Accountable Care Organizations

CMS continues to tout troubled ACO programs

With its announcement yesterday, “ACOs Moving Ahead,” of 89 new members of the MSSP CMS neglected to mention the recent figures from NAACOS. CMS continues its propaganda designed to hide the lack of success of its three Accountable Care Programs. The MSSP program was designed to move into a two-sided risk acceptance format where the providers would share in both losses and savings. In November the National Association of ACO’s published the results of their tracking survey which revealed that 2/3 of the MSSP ACO’s were highly unlikely (54%) to sign a new two-sided contract, or highly unlikely to finish a contract (8%) or somewhat unlikely (4%) with 26% undecided.

Even though most of the groups entering the program already had sophisticated EHR tracking and reporting systems the time lost to bureaucracy and the ongoing maintenance costs of $1.5-2 million a year were discouraging. Add to that the fact that expected return of shared savings to the providers was reduced by their failure to meet quality standards (most of which are the old, discredited process metrics).

CMS’ previous inflated press release contained the same kind of obfuscation of the Pioneer ACO program. See…

Hospitals As Stakeholders

The desire for health care reform in the U.S. must lead us to examine the role that the various stakeholders play in the high costs and dysfunction of our system(s). Abuse, waste, and profiteering have been well documented in the pharmaceutical, medical appliance, and insurance industries. Fraud and mal-aligned payment incentives by and for physicians is, at least, being discussed. The hospital industry has been receiving a lot of attention because of the notoriety of the obscene charges and opaque charge-master protocol. But, so far the general public has had little instruction as to the destructive changes that have been occurring in the hospital industry over the last 20 years. With over half of U.S. hospitals being a part of a Health System we are now talking about much bigger and more powerful entities.

1   Hospital wars
The fight for survival and supremacy has affected profit and not-for-profit hospitals alike. Developing profit-making but duplicative services has contributed to the rising cost of medical care over the last two to three decades. CT scanners and MRI machines around every corner creates excess capacity that is met with increased prices, advertising and non-indicated use (often supported by conflicts of interest promoted by referring physicians).

Hospitals follow the latest high cost medical fads in order to capture a higher portion of the medical dollar. In the previous two decades this included first, the popular coronary bypass (CABG) programs. These include 301 new CABG programs within a 20 mile radius of an existing program and 80% of the new ones were within 5 miles of the old ones. These were built to capture the dollar, not to fill a medical need. And contrary to free-market dogma, the prices went up instead of down (the invisible hand?).

Fewer CABGsDuplicatice CABG

Following this was the expensive cardiac lab for inserting stents in coronary arteries. This procedure is now on the watch list for its overuse in patients who have never had a coronary related episode. Again, every hospital wants to have one-so they have to be used. This not only drives costs but it creates unnecessary surgical complications.

Inappropriate Heart Procedures
Controversy in the Cath Lab
Duplication of New PCI Programs
Competition, Not Need, Drives Hospital Cardiac Care Investment

One of the latest fads is robotic surgery, pushed by Intuitive Surgical, Inc. These instruments are extremely expensive and very costly to maintain. The company’s claims of reducing surgical times and reducing complications have not been proven. In fact many complications have occurred from their use. It will take a number of years to sort out the appropriate use of these complex and sophisticated machines.  In the meantime hospitals are jumping on the bandwagon. As reported in the Seattle Times in 2012, “Washington hospitals now have at least 37 surgical robots, and robotic surgeries — most to remove a uterus or prostate — have skyrocketed in recent years. Swedish Medical Center has seven robots, Sacred Heart in Spokane has three. Even tiny Pullman Regional Hospital, with 25 beds, bought one. It cost twice as much as the hospital netted in 2010.”

