Ken Terry--

With Congress in recess, this is a good time to reflect on where healthcare reform is heading and what our lawmakers should do when they return.

Right now, most of the focus is on lowering insurance costs and covering the uninsured. While these are laudable goals, neither is achievable without changing how healthcare is organized and how healthcare providers are paid. So while we do need insurance reform, we also need to restructure the delivery system.

Some leading health policy experts—people like Elliott Fisher, Karen Davis, Don Berwick, Len Nichols, and Mark McClellan--are now talking about something they call “accountable care organizations.” Essentially, these are hospitals plus their medical staffs. Most physicians still belong to medical staffs and have hospital privileges, even if they no longer practice in the hospital. The idea is to make each ACO accountable for the quality and cost of care for their patients. By getting physicians and other providers to collaborate in teams across care settings and throughout episodes of care, this approach would theoretically improve quality and efficiency and lower costs.

As Fisher, Davis and Berwick point out, organizations like the Geisinger Health System in Pennsylvania have proved that this actually works. But in another paper, Fisher and his cohorts at the Dartmouth Medical School admit that truly integrated health systems and HMOs based on multi-specialty groups are few and far between. (The outstanding exception is Kaiser Permanente, which has a large market share in California.) They argue that financial incentives must be changed to get most providers to work together, either in multi-specialty groups or in "virtual networks" of physicians linked to hospitals. Among the payment methods that Fisher, Davis and Berwick advocate are “shared savings, bundled payments, or global fees for care.”

For the uninitiated, “shared savings” means allowing physicians to share in savings they create by keeping people out of the hospital or holding down the costs of their hospitalizations. “Bundled payments,” the solution du jour, refers to giving hospitals global payments for procedures or episodes of care that extend beyond hospitalization; the hospitals would apportion part of these payments to the physicians involved in each case. “Global fees for care” is ambiguous; it could mean bundled payments for procedures or something bigger.

Senate reformers have proposed bundled payments for hospitals and post-acute-care services such as nursing homes, rehab facilities, and home health. But many hospital executives believe that the next step will be to include physicians in such schemes. That is one reason why a growing number of hospitals are accelerating their hiring of both primary-care doctors and specialists. Hospital leaders believe that the easiest and best way to align physicians with their institutions’ quality and cost goals is to have them in-house.

The increasing physician employment by hospitals is already restructuring health care to a significant extent. According to the Medical Group Management Association (MGMA), the percentage of practices that were hospital-owned increased from 24 percent in 2002 to nearly 50 percent in 2008. The percentage of providers (including physicians) employed by hospitals jumped from 25 percent to 37 percent during the same period. Although the MGMA survey excluded practices of one and two physicians (MGMA members are groups of three or more), it’s likely that just as many small-practice physicians went to work for hospitals in the past few years as the business environment grew tougher across the country. In some markets, like Cleveland, Greenville, SC, and Peoria, IL, hospitals employ most primary-care physicians, and the number of independent specialists is dwindling.

Because of this strong trend, the ACO proposal comes along at a very opportune time. But it is missing some elements that could make it an effective solution to our healthcare crisis. First, instead of limiting the ACO’s financial risk to gain-sharing or bundled payments within episodes of care, ACOs should take full financial responsibility for all of the care provided to their patient populations. While this didn’t work out in the ‘90s, when HMOs tried to pass their risk to integrated delivery systems, there is now much more alignment between doctors and hospitals, and more sophisticated systems of quality measurement exist to detect underuse of recommended services.

Second, instead of health plans or the government setting ACO budgets, the ACOs themselves should decide how much money they need to provide good care to their patient populations. If the organizations competed with each other for patients, based on published cost and quality reports, and if consumers had a financial incentive to choose doctors in the lowest-cost ACOs, the ACOs would have to be cost-efficient to survive.The quality reports and the threat of malpractice suits would deter them from cutting corners on care.And to eliminate any incentive to market to healthy patients,risk adjustment would be used to periodically raise or lower payments to the ACOs, depending on the relative sickness of their patients.

Third, if ACOs took responsibility for the cost of care, insurance companies could eventually be phased out. The federal government would collect health contributions in the form of payroll taxes and apportion them to ACOs. Regional health boards comprised of consumers, employers, and providers would supervise the system. Is this a single payer system? Yes, but it would have the advantages of single payer, including a huge reduction of administrative costs, without the disadvantages, such as a big federal bureaucracy running health care and imposing budgets from Washington.Unlike a "Medicare for all" kind of approach that left the delivery system untouched, this regional, bottom-up single-payer system would be designed to deliver high-quality, universal health care at a price we could afford.

The governance of ACOs would have to be shared between hospitals and physicians to get the best results. In rural areas where hospitals had no nearby competitors, the units of competition would have to be physician networks covering large areas, and these networks would have to share hospitals. Similarly, where certain rare specialties were in short supply, competing ACOs would have to share the services of those physicians. There are certainly many other obstacles to this approach. But, provided that the financial incentives were correct, they could be overcome with ingenuity and persistence.

Ken Terry is a former senior editor at Medical Economics Magazine, the leading business publication for physicians. Terry has received journalism awards from the American Society of Business Publication Editors (2000), the American Society of Healthcare Publication Editors (2001-2002), and the American Business Media. He was a finalist for the latter organization's prestigious Neal Award in 2003 and 2006, and he won a Neal Award in 2007. Ken Terry is the author of Rx for Health Care Reform and freelances regularly for healthcare publications, as well as blogs daily for BNET on the web.

Terry has contributed to: The New York Times, The Village Voice, Rolling Stone, Health, Inc., Men's Health, Parenting, Downbeat, The Progressive, and The Nation. In September, 2008, he moderated panel and plenary sessions at the National Congress on Health Reform in Washington, DC. Terry speaks regularly at health industry forums, and he gave a presentation at the National Congress on the Un- and Underinsured in December 2007.

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