Month: September 2014

Pioneer ACOs Defended

This week the Centers for Medicare & Medicaid Services (CMS) Innovation Center published an update on the Pioneer ACO Model experience. This is definitely a PR piece and it comes off as a desperate salvage attempt. This CMS sponsored program started in 2012 with 32 hand-picked, high-functioning, EMR savvy, medical care organizations. The purpose was to explore the cost-saving and quality enhancing potential of a model Accountable Care Organization (ACO) for the Medicare population. Financial incentives are offered to those organizations who beat certain cost reduction goals. Starting last year penalties will be applied to those ACO’s whose performance falls below established levels. This happened to 6 of the 23 remaining ACO.s. Eleven of them earned shared savings with an average of $4.2 million. The usual bag of quality of care metrics (very few are outcomes) is monitored. In 2013 9 of these organizations pulled out of Pioneer and recently Sharp Health Care in San Diego left. CMS reported $87 million in savings for 2012 and $96 million in 2013. These are not very impressive numbers for 669,135 Medicare beneficiaries. It’s obvious that the program leaves much to be desired especially when one considers that all of these organizations are atypically sophisticated. Nevertheless one of the departing organizations was the University of Michigan. They stood to gain some shared savings but apparently they quit because of administrative complexity and lack of computer interoperability. Interestingly CMS doesn’t reveal what the start-up and maintenance costs have been for the participants. “Innovation pods” have been developed to help generate that information but I have not been able to find any published data.. Apparently some of last year’s cost-saving came from a waiver CMS gave to Pioneer for the 3-day hospitalization rule for admission to a skilled nursing facility. Of course that waiver and those savings could be applied to all Medicare recipients without involving an ACO. So in this instance the savings figure has been “doctored.” Assignment Instability and Alignment are huge problems in any grouped outpatient plan. In a recent study only 66% of beneficiaries were consistently assigned to one ACO over a two year period. To make matters worse, 66.7% of office visits with specialists were outside of the ACO. And, of course, that presents a problem with applying quality metrics. CMS uses claims analyses to assign patients to an ACO. They are considering allowing patients to identify their primary physician and determine assignment based on that. If that worked it still wouldn’t solve the problem of leakage where a patient receives services outside of the organization. The last paragraph of this published viewpoint is interesting. Whereas the piece started out with beautifying words such as “collaborative”, “rich”, “shared”, “sophisticated”, etc., we then see “recognition of the need for more tools.” And finally, “challenging”, “continues to mature”, “fueled by”, “as ACO’s become…”, “as CMS becomes more effective…”, “apply lessons learned”, “development of new models” and ”CMS will evaluate whether these Pioneer results warrant expansion nationally.” And the final throw-away pitch, “Early success in the Pioneer model suggests that in the long term, accountable care will offer patients the improved outcomes they deserve and ACOs the sustainable business model they need to stay focused on delivering high-value care.” In other words, it isn’t working.

Posted 9/17/2014

Hospital Administration Waste

U.S. hospitals spend 25.3% of income for administrative expenses-the highest of 8 industrialized nations studied in this report. If we had the same percentages as Scotland or Canada we would have saved $140 billion in 2011 and even more per year since then. We could do that by having a simpler single payer system.  Health Aff September 2014 vol. 33 no. 9 1586-1594                                    

Health Insurance Profits

Sarah Kliff’s recent publication on VOX was nicely done and covered many of the ways in which our health care system is broken. I would add that the disappearance of primary care is another important factor and contributes to the high average cost per office visit and the incentives toward expensive specialist procedures.

One area of the presentation needs further discussion and that is health insurance company profits. Ms. Kliff uses the measure promoted by the American’s Health Insurance Plans (AHIP) under the term “net profit” which refers to dollars left over after all the rest has been spent (roughly 3%). But that doesn’t mean spent on health care. That includes the 15%-20% spent on administrative costs, paper shuffling, lobbying costs, advertising, and multi-million dollar executive compensation packages. A more appropriate metric would be the Return on Equity (ROE) which runs at 12.1% for Health Care Plans. Health insurance is a no-value-added industry. The companies do not take care of people, they do not provide medical care, they do not create or build anything. They are pass-through operations that take the money in (premiums), remove 15%-20% of it, and pass the rest on (trying hard to find ways not to pass it on). That’s the policy holders’ money that they are passing through. They are getting that 3% net profit on other people’s money; not their own money. That’s just free money for them. Their own money is their equity. And their return on that is 12.1%. As much as I admire Uwe Reinhardt I can’t really agree with him when he says, “The profits of insurance companies are truly a trivial part of national health spending.” With premiums totaling $738,889,000,000 I think they play a significant role in our spending. Of course, it is understood, that with government agencies paying for 60% of our health care in the U.S. this discussion is about the remaining 40% (less OOP).

 Health total premiums                                          http://www.naic.org/state_report_cards/report_card_us.pdf

If there is any doubt that the insurance companies are making plenty of money we need only to look at the compensation for their CEO’s (not to mention all of their CFO’s, CIO’s, and vice-presidents of…,etc.).  For example, in 2013 the CEO’s of the top 11 for-profit companies received a total of more than $125 million.

Health Insurance Info 2014_Table

And, of course, their stockholders are happy with 18% to 34% increases in the stock values in the last year.

We should all keep in mind that however we define “profits” in the health care insurance industry we are really talking about money gained from avoiding payment of medical bills.