Use of surgical robots booming despite hefty cost
Robotic Surgery Complications Underreported

2.  Advertising & Lobbying
As with insurance companies, the hospital industry spends $1.5 billion dollars annually to sell their product. This often includes endorsements by medical people who have a financial interest. It is the patient who ultimately pays for these efforts to produce sales and income beyond what the hospitals can acquire by just doing their job. As one example, at St. Francis Medical Center in Missouri the ad budget amounts to nearly $46,000 per licensed hospital bed a year, or $130 a day per bed

3.  Marked increase in payroll costs for non-clinical salaries

     Generic managers & Executive Salaries
Kaiser Health News created a chart of executive compensation in the hospital industry for the year 2011. The highest compensation was at Kaiser Permanente ($7,936,510). It should be noted that many of the executives are what have been called “generic” managers.  Generic managers, that is leaders trained only to manage, but not experienced in what constitutes personal health care.  Managers and bureaucrats are increasingly numerous in health care, the former somewhat and the latter greatly out-numbering physicians.

A similar, but more surprising chart had been developed by KUOW an NPR radio station. This was for the Puget Sound area in Washington State in 2008. 21 of the top 62 administrators received $1 million or more (two over $5 million).

         Growth of non-clinical workforce
As Robert Kocher says in The Downside of Health Care Job Growth, “Over half of the $2.6 trillion spent on health care in the United States in 2010 was wages for health care workers.”   and, “today, for every doctor, only 6 of the 16 non-doctor workers have clinical roles, including registered nurses, allied health professionals, aides, care coordinators, and medical assistants. Surprisingly, 10 of the 16 non-doctor workers are purely administrative and management staff, receptionists and information clerks, and office clerks.”  Kocher points out that this non-clinical workforce has little to do with delivering better patient outcomes or lowering costs. So much of this is created by the multiple payer insurance system with hundreds (thousands) of payers and many thousands of billing codes, policies, rules, etc.

A good example of this bloat of medical bureaucracy comes from the 2008 testimony of Uwe Reinhardt, the economist, before the Senate Committee on Finance when he stated that at Duke Health Systems, where he served on the Board they had 900 clerks on the payroll for a 900 bed hospital.

Physicians vs Adm

4.  Acquisitions and Mergers
In 2012, 94 mergers or acquisitions took place in the hospital industry worth a total of $1.88 billion. See Mergers in 2012. In the first 6 months of 2013 there were 46 M&A’s and 98 for the year. In the first 6 months of 2014 there were 43. Additionally we are seeing various “affiliations”, “quality alliances”, “strategic alliances”, partnerships, and “Clinically Integrated Networks”, etc. Some of these acquisitions occurred because one of the participants was in financial difficulty but the large number of them is designed to increase market leverage and create increased reimbursements. The increased leverage in a geographical area also allows the new entity to dominate any kind of negotiation during physician hiring.

Large scale mergers almost always lead to higher prices and there is no evidence that they improve quality of care. “Hospitals that face less competition charge substantially higher prices,” said Martin S. Gaynor, director of the F.T.C.’s bureau of economics price increases could be “as high as 40 percent to 50 percent.”

When Massachusetts General Hospital and Brigham and Women’s Hospital merged into Partners Health Care it drove up health care costs with no improvement in quality of care. Attempts to minimize the monopoly effect have been unsuccessful. As the New York Times stated in an editorial, “The experience in Massachusetts offers a cautionary tale to other states about the risks of big hospital mergers and the limits of antitrust law as a tool to break up a powerful market-dominating system once it is entrenched.”

5.  ACO’s
As hospitals try to position themselves in the world of Accountable Care Organizations the mergers and acquisitions noted above become part of the game plan. Kaiser Health News discusses this as a “Humongous Monopoly.” This leads into the latest trend of hospitals hiring physicians. So far there is no good evidence that these organizations can lower costs and no evidence that they can improve quality. In fact, hospitals dominate the governance of most of the existing ACO’s and any money saved is simply a shift of dollars from Medicare to the ACO’s, not the patients. Additionally, the hiring of primary care physicians reduces the number of physicians available to provide care in rural and distant suburban areas. When hospitals purchase medical practices and clinics the price goes up for everything from the office visit charge to electrocardiograms and other basic office procedures as well as the major procedures such as joint replacements and cardiac stents.

