Accounting for the ACO Backlash by Recounting DRG Fight

Quick: Name the federal regulation that had providers in a tizzy.

The rule:

  • “Would transform the way health care is paid, but is creating havoc.
  • “Will pressure doctors and hospitals to do too few tests.
  • “Is creating confusion for financial and program planning.

If you said CMS’ proposed accountable care organizations — well, you’d be right. ACOs, voluntary structures intended to spur health care provider cooperation, at best have been received with caution and at worst are being reviled by the provider community.

But longtime industry watchers might have summoned up another three-letter acronym — which in the early 1980s, also struck some providers as a four-letter word — the DRG.

Damnable DRGs

DRGs, or diagnosis-related groups, were a key element in the government’s shift from reimbursing hospitals for costs-in-full to uniform, standardized payments for a course of care. At the time, it was the most significant change to Medicare since the program launched in 1965.

Providers groused over prospective payment, but compared with the current outrage over ACOs, the grumbling wasn’t as loud or savvy, Anne Weiss told California Healthline. Weiss worked in the Office of Management and Budget at the time and is currently the team director for quality/equality at the Robert Wood Johnson Foundation.

In 1982, health care represented a smaller segment of the nation’s gross domestic product — about 10%, compared to nearly 18% today — and consequently carried less market and lobbyist clout. Market dynamics were significantly different, too. Gregg Masters, who publishes the ACO Watch blog, notes that federal regulators in the early 1980s viewed managed care “through the lens of the ‘office of alternative delivery systems,’ where both HMO and PPO market share were measured in single digits.”

Providers also had considerably less experience navigating industry overhauls; today, health care associations annually go to war with Congress over potential payment cuts and are battle-tested following the 18-month health reform debate. As a result, health care organizations understand that they now “need to engage very early in the process” to steer would-be reforms, Weiss told California Healthline.

Moreover, the transformative reforms of the early 1980s affected a much simpler marketplace. There “was more room in the system back then” to federally force changes — whether curbing greater bed capacity or higher length of stay — and at the “beginning of bending the cost curve, [it] probably didn’t pinch” as much, Weiss added.

Gripes Over ACO Rule

ACOs, on the other hand, come as providers worry that their margins and workforce are already stretched thin. And the industry backlash to CMS’ proposal has been well documented.

Many providers say that the rule creates too many bureaucratic and legal hurdles and that the number of quality standards will require excessive data management. Other groups are worried that potential savings are limited, especially when considering startup costs. California providers say that the state’s law on the corporate practice of medicine creates particular challenges in aligning physicians and hospitals.

Consumer advocates and policy experts also have picked CMS’ rollout apart. Their key failing? Patients have “yet to be convinced of [ACOs’] merits or to be even included in any of these high-level discussions,” Pauline Chen writes in the New York Times. Or maybe it’s providers’ current lack of clinical data analytics, or federal micromanagement, or … well, take your pick.

Of course, there’s one major difference between ACOs in 2011 and DRGs in 1982: the new program is voluntary.

Specifically, ACOs are “Field of Dreams health policy … legislate it and hope they will come,” University of North Carolina professor Jonathan Oberlander told California Healthline. But some of the organizations that CMS hoped would take the field say they will stay on the bench.

The government’s first ACO learning sessions launched this week in Minneapolis, but that state’s model health organization — Mayo Clinic — wasn’t there. Mayo officials have said that the program will conflict with how it manages Medicare operations. ACOs also present potential antitrust concerns and rely on inaccurate quality measures, the officials contend.

Meanwhile, the American Medical Group Association, which represents major multispecialty health organizations such as Mayo and the Cleveland Clinic, last month warned that 93% of the organization’s members will not participate in the program as currently written.

Looking Ahead

It’s important to remember that complaints over ACOs “aren’t directed at the entire concept of accountable care” — where providers assume more responsibility for patient care and costs — but “rather against this specific regulation,” according to Micah Weinberg of the New America Foundation.

So even if ACOs ultimately prove to be DOA, they may succeed in helping reform the U.S. payment system by pushing that patient-focused approach to the top of the health care agenda.

“Every major national insurance company” has moved forward with some private version of an ACO program, according to Alere Chief Innovation Officer Gordon Norman. And CMS has shown some flexibility by rolling out alternate approaches to ACO in recent weeks.

Provider gripes also may not signal a federal program’s weakness, but the reform’s potential power. When DRGs were introduced, Medicare costs were growing 15% per year. Today, that growth rate is about 8% and may further fall to 3% under new health reforms.

However, prospective payment “was stronger medicine because it changed how we paid for hospital care across Medicare,” Oberlander told California Healthline. He added, “ACOs are cost containment as wishful thinking.” 

