Think Tank

Is California Ripe for Global Payment, ACOs?

If some sort of national health care reform emerges from its current state of limbo and actually becomes law, it could include provisions seeking to move away from the fee-for-service reimbursement model. One of the possible alternatives is a “global payment system,” which proponents say would reward physicians for quality and care coordination, reduce overutilization, and tie compensation to outcomes rather than the volume of services provided.

Massachusetts, which has led the nation in its attempt to increase health insurance coverage and has now — some say ironically — stalled health care reform momentum by electing a Republican senator, endorsed the shift to a global payment system last fall. Massachusetts is encouraging physicians and other care providers to form “accountable care organizations” to help make a global payment system work.

Portrayed as the next evolutionary step beyond HMOs, ACOs are a key component of the global payment system model, which itself is sometimes referred to as the next step beyond capitation and managed care.

We asked stakeholders to explain pros and cons of global payment and ACOs.

Would a global payment system and accountable care organizations work in California? If national reform stalls or if reimbursement changes are not part of national legislation, should California establish its own statewide global payment system? Should California encourage health care providers to organize in accountable care organizations?

We got responses from:

Reform Requires Three Distinct Goals

James Conway
Senior fellow of the Institute for Healthcare Improvement and member of the Massachusetts Health Care Quality and Cost Council

Should California consider payment reform?


If the goal is to build a health care system effectively organized around meeting and respecting the needs of the patient and family (nothing more or less), it can’t be built on a reimbursement system that pays for volumes of “piecework” delivered in silos.

At the same time before moving forward, California should build will for change among stakeholders and establish an overall aim. 

Answering questions like these helps:

  • “What are we trying to accomplish?” 
  • “What do we want for our mothers, fathers, sisters, brothers, friends, our communities?”

The aim cannot just be about payment reform either; it has to integrate and improve the experience of care for patients and the health of the population, while reducing per capita costs.

At the Institute for Healthcare Improvement, we call this the Triple Aim.  Focusing on the money without the other two might save a bunch of bucks, but it will surely further erode health and health care delivery. 

All incentives, including financial ones, must be aligned against the aim. 

Then, the politically and structurally difficult work can begin, be it payment reform, coverage, access, quality and safety, or another essential piece.

Massachusetts has taken a strong stance in favor of payment reform and specifically for global payments.  

IHI is proud to have been part of these extensive multistakeholder discussions.  With virtual unanimity on payment reform and global payments, community discussion now focuses urgently on designing transition plans that build upon and don’t erode the strong health and health care base that already exists.

It is messy, hard, work; it’s controversial and largely untested.  As noted by one participant, “There is something here for everyone to hate.” 

Yet, anchored in enormous pride for the 98% insurance coverage that has already been achieved in Massachusetts, there is now a shared vision, as stated in the Massachusetts Health Care Quality and Cost Council’s first Annual Report:  “By June 30, 2012, Massachusetts will consistently rank in national measures as the state achieving the highest levels of performance in care that is safe, effective, patient-centered, timely, efficient, equitable, integrated and affordable.” 

It is also worth noting that in Massachusetts, the move toward global payments is only one of 11 strategies in the recently approved “Roadmap on Cost Containment.” There’s no way to ignore or downplay reforming the financing of health care, but there’s also no way to ignore all the other redesign of care that patients deserve — not just in Massachusetts or California, but throughout the country.


Global Payment Haunted by Its Ancestor — Capitation

Judy Dugan
Research Director, Consumer Watchdog

The idea of paying large and varied groups of doctors and hospitals a set amount for the care of all their patients, as Massachusetts is considering, is alluring for the whole U.S. medical system, including California.

In its ideal form, patients would have a primary doctor who followed them closely, working to keep them well, yet with swift access to good specialists when needed. Costly, unnecessary and sometimes dangerous over-treatment, often aimed at boosting medical income, would be curbed.

Communication with patients, and among their doctors, would greatly improve — removing one of the biggest frustrations of current major medical care.  Doctors would get financial rewards based on the well-being of patients, not the number of tests and procedures performed.  Health care costs would come down for everyone from individuals to governments.