 6.  Religious influence
Dr. John Geyman has explained well the ill effects of the expansion of Catholic hospitals across the country.  This growth of religious influence on the quality and universality of medical care especially affects reproductive and end-of-life services. Ten of the biggest twenty-five health systems in the United States are Catholic. Merger Watch and the ACLU have teamed up to publish a definitive review of this phenomenon in “Miscarriage of Medicine: The Growth of Catholic Hospitals and the Threat to Reproductive Health Care.” In this report they state, ”Catholic hospitals have organized into large systems that behave like businesses – aggressively expanding to capture greater market share – but rely on public funding and use religious doctrine to compromise women’s health care.” In the process they are gobbling up both non-profit and for-profit entities. The only difference left between these categories is that the non-profits don’t pay taxes and they can solicit tax-free donations. Former quality differences have all but disappeared and the exceptional charity care has been swallowed up by the business model. More alarming is the threat posed to women’s reproductive health care and patient driven end-of-life care.

7.  Costs-Bitter Pill
In March, 2013, Time Magazine published the landmark article by Steven Brill, Bitter Pill: Why Medical Bills are Killing Us. The bizarre and obscene hospital charges that have become an all too familiar story are exposed as well as the rapacious “charge-master” billing system. These unbelievable bills will only get worse until hospitals are forced to live on a system of global payments for operations and tight certificates of need for capital improvements. This can not be accomplished with Obamacare or the free market.

8.  Fraud, Abuse, Fines
Hospital systems may increase their incomes by up-coding (raising diagnostic codes to a more severe level of illness) and thereby making their reimbursements higher and magnifying their risk-adjustment scores.         

Gaming the System
There are numerous other abuses such as (1)keeping patients in observation units for days instead of admitting them to the hospital is legal and profitable for the hospitals but inherently unethical, (2)charging huge mark-ups on cancer drugs, and (3)Aggressively pursuing collections at point-of-care from patients with medical emergencies.

The National Health Care Anti-Fraud Association figures that fraud annually accounts for tens of billions of loss. This would include fraud by other providers and medical services as well as hospitals. Hospitals are prevented by federal law from providing financial or in-kind compensation to physicians for less than fair market value. Nevertheless these practices continue. The Office of Inspector General has published a list of 34 settlements for violations by hospitals over the last 5½ years. These were all self-disclosed and just hint at the real numbers involved in these practices. For instance, in 2012 Freeman Hospital System paid $9.3 million for paying physicians for referrals. Of course this was a pittance compared to the $731.4 million penalty paid by HCA in the year 2000. That didn’t stop them however, and in 2007 they paid another claim at $16.5 million. The list goes on and on, e.g., Health Management Associates, Parkland Memorial, Adventist Health, etc. Since January, 2009 the Department of Justice has recovered over $7.4 billion in health care fraud prosecutions.  Not all of these were from hospitals but here is a list of representative fines:

St. Barnabas Hospitals —$265,000,000
First American Health Care of Georgia — $225,000,000
Staten Island University Hospital —$76,500,000
University of Washington —$35,000,000
University of Pennsylvania —$30,000,000
University of California Davis, San Francisco, Los Angeles, Irving andSan Diego — $22,500,000
Montefiore Hospital and Medical Center — $12,000,000
Catholic Healthcare West —$10,750,000
The Cleveland Clinic — $9,050,000
The Mayo Foundation —$6,500,000
San Diego Hospital Association —$6,200,000
Northwestern University —$5,500,000
Yale University School of Medicine— $5,500,000
New York Presbyterian Hospital —$4,880,000
Johns Hopkins University School of Medicine — $3,400,000
Harvard University and Beth Israel Hospitals — $2,400,000
University of Illinois College of Medicine and University of Chicago Hospitals $2,000,000
St. Louis University (a Tenet hospital) $1,800,000

Almost all of the problems discussed here relate to the nature of our fragmented, profit-motivated medical system. They are caused by the system and can not be solved by the system. And we haven’t even discussed the huge problems of quality, affordability and access. Only a revolutionary change can have the muscle to change the basis of our medical care from profit-motive to a service ethic. Creating and moving to an Improved Medicare For All is such a change.

