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Stop penalizing high-performing ACO’s



James Weinstein, M.D., and William Weeks, M.D.,  both affiliated with Dartmouth’s medical complex, write that Medicare should end its penalty for high-performing hospital systems under the Accountable Care Organization model.

At the start of their piece in Modern Healthcare they write:
“Imagine a company that produces a high-quality product, operates efficiently and generates $16 million in year-over-year savings. Then imagine that the company is not allowed to retain those savings, but is assessed a financial penalty. Hard to imagine? Well, it’s a reality in the American healthcare system today.”They elaborate: “It is … important to recognize that participation in the program required these ACO’s to make the expensive upfront investments in information technology and case- management personnel that are indispensable to success in shared-savings models. And, while these investments improve quality, they also reduce healthcare utilization, which reduces per capita Medicare revenue—the basis for shared savings.”Given these high initial investments, anticipated lower Medicare revenue and the lack of well-designed incentives, this financial model is struggling for wider adoption. When Medicare established the Pioneer ACO shared-savings model in 2011, 32 healthcare systems participated in the effort; today 19 remain. ”

“{H}istorically, Dartmouth-Hitchcock {Medical Center} has had very low Medicare per-beneficiary costs. Under the Pioneer ACO model, program results are measured against an annual cost target, instead of on year-over-year improvement. Using this method, healthcare systems with high baseline costs…have a lot of room for improvement, while those with low baseline costs—such as Dartmouth-Hitchcock—do not,” they explain.

“Just as it is easier for an athlete who runs a 10 minute mile to run faster than it is for one who runs a 4 minute mile to do so, it is easier for providers with high baseline healthcare costs to reduce them than it is for providers with low baseline healthcare costs to do so.”

“Given the Pioneer ACO program’s flawed current incentive structure, Dartmouth-Hitchcock is deciding whether to continue to participate.”

Recommended repairs for ACO’s


They write that the recent  U.S. Department of Health and Human Services announcement by that Medicare will work to accelerate the transition to new payment models was  … ”an important step in the right direction. But without significant regulatory—and perhaps legislative—changes to current models, HHS’s ambitious goals are not likely to be achieved. ”
The writers conclude:
”First, the financial model for ACO’s should offer them a greater share of their initial savings (to help fund start-up costs), provide stronger incentives to induce and maintain participation from low-cost provider organizations, and foster alignment of payment schemes across all payer types—not just in Medicare. This strategy will encourage the growth of shared-savings models and motivate high-performing healthcare systems to join the ACO programs.”The second strategy would improve patient engagement in ACOs by modifying how Medicare beneficiaries are assigned to an ACO: Beneficiaries should be given the opportunity to choose to join their ACO; for those not actively choosing, those eligible should be assigned at the beginning of the year (so that their ACO can contact them). Medicare should also test a benefit design that uses modest financial incentives to encourage patients to seek care within their ACO or from providers outside the ACO whom the ACO recommends. Simultaneously, to make such incentives possible, supplemental Medicare plans should be restricted from covering first-dollar beneficiary costs for non-ACO services.”

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