But — and there’s a big “but.”

Successful and statewide global payment — a huge shift from “fee-for-service” medicine — would truly cut costs only by cutting something from everyone’s take: doctors, labs, hospitals and insurers.

The temptation to deny necessary care to keep more of the overall payment will be as strong as it was in the 1980s and 1990s, when a similar “capitation” system — literally, payment by the head, one amount per individual being cared for — was California HMOs’ plan du jour to curb medical costs.

California became notorious for such profit-enhancing schemes as “drive-by deliveries” that would ban newborns and their mothers from even an overnight hospital stay. Patients felt trapped inside inadequate doctor groups when they fell seriously ill. Doctors rebelled at being gatekeepers for the preservation of HMO profits. Ultimately, abuse for profit ruined the promise of capitation.

Today’s talk is of demanding better incentives to assure quality, using better risk assessment to make sure “care organizations” are paid according to the kinds of patients they treat and installing tough government oversight to prevent profit enhancement through refusing necessary care or providing inferior treatment.

Maybe global payment can be done right. Massachusetts has the benefit of predominantly not-for-profit insurers and a wealth of teaching hospitals. California’s mostly for-profit private care will be a tougher case. Only tough accountability that puts Wall Street’s demands in second place and swiftly punishes cheaters has a chance to work.

Insurers that profess to like the idea of global payment will surely argue to let the free market work its magic and keep government out of their business. If that happens, global payment will be just a fancier form of capitation. 

Patient-Centered Medical Home Is Key

Thomas Bent
President, California Academy of Family Physicians

Several new models, including accountable care organizations and global payment systems, aim to correct the fragmentation of American health care and the lack of focus on patient outcomes. 

These models could reduce health care costs if implemented correctly.  The cornerstone for any new model, however, must be the patient centered medical home.

The “medical home” is a model in which each patient forms an ongoing relationship with a primary care physician of choice and that physician’s health care team.

The best outcomes for patients are not achieved through typical episodic, complaint-based, illness-oriented care, which is the hallmark of our current system.  Instead, they’re achieved through a robust system of primary and preventive care, state-of-the-art chronic disease management and patient care coordination throughout the health care system.

With the primary care medical home serving as a patient’s access to the health care system, this care in the larger system or ACO network — the broader health care “neighborhood” — is coordinated for the best possible outcomes.

If we still have patients with chronic illnesses, such as heart disease and diabetes, whose diseases are not effectively controlled, and whose contact with the health care system begins only when symptoms constitute a crisis, then we will still have patients whose first substantive encounter is the emergency department after a heart attack or a nephrologist’s office after signs of kidney failure. Patients suffer unnecessarily and costs escalate unnecessarily as well.

In an accountable care organization, primary care physicians are the bedrock of a larger network of care providers, ensuring patients receive exactly the care they need, when they need it, in the most appropriate setting. That’s how we get great patient outcomes and save health care dollars at the same time.

Community Care of North Carolina, for example, improved care for more than 725,000 patients and saved taxpayers more than $231 million in two years by providing patient centered medical homes for Medicaid beneficiaries. Geisinger Health System in Pennsylvania improved care for 2.5 million patients, realized a 20% reduction in hospitalizations and saw a 7% savings in total medical costs after implementing the medical home model.

To make this model work in a large state like California, we’ll have to address big-picture issues like the primary care physician shortage. We’ll also have to transform the traditional primary care practice model to facilitate continuous healing relationships. 

Such a model would include improvements during the physician office visit, as well as ongoing management and communication via e-mail and telephone that can support treatment plans and other health improvement activities. 

Additionally, providing 24-hour patient access, same-day appointments, improved management of chronic conditions, effective patient self-management, and electronic communication are key to the medical home’s effectiveness.

The most important move California can make in health care is to establish the patient centered medical home model, both in large urban health networks and small urban and rural health care environments. If we do that, new delivery and payment models will have a much better chance of succeeding.