Here’s a look at what else is making news across the nation.

Rolling Out Reform

  • More than 40% of employers are contemplating ending group health plans for retirees who do not yet qualify for Medicare because of the federal health reform law, according to a report by Towers Watson and the International Society of Certified Employee Benefit Specialists. The report noted that the employers intend to encourage pre-Medicare retirees to purchase coverage through the state-based health insurance exchanges set to launch in 2014. The report was based on a survey of 248 employers, which collectively offer medical coverage to 1.1 million pre-Medicare retirees (Brandon, U.S. News & World Report, 6/17).
  • HHS has approved requests for waivers from the annual coverage-level mandates under the federal health reform law based on whether premiums for policyholders or access to care would change significantly, according to a Government Accountability Office report released last week. According to the report, the agency denied 65 waivers of the 1,415 applications received as of April 25. Forty-one of the denials were for multi-employer group health plans created by a collective bargaining deal between unions and employers. There are about 153,000 policyholders affected by the denied applications, compared to three million policyholders affected by the waivers (Norman, CQ HealthBeat, 6/14).

On the Hill

  • A number of Republican lawmakers are attempting to repeal a 10% tax on indoor tanning enacted to help fund the federal health reform law. Rep. Michael Grimm (R-N.Y.) — who proposed legislation (HR 2092) to repeal the tax — and other opponents of the tax contend that it is inappropriate for government to levy taxes to regulate behavior. Grimm also contends that the tax will slow economic growth and threaten jobs. Proponents of the tax say it will raise about $2.7 billion in federal revenue over the next decade (Ethridge, CQ Weekly, 6/20).

Inside the Industry

  • On Monday, American Medical Association President Cecil Wilson said that the organization’s House of Delegates “overwhelmingly” voted to reaffirm its support of “individual responsibility” for purchasing health insurance, provided low-income U.S. residents receive help purchasing coverage. Wilson maintained that the individual mandate “is a contentious issue for this country,” but noted that AMA remains in support of the policy (Reichard, CQ HealthBeat, 6/20). About two-thirds of the 500 delegates supported the position at the AMA’s annual policy setting meeting (AP/San Francisco Chronicle, 6/20).
  • In related news, the American Medical Association recently announced that its membership is has dropped below 216,000 doctors, down about 5% from 2009. AMA President Cecil Wilson attributed the decline to the recession and to physicians joining other specialty organizations — not the organization’s support of the federal health reform law. He said, “We do have members who express their anger in health care reform, but I also go around the country and meet members who said they’ve never been more proud of the AMA’s position” (Fung, National Journal, 6/20).
  • Meanwhile, U.S. hospitals are competing to hire primary care physicians in an effort to establish accountable care organizations under the federal health reform law. Some hospitals are working to take over certain practices, hire new graduates and relocate doctors from elsewhere to set the groundwork for ACOs. Doctors say salaried hospital jobs could provide them with greater security as the cost of running a private practice increases. However, they also would have less freedom over how many patients they treat and could feel pressured to meet a bottom line (Sun, Washington Post, 6/19).

In the Courts

  • Last week, the New Hampshire Supreme Court ruled that state lawmakers cannot order Attorney General Michael Delaney (D) to join a multistate lawsuit challenging the constitutionality of the federal health reform law. In their ruling, the justices said that the state Legislature does not have the power to force the state’s executive branch into action. They wrote, “While the legislature is responsible for setting forth the duties of the several civil and military officers of the state, it may not do so in a way that usurps one of the executive branch’s essential powers” (Norman, CQ HealthBeat, 6/15).
  • Different appeals court rulings for lawsuits challenging the constitutionality of the federal health reform law could raise the likelihood that the U.S. Supreme Court will rule on the case. So far, rulings in the reform law cases have hewed closely to political leanings, with judges appointed by Republican presidents ruling against the overhaul and judges appointed by Democrats supporting the law. According to UCLA Law School professor Adam Winkler, “One of the strongest predictors of whether the [Supreme] Court will hear a case is whether the lower courts are issuing inconsistent rulings on the given law” (McCarthy, National Journal, 6/13).

On the Campaign Trail

  • Last week, Republican presidential candidate and former Minnesota Gov. Tim Pawlenty faced questions from attendees at an America’s Health Insurance Plans conference regarding how his health care goals differ from the federal health reform law. Pawlenty said he would seek a pay-for-performance model, adding that the current “pay-for-volume” system would lead to a “dramatic implosion.” He said, “Sure [the reform law] has some of these provisions, but they are government-led and government-centered,” adding that he would “[r]epeal the whole thing and start over” (Nocera, Politico, 6/16).

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