Obamacare’s ‘Accountable Care’ experiment is all hype, no substance

Good news about Obamacare keeps coming out of the White House. In May, the Department of Health and Human Services announced that the law’s “Pioneer Accountable Care Organizations” have saved Medicare $385 million. HHS Secretary Sylvia Burwell proudly proclaimed that this “innovative payment model”has produced “substantial savings,” so she’s now calling for its expansion.

That would be a good idea — if Burwell weren’t selling snake oil.

There’s nothing innovative about the “Accountable Care” model. It has, at best, generated negligible savings. And it has set the stage for outright rationing of senior medical care.

An Accountable Care Organization — or “ACO” — is a network of doctors and hospitals that coordinates medical services for a specific patient population. Obamacare installed ACOs in Medicare in an attempt to slow down the program’s out-of-control spending. Under this arrangement, the government sets certain benchmarks for spending and quality that ACO administrators have to meet.

If administrators are able to generate savings beyond what’s mandated, they get to keep the extra money. ACOs that don’t meet or beat the benchmarks have to give money back to the government — or pay a penalty. In theory, this provides ACOs with a direct financial incentive to reduce waste.

The ACOs may well have generated some savings, but probably not $385 million. The researchers behind it — all of whom, by the way, were affiliated with the federal government and had clear biases toward proving the program’s success — made some highly unusual statistical assumptions. Indeed, a new study from two Harvard professors rejected the administration’s methodology and found that the ACOs saved Medicare, at most, $42 million a year.

That’s a pittance given the multi-billion dollar Medicare budget. It’s certainly not nearly enough to save the program from looming insolvency. And it lines up with earlier government estimations, in which health officials reported net ACO cost reductions of $33 million in 2012 and $41 million in 2013.

Even if the ACO model did in fact generate non-paltry savings in Medicare, it would be folly to try to scale it up.

In the Obamacare case, the administration hand-picked the providers that could participate in the ACOs to maximize the chance of success. And even then, 13 of the original 32 organizations dropped out as a result of the program’s punishing complexity and costly regulations.

Most providers refused to join in the first place. Organizations such as the Mayo Clinic and the Cleveland Clinic — hospitals that President Obama has touted as excellent models of integrated caredeclined to participate.

What’s more, those same Harvard professors found that the biggest savings came from ACOs that started with the highest costs. In other words, they were the low-hanging fruit. There’s little reason to believe similarly sized savings can get squeezed out over the long term.

Most important, ACOs set the stage for medical rationing — starting with seniors on Medicare. This model operates under centralized bureaucracy. Once the glaring inefficiencies have been rung out, the only cost-savings option left for ACO administrators will be tightly controlling access to needed medical services.

No wonder doctors are deeply skeptical of this model. A survey from the Physicians Foundation found that only one in ten actually think ACOs can improve quality while cutting costs.

A closer look at Obamacare’s Pioneer Accountable Care Organizations network reveals that the program is mostly hype. This isn’t a viable national model. The administration should stop claiming otherwise.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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