Obamacare’s Bad Blast from the Past

The ’90s are calling. They want their health policy back.

Remember health maintenance organizations? HMOs were meant to replace the old fee-for-service model, which supposedly encourages doctors to overtreat patients. The new entities would pay doctors a flat fee for keeping patients healthy. Primary care physicians would coordinate care across the health care system and thereby reduce waste — and save money.

Things didn’t turn out that way. HMOs focused on cutting costs rather than delivering the best care, and patients revolted.

Thanks to Obamacare, HMOs are back. Now they’re called Accountable Care Organizations. The name may have changed, but ACOs will yield the same subpar outcomes as HMOs. Patients should let their doctors and leaders know they won’t stand for an approach that sacrifices health care quality for cost savings.

The rise of ACOs is linked to the decline of the conventional physician’s private practice. Less than half of physicians are independent today, down from 57 percent in 2000.

To keep practicing medicine, many doctors have joined ACOs — federally chartered networks of physicians, hospitals and other providers that share responsibility for providing care to patients.

Today, 89 ACO networks cover more than 23 million Americans — the majority seniors on Medicare. By 2018, the majority of Americans could belong to an ACO.

Like HMOs, ACOs are structured so that cost, not care, is the primary concern. Rather than being paid per procedure, ACOs are reimbursed a fixed amount per diagnosis at levels set by the government. That reimbursement is then shared among the doctors and hospitals in the ACO who treated that patient.

If ACOs keep costs below government benchmarks, they can share in some of the savings. Conversely, if an ACO spends more than budgeted, it faces financial penalties.

That arrangement offers perverse incentives. After all, it’s pretty easy to cut costs — and pocket a larger check — by providing less care. Some ACOs will doubtless limit the time patients spend with doctors.

Patients won’t have much recourse. ACOs could hide cost-cutting practices by saying they’re following government protocols for “evidence-based medicine.”

But such standardized protocols ignore the fact that each patient is different — and that each one requires different treatments.

As cost-focused as ACOs are, it’s not clear they’ll save money. During the second year of a federal program for Medicare patients, only 27 percent of participating ACOs managed to lower costs enough to share savings with the government. Providers have invested more than $1.5 billion creating ACOs as part of this Medicare program thus far — but have only recouped about 40 percent of that sum.

In the long run, ACOs might drive up health costs. ACOs encourage providers to band together. But consolidation almost always reduces competition. That would allow the remaining providers to raise prices.

The HMOs of the 1990s failed because they relied on a top-down model that put cost savings above quality care. Patients rebelled and put medical decision-making back where it belongs — with patients and their doctors.

History is repeating itself with Obamacare’s ACOs. And it’s once again up to patients to reject this failed model of care.

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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