Healthcare Reform and Inevitable Conflict: Smaller Pie Means Smaller Slices
February 1, 2010
With all the media coverage of healthcare reform and its political ramifications, its easy to get caught up in the debate. Notwithstanding the recent setbacks, there will be some kind of reform in the not too distant future, if only because the sources of healthcare payment cannot keep up with the costs of providing care. Most healthcare economists agree that real reform will only come when the financial incentives of the current system are altered to reward quality and efficiency rather than volume.
A concept frequently put forth to address this objective is the “accountable care organization” or “ACO” (any reputable idea in healthcare must be reducible to a three letter acronym). Essentially, ACOs are associations of healthcare providers (typically, doctors and hospitals) that share responsibility for the coordinated care provided to a pool of common patients. ACOs can share clinical information and operate with some degree of financial integration. The providers in the ACO are then jointly “accountable” to the third party payers who fund the care provided to their beneficiaries by the ACO. (See the recent post in the Healthcare Economist explaining ACOs and some of the key characteristics of various ACO models.)
Another concept aimed at the same objective is “value based purchasing” or “VBP.” Under VBP, the current system of Medicare payments to physicians (based on a per task menu of fees) would be converted to one based on efficiency and quality. In order to assess a physician\’s efficiency and quality, the services provided to any patient would have to be grouped with all services within the same “episode of care.” As noted in another post at the Healthcare Economist, this process of grouping carries with it a number of unanswered questions.
Sooner or later, the use of ACOs and VBP in some form will become a reality. There is no other politically viable approach on the horizon to reducing healthcare costs. But that will be only the beginning of a wave of conflict within the world of healthcare providers and third party payers. ACOs, VBP and any other three letter acronym to come will only reduce healthcare costs by yielding a result by which the total dollars paid to doctors and hospitals for providing care to a group of patients is reduced. Otherwise, why bother? When the pie gets smaller, everyone\’s piece will get smaller, too. Those who provide the highest quality, most efficient services may get a larger piece, but that will only make everyone else\’s piece even smaller.
Most doctors and hospitals do not believe they are overpaid under the current regime. Many have experienced decreased net income over recent years. All will enter the new arena of ACOs and VBP firmly holding the “bottom line” position that they must at least maintain their financial status quo. The convergence of so many irreconcilable bottom lines will create conflicts that play out in a variety of scenarios. Who will lead the ACO? Who will be allowed in or kept out? Who will decide the internal compensation model, and what will it be? What effect will the ACO have on existing hospital-physician relationships? On existing medical practice agreements? How far will ACOs go to create, preserve and assert their control over patients in dealing with third party payers? How much of the benefit of their “efficiency” will providers share with third party payers?
[Image: Thanksgiving pie aboard U.S. naval ship in the Persian Gulf, by Photographers\’ Mate Airman Rome J. Toledo, November 25, 2004]