Accounting for the ACO Backlash by Recounting DRG Fight

Accounting for the ACO Backlash by Recounting DRG Fight

All kinds of health care stakeholders seem to agree: CMS' proposed ACOs are profoundly disagreeable.  But is this criticism truly new or just providers' traditional resistance to federal efforts to overhaul health care payment?

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

The rule:

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

On the Hill

Inside the Industry

In the Courts

On the Campaign Trail

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