Please “like” me if you do.  Help me spread the word. You follow me and I’ll follow you.  Let’s talk about revolutionizing our medical care. If you want, I will come to your community organization and present a run-down on the arguments for single payer medicine.

Accountable Care Failure

Accountable Care Failure

Recent releases from CMS verify that 13 of the original 32 Pioneer ACO’s have quit even though year 3 isn’t even over yet.  Keep in mind that all 32 of these organizations are sophisticated EHR driven medical care systems. The reason for quitting is that they could not qualify for earned shared savings and many reported losses. Interestingly enough there are still no reports of what the start-up costs were for all these entities and, of course, we have no estimates of what the national start-up costs would be if ACO’s dominated Medicare reimbursement across the country. Many facilities lack sufficient EHR systems and staffing to comply with all of the regulations in the Pioneer ACO experiment. And what is it costing CMS to administer the program? Even worse, none of this applies to private and exchange insurance policies.

All of this nonsense could be stopped with the creation of a single payer system.

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


Pay for Performance: Where is the Evidence?



One of the greatest accomplishments of the Affordable Care Act is that it has helped in shining a light on the disconnects of American health care.  This huge, complex, expensive, stakeholder written behemoth is demonstrating our inability to lessen costs, improve the payment system, cultivate quality and provide equity in the delivery of health care.

The problems of the existing fee-for-service method of compensating physicians has been discussed in an earlier blog.1  So called “pay-for-performance” (P4P) is the least effective solution being offered by the health policy wonks.

Now we are involved in the old past-time of debating how to pay-for performance.  The ACA is toying with Accountable Care Organizations (ACO’s),  physician quality reporting, value bases purchasing and other cost control attempts masquerading as quality initiatives. In addition to the Centers for Medicare and Medicaid Services (CMS), state Medicaid programs and the private sector have all developed numerous P4P experiments. 

As we shall see, the inherent weaknesses of the P4P concept are playing out in the thoughtless drive to pursue the latest iterations of this fad. We will look at the difficulties and dangers of trying to define and codify “quality” and “value.” An excellent article on this subject can be found at Health Policy Brief: Pay-for-Performance, Health Affairs, October 11, 2012.

Performance definition

In order to pay for performance you have to be able to measure it. You have to have numbers that you can translate into dollars. This immediately brings up the old adage (often falsely attributed to Einstein), “Not everything that counts can be counted, and not everything that can be counted counts.” When physician performance is being evaluated we most often see an old list of processes, such as laboratory tests ordered for a certain diagnosis, screening tests, blood pressure recordings, smoking counseling, aspirin, etc.  These processes have very little real relationship to the totality of what a good physician does for his patients.  They are items that are easy to monitor once you have forced the physicians to pay for an expensive electronic medical record system. But they are meaningless, costly, and do not refer significantly to a paradigm of individual patient care. 


That being said, numerous studies have shown no lasting, meaningful improvement with various reward/penalty systems of this type.  Rosenthal and Frank stated that “The authors review the empirical literature on paying for quality in health care and comparable interventions in other sectors. They find little evidence to support the effectiveness of paying for quality.”2  Ruand and Blustein reported “Despite offering substantial financial incentives, the MassHealth P4P program did not improve quality in the first years of implementation.” Campbell et al reported from Britain that a study of family practices showed no differences in performance between the controls and those provided incentive payments. In fact, continuity of care had decreased.4 U.S. hospital P4P was equally ineffective in the large (780 hospitals) Premier study.5 The respected Cochrane Organization did an evidence-based review of multiple studies and concluded that there is no good evidence that pay for performance schemes increased quality.6

Risk Adjustment

In addition to process-directed efforts we occasionally see outcome oriented plans.  These attempt to focus on more meaningful outcomes of medical interference such as death, strokes, heart attacks, etc.

