Accountable Care Organizations (ACO) will change the way medical services are paid for by Medicare, and they could possibly deliver savings of 40% from the existing fee-for-service Medicare payment system.  One blog I read called ACOs  ‘unicorns’ because “every one knows what they look like but no one has seen one”.

Wikipedia information on accountable care organizations (ACO) includes the following:

..a type of payment and delivery reform model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. A group of coordinated health care providers form an ACO, which then provides care to a group of patients…

While the ACO model is designed to be flexible, Dr. Mark McClellan, Dr. Elliott Fisher and others defined three core principles for all ACOs: 1) Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients; 2) Payments linked to quality improvements that also reduce overall costs; and, 3) Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care.

…Kaiser Permanente and HealthCare Partners Medical Group are two notable examples of successful ACOs.

According to an article in Business Week:

Aetna (AET) estimates that ACOs could deliver savings of 40 percent compared with the existing fee-for-service system. The Hartford-based health insurer has spent $2 billion to become a leading player in the field. “Accountable care is one of those models we see as the future of the company,” says Dr. Charles Saunders, Aetna’s head of strategic diversification. UnitedHealth Group (UNH) has also been snapping up technology and care management companies, inking six deals in the last 18 months. Essence Group Holdings, a Maryland Heights (Mo.) company that administers a private version of a Medicare plan, estimates that setting up ACOs will be an $80 billion business. Essence, which works with Rice’s practice and others, plans to double or triple its 400-person staff over the next year to keep up with demand, says spokesman Andrew Shea.

The current Medicare payment system, where every service, test, or even a consultation, generates a separate bill, is the root problem for Medicare.  Years ago, people would get two tests to check on a heart problem. Now there are dozens of tests, and some of them are very expensive. More and more tests (some of them unnecessary) cause Medicare’s expenditures per Medicare beneficiary to climb each year. If a new way of doing business could slash Medicare’s expenses by 40%, this could put the program on a more sustainable path.

The Affordable Care Act calls for ACOs to lead the way in changing the way Medicare pays for care. Of course, there is political posturing over ACOs (Democrats are for and Republicans are against), and getting into this business could be a big risk for insurance companies, hospitals, and doctor groups. What if the Affordable Care Act is repealed? Then what happens to all the work that has gone into ACOs? Politicians should just agree that this fix to Medicare is necessary, and get on board. Medicare needs to get its financial house in order sooner rather than later, but there always seems to be one objection after another that maintains the status quo. It’s time for a change in the way Medicare pays seniors’ health care bills.  It looks like Accountable Care Organizations could be the answer.

A reader of my last post, “Medicare:  Young vs Old”, provided a link to an wonkish article on U.S. health care spending and how it slowed down to record lows from 2010 to 2011. The article is titled, Deceleration in U.S. healthcare costs continues“, and it shows that, once again, Medicare is more efficient than the under-65 private health insurance system.

The central facts in the report are in this paragraph:

Over the year ending April 2011, healthcare costs covered by commercial insurance increased by 7.13%, as measured by the S&P Healthcare Economic Commercial Index. Medicare claim costs rose at an annual rate of 2.48%, as measured by the S&P Healthcare Economic Medicare Index. With April’s data, the Medicare index posted another record low annual growth rate in its six-year history.

If Medicare can hold that amazingly low spending growth rate, that bodes well for the future of the program. And given that people covered by Medicare are much older (and probably sicker) than people in the under-65 market, the difference between the two growth rates is kind of shocking to me.

It is common knowledge that when the economy is bad, people don’t go to the doctor – even for checkups and routine exams. But I  think the slow down in spending for people under 65 is also due to their changing health insurance coverage. More and more working people have health insurance plans with deductibles of $2,500 or $5,000.  This definitely makes people think twice about getting medical care, especially things like elective surgery.

But why are seniors getting less care when they don’t have big deductibles and co-insurance? (Ninety percent of seniors have more coverage than just Medicare.) It would be interesting to know if anyone has studied seniors with Medicare supplements and if they have been going to the doctor less. Those folks have excellent coverage and almost no co-pays, so the bad economy should not keep them from getting medical care. They have paid for excellent coverage, so why not use it?

An interesting study would be to talk to seniors to ask them if they’ve been going to the doctor less, or if they have put off tests, procedures, or surgery.

I recently read a good article on the problems facing Medicare now and in the future. They are: too many baby boomers; controlling costs; and our divided health insurance system that pits Medicare beneficiaries against people under 65 in the private insurance market.

One-and-a-half million baby boomers will turn 65 every year for the next 18 years. Today, 47 million people are in the Medicare system, but that number will nearly double to 79 million by 2029.

The article appeared in The Center For American Progress newsletter and can be read in-full here.  I’ve highlighted some of the points made in the article, “What’s Driving Up the Cost of Medicare?”.   Note: [  ] means the words in brackets are mine.

**”The payment changes in the Affordable Care Act enacted last year actually do “bend the cost curve” by bringing the projected growth in Medicare spending per beneficiary well below projected per capita growth in health care spending overall.”

**”From now until 2019…  overall health spending per person is expected to increase at an average annual rate of 5.6 percent. Medicare spending will grow 3 percentage points slower.” [This means that Medicare is more efficient than the under-65 health care market.]

**”Medicare’s payments can deviate only so far from private insurers’ payments before health care providers start avoiding Medicare patients or demanding that private insurers make up for Medicare’s low rates.”

 

Okay, so this article was written by people who probably believe a single-payer system would be the way to control costs for all age groups.  Because, if the private sector can’t control costs, Medicare’s cost cutting and cost control will pit the program for seniors against private insurance for people under 65. So the idea of having two distinct insurance systems (for people under 65 and people over 65) pits one against the other.

I suppose this is why Republicans say we should just put everybody into the privately-run, for-profit health insurance system. Unfortunately, the private sector has not been very good at controlling health care costs or health insurance premium increases.  I wrote about this last year when I wrote about a study of the VA health care system:

The CBO estimates that the VA’s health care cost per enrollee grew by only 1.7 % from 1999 to 2005, which amounts to 0.3% annually. Medicare’s costs grew 29.4 % per capita over that same period, or 4.4 % per year.  In the private sector insurance market (employer and individual plans) premiums increased by more than 70% during this period.

The Affordable Care Act tries to rein in health care and health insurance costs by putting the squeeze on insurance companies and their profit margins, even while it gives them 40 million new customers. Republicans consider this to be government interference in the “free market” and  “a government take-over” of health care.

Because seniors vote, “Medicare as we know it” is probably pretty safe. The real danger might be a growing gap between  Medicare fees for service and those paid by insurance companies for under-65 patients.  Then the “Mediscare” slogans about doctors rejecting Medicare patients might become a reality.