Price of Obamacare ‘savings’

The Obama administration appears to have received a rare bit of good news from one of the agencies managing its overhaul of the American health care system.

The Centers for Medicare and Medicaid Services just announced that the Accountable Care Organizations created by Obamacare in hopes of better coordinating seniors’ care had shown “encouraging initial results,” saving Medicare $380 million in their first year.

But that figure is much smaller than it appears. And no amount of savings can justify the perverse incentives the government has created for ACOs, which could result in a system of rationed health care.

ACOs — federally chartered networks of doctors and hospitals that share responsibility for patient care, starting with seniors — were created as a tool for slowing Medicare spending.

Today, there are more than 360 ACOs serving about 5.3 million Medicare beneficiaries around the country.

Those that meet certain benchmarks for spending and quality are allowed to keep some of the money they save. Those that don’t are penalized and have to return money to the federal government.

This financial incentive is intended to reduce wasteful spending on tests and procedures that are unlikely to have much of an impact.

In practice, however, ACOs could have devastating effects on seniors’ health.

For starters, the model gives government bureaucrats the power to determine what counts as quality patient care.

Many plans provide a target range for blood pressure that applies to all individuals equally — regardless of their individual circumstances, history, and medical status.

As Dr. Allan Goroll of Massachusetts General Hospital has commented, the feeling among doctors is that “these are silly metrics and they have no credibility and that they are really of no value.”

And since providers are paid more if they keep costs down, ACOs encourage doctors to opt for cheaper, less effective courses of treatment — or forgo certain treatments altogether.

Physician Kenneth Croen has warned that this situation will erode trust between doctors and Medicare beneficiaries, since “[p]atients will become suspicious that even appropriate recommendations for cost control are being made to pad the bonus for the ACO providers.”

In other words, health care providers have a strong incentive to ration care in the interest of saving money.

And that incentive may grow stronger, as the savings delivered by ACOs haven’t amounted to much thus far.

Of the 114 ACOs launched in 2012, not even half spent less than expected. Only 29 qualified for financial rewards by meeting the government’s cost and quality standards.

Of the 23 so-called Pioneer ACOs — the health care systems that the administration considered highest-performing and thus best-positioned to take advantage of potential savings — just nine registered both significantly lower spending growth and high quality of care.

Further, the $380 million in savings touted by the administration as evidence of the ACOs’ cost-cutting prowess represents about $80 per person over the course of the year — or less than 1 percent of spending.

Even these meager savings may be illusory in the long run. After all, by encouraging providers to consolidate as ACOs, Obamacare could diminish competition among doctors and hospitals. Those that remain would have enormous market power that they could use to demand high payments from private insurers. Higher health spending could be the result.

History shows that this risk is real.

Researchers at the Robert Wood Johnson Foundation found that a wave of hospital consolidations in the 1990s raised inpatient prices by at least 5 percent. When the hospitals were near each other, prices increased by 40 percent or more.

Another study published by the journal Health Affairs examined the growth in health care costs after providers in California began integrating.

The authors concluded that “proposals to promote integrated care through models such as accountable care organizations (ACOs) could lead to higher rates for private payers.”

They went on to note that the potential increases in private health costs could erase any savings ACOs might deliver.

In their first year, a majority of Obamacare’s ACOs failed to achieve the savings the law envisioned for them. The temptation to ration care in response will only grow. Patients must not stand for such an outcome.

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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