They are even more difficult to measure for individual physicians and their patients because outcomes are so dependent on co-existing illnesses, multiple physician involvement, patient cooperation, socio-economic class, etc. These elements are the data of the risk-management discipline which insurance companies developed decades ago.  If there are rewards for caring for high risk patients then many more patients find themselves categorized as high risk. If there is income loss because a system does not compensate for the high cost of high risk patients then those patients will face loss of access to medical care. There is no incentive in any system that depends on metrics that are not under the control of the physician. The latter includes many socioeconomic factors that decrease the effectiveness of medical care.7


Both process and outcome definitions of performance simply set new rules for gaming the system. They do not assure quality and they do not diminish costs. Cherry-picking is one of the numerous ways to stack the deck. For physicians this could mean continuously culling one’s practice to exclude patients who do not contribute to a high performance score. Up-coding is another well-known method of increasing payments. As Woolhandler writes,  ”the system is too easy to game–too hard to set up.” 8

Complexity of Players

A 2007 study showed that Medicare patient visits revealed that a median of two primary care and five specialty physicians provide care for a single patient. It is difficult to see how a P4P system can assign responsibility and rewards for these patients. This doesn’t count the effect of urgent care and emergency room visits that effect the parameters being measured by someone’s incentive profile. 9

Behavioral Economics

Woolhandler and Ariely 10 give an excellent discussion of some of the lessons of behavioral economics. Of special interest in the evaluation of the concept of P4P are the findings concerning motivational crowd-out.  This refers to the numerous studies showing that tangible rewards (like money) have a strong ability to “crowd-out” or destroy intrinsic motivation (doing something for its own sake).11 


With our present day complex, uncoordinated, multiple payer health system all of the above writings, research, arguments and theories will not lead to any method for lowering medical costs or improving quality.  A single payer system would have the weight necessary to establish a payment system flexible enough to provide fair compensation for physicians without the inherent weaknesses discussed above. We are seeing a strong physician movement toward salaried positions as hospitals and large clinics hire an ever larger percentage of both new and older physicians.  Over time this may turn out to be the key that frees physicians to concentrate on patient care.  For primary care this will require vigilance to avoid gate-keeper roles with restrictive cost monitoring.  Then the incentives can truly focus on quality.  A single payer system would be able to devise an appropriate mix of payment systems to fit the various practice settings in which physicians work. 

Suggested Reading

1) Paying for Primary Care: Fee-for-service has got to go 

2)Rosenthal, MB, Frank, RG. What is the empirical basis for paying for quality in health care? Med Care Res Rev. 2006 Apr 63(2):135-57

3) Ryan, A. M. and Blustein, J. (2011), The Effect of the MassHealth Hospital Pay-for-Performance Program on Quality Health Services Research, 46: 712–728.

4) Campbell, S. M., Reeves, D., Kontopantelis, E., Sibbald, B., & Roland, M. (January 01, 2009). Effects of pay for performance on the quality of primary care in England. The New England Journal of Medicine, 361, 4, 368-78.

5) Ashish K. Jha, M.D., M.P.H., Karen E. Joynt, M.D., M.P.H., E. John Orav, Ph.D., and Arnold M. Epstein, M.D. , The Long-Term Effect of Premier Pay for Performance on Patient Outcomes.N Engl J Med 2012; 366:1606-1615 April 26, 2012

6) Scott A, Sivey P, Ait Ouakrim D, Willenberg L, Naccarella L, Furler J, Young D. The effect of financial incentives on the quality of health care provided by primary care physicians. Cochrane Database of Systematic Reviews 2011, Issue 9. Art. No.: CD008451

7)  National Quality Forum: Draft Risk Adjustment for Sociodemographic Status or Other Sociodemographic Factors Report (PDF)

8)  Should Physician Pay Be Tied to Performance? No: The System Is Too Easy to Game — and Too Hard to Set Up.By Steffie Woolhandler. M.D 

9) Pham HH et al. (2007-03-15). “Care patterns in Medicare and their implications for pay for performance”. The New England Journal of Medicine 356 (11): 1130–9.

10) Wollhandler, S and Ariely, D. Will Pay For Performance Backfire? Insights From Behavioral Economics.

11) A meta-analytic review of experiments examining the effects of extrinsic rewards on intrinsic motivation. Deci, E.L., Koestner, R., Ryan, R.M. Psycol Bull. 1999 Nov;125(6): 627-68; discussion 692-700.