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Beyond the ACO: Building a Better Health Care Reimbursement Model

Our aim is to improve the value of care the health system provides. As an industry, we should not be so wed to any one particular model that we fail to see how they must evolve to achieve higher quality, better patient experience and lower costs.
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When it hit stores in 1993, the Apple Newton was regarded as an ambitiously innovative, if flawed, piece of gadgetry. As an early handheld tablet, the Newton reimagined how we could interact with electronic devices, but its high price and balky operation made it a punchline among its detractors.

Though Apple discontinued it a few years later, time has shown that the Newton wasn't a failure. Rather, it planted the seeds of how personal devices could change nearly every aspect of our lives, if we could only get the technology right. These days, the iPad is an indispensable tool for hundreds of millions of people (including this writer). But would we have it today if we didn't have the Newton two decades ago?

Health care today is at a similar crossroads that the tech industry faced then. Last month, I wrote about how our country's reliance on fee-for-service payment of health costs has created a system that tends to financially reward providers and hospitals for the number of medical services provided rather than for how well they treat patients.

As a country we can't continue on this path; it is financially unsustainable and is not a pathway to improving health care. As a result, there is now a consensus that we need to fundamentally change the economics of the health care delivery system to incentivize more efficient, higher quality, and more easily accessible care. In short, we want a system that delivers high-value care.

But how we reach that goal matters, and it won't happen overnight. There have been a variety of approaches to "fee-for-value" reimbursement, which rewards providers for better quality and lower costs rather than volume.

The accountable care organization, or ACO, is currently one of the most widely adopted alternatives to pure fee-for-service reimbursement. In this model, patients are attributed, or in other words, assigned, to a group of providers who are often paid a fee to coordinate care for them across different providers and settings, as well as payments for reaching efficiency and quality targets. In principle, these financial arrangements set up the incentives to encourage providers to not only give higher quality care but to do so in a cost-efficient way to achieve the desired health outcome.

As popular as ACOs have become, they are just one model of reimbursement in a spectrum of alternative payment models, some of which are even more disruptive to the fee-for-service status quo, but hold the promise of greater health care quality and value.

Consider this: in Illinois, Health Care Service Corporation is collaborating on an ACO with the state's largest health system. This ACO covers over 200,000 lives and has been in existence for four years. The savings over the cost trend for a comparative group of members served by PPO providers and hospitals have been reported to be somewhere between 1 and 3%.

Separately, we have also collaborated with 75 physician-led organizations across the state on the Illinois HMO, a risk-based arrangement that covers over 600,000 lives. This product has delivered patient outcomes and satisfaction ratings that are as high or higher than the traditional broad PPO networks. Even more eye-opening is the cost differential of 25% from that PPO product.

Why the difference in costs, and what can be learned that might further improve future efforts to increase value?

One crucial difference between the HMO and the ACO is that we have spent the last 30 years refining the Illinois HMO so that it helps line up the incentives of payers, providers and consumers, to achieve better health outcomes and higher value, rather than simply putting cost-control burdens on providers and consumers.

In contrast, the ACO has rules and incentives that encourage favorable behavior by the payer and provider sides, but none that would specifically prompt consumers to seek higher-value care. In fact, most consumers are typically unaware that they are even in an ACO arrangement. This has resulted in a leakage rate of up to 50% for many ACOs; that is, on average, half the care sought by patients in an ACO actually is provided by clinicians and in facilities not included in the ACO arrangement.

We are exploring ways to increase consumer engagement to reduce leakage. It's easy to see how the high ACO leakage rate of care limits the effectiveness of efforts to coordinate and improve the value of care by providers who participate in the ACO. It's also easy to understand that with half of the care occurring outside of their control, providers have been reticent to engage in payment models that would hold them accountable for negative patient outcomes.

Compare this to the leakage rate of 5% to 10% in the HMO. The HMO is different because it calls on consumers to take on real responsibility for their care by requiring them to work with a designated provider, commonly referred to as a primary care physician, to coordinate their health care needs and refer them for specialized care and tests as needed. As out results show, 90 to 95% of the time, these referrals result is care delivered within the HMO, and therefore by providers who are all working under the same aligned incentive contract that rewards high quality care and the lowest possible cost.

By minimizing leakage, HCSC as a payer can channel a consistently high volume of patients to providers dedicated to delivering value, creating a financial incentive for the providers to participate in fee-for-value models and helping to increase their ability to coordinate care, develop efficiencies and improve consumer experience. Because of the efficient use of resources, consumers also benefit from significantly lower premiums.

To be sure, the ACO continues to be a valuable tool for us at HCSC as we collaborate on value-based care models in the five states we serve, and we can refine it by incorporating elements from other models -- things like shaping benefit designs to help educate, incentivize and guide consumers to seek higher-value options for care. In addition, since providers vary in their readiness to dive into new ways of doing business, we offer a range of models to engage providers in fee-for-value payment.

It is important to remember that the goal is not simply to deploy alternative payment models; they are a means to an end, not an end unto themselves. No one way of doing things is perfect, just as early handheld tablets like the Newton opened our eyes to the possibilities of personal tech, present-day models in health care are showing us the way forward to high-value care.

Our aim is to improve the value of care the health system provides. As an industry, we should not be so wed to any one particular model that we fail to see how they must evolve to achieve higher quality, better patient experience and lower costs.