by Hamilton E. Davis
Arguably the most misunderstood component in the state’s health care reform landscape is OneCare Vermont, the state’s only Accountable Care Organization (ACO). Almost no one, even in the professional health policy community, seems to understand what OneCare is or what it is supposed to do. Really. It is the most pathological entity in a 360-degree bizarro world. And it isn’t even particularly complicated.
I wrote in a recent post that the most reliable path to sustainable costs in the American health care system is to shift reimbursement to doctors and hospitals from fee-for-service to capitation, where a group of medical providers deliver all necessary care to a block of patients for a fixed price. The federal government’s 2010 Obamacare legislation invented ACOs as a way to accomplish that without running afoul of the price-fixing, antitrust provisions in federal law.
The cost containment effect is achieved by removing the huge financial incentive in fee-for-service medicine to overuse, and by shifting the risk of poor performance by providers from the public to the doctors and hospitals who run their own systems. The system is perversely weird, because in American health financing alone, competition can take costs up, not down. The simplest way to grasp that is an example. Consider the following:
A few years ago, a Vermont state senator named Dick McCormack from Bethel fell down a flight of stairs and broke his arm, badly. His local primary care doctor sent him to Dartmouth-Hitchcock to get it fixed. Whatever the reason, the D-H docs worked on it for about six months without success—the bone was broken completely through. So, Dick’s primary care physician sent him to Gifford Hospital, a 25-bed unit in nearby Randolph; an orthopedic surgeon there put in a bone graft.
Which fell out a week later. So, Dick’s doctor sent him to Alice Peck Day Hospital, a 25-bed facility near D-H in nearby New Hampshire. Doctors there considered it carefully and decided it was too big a challenge for them. So, he went north to the UVM Medical Center Hospital, where over a couple of years and multiple surgeries, doctors fashioned a circular cage over the arm, with links surgically attached to both ends of the broken bone. Dick could adjust a knob regularly to inch the ends closer until they finally closed.
Dick’s wife kept the bills for all that work, and she estimated that it ran to something like $300,000. For one broken arm. A schematic of the process looks like this:
The $300,000 figure isn’t precise: In our tangled system it’s difficult to track actual costs across various payers and the private discounts that flow from contract negotiations. I have run the number by experienced health finance experts, however, and they have told me the cost estimates are very conservative. In any event, look now at the schematic of a putative ACO, the dotted line.
If Dartmouth-Hitchcock, Gifford Hospital in Randolph, Alice Peck Day Hospital in nearby New Hampshire, and the UVM Medical Center Hospital in Burlington were functioning as if they were a single, integrated unit, the cost would have run to a third less, an enormous saving. And if each participant was losing its collective shirt on a particular case or cases, they would have a huge incentive to fix it. If Toyota or Boeing or Microsoft spotted a problem like the one that afflicts the Vermont hospital on a Monday morning, they would be working on it by lunch. And if they hadn’t corrected it ASAP, some people would lose their jobs.
Dick McCormack’s arm and the putative ACO that delivered the care are just examples—there is no such ACO. OneCare Vermont, however, is real and has been delivering capitated care to blocks of Medicaid patients in Vermont since the late teens. The agreement between state Medicaid officials and Vermont providers, with OneCare as the middleman, is working just fine. The larger problem is that the only fixed price contract is for Medicaid.
The big hospital spenders —Vermont Blue Cross and the federal Medicare program—have refused to participate in the program. They profess to be all in on reform, but that is simply eyewash. Both Blue Cross and the feds make prospective payments to hospitals on a capitated basis, but they require doctors and hospitals to maintain a full set of fee-for-service episode records, and once the year is over, they reconcile all the actual payments to fee-for-service, thereby draining all the virtuous incentives out of the system.
Passing up those savings is dispiriting enough, but there is much worse news in the OneCare/ACO space: the Green Mountain Care Board, which has full control over hospital costs, the amounts hospitals can charge private sector payers, and the amount that insurers like Blue Cross can charge their customers, is making a hash out of regulation, so that the Obamacare machinery is actually losing money.
I’ll look at that problem in the next post.