the ACO-like "performing provider systems' (PPSs) funded by the program might enable anti-competitive price collusion. They recommend that the state be less free in granting "certificates of public advantage" (COPA) "that immunize DSRIP participants from federal antitrust action."

Can federal and state agencies (and federal and state legislatures) foster care coordination without consolidation? All the momentum is the other way. At the same time, the dangers of consolidation are widely recognized, antitrust action has been ramped up of late, and Hillary Clinton is promising more.


Early Performance of Accountable Care Organizations in Medicare.  J. Michael McWilliams, M.D., Ph.D., Laura A. Hatfield, Ph.D., Michael E. Chernew, Ph.D., Bruce E. Landon, M.D., M.B.A., and Aaron L. Schwartz, Ph.D. New England Journal of Medicine, April 13, 2016