Last month, the Centers for Medicare and Medicaid Services issued rules for the Accountable Care Organizations (ACOs) encouraged by President Obama’s health care reform law. ACOs are supposed to lower costs by coordinating the health services delivered by hospitals, physician practices and other ambulatory care facilities to the nation’s 45 million seniors on Medicare.
Will ACOs do any better at lowering costs than health maintenance organizations (HMOs), which were organized by the insurance industry? The architects of the ACO strategy say these new organizations will monitor patients better, improve quality and outcomes, and reduce hospital readmissions. All that should lower costs. They will also enable Medicare to wean the health delivery system off fee-for-service medicine, by moving toward bundled payments for episodes of care.
But the ACOs have their critics. The Federal Trade Commission, though now on board, was an early doubter. It raised the possibility that these newly formed organizations of hospitals and physicians will simply use their market power to jack up prices charged payers, whether the government or private insurers. The FTC has vowed to closely monitor the organizations as they emerge.
Another line of criticism has come from health care leaders like Bruce Vladeck, who ran CMS (then called the Health Care Finance Administration) during the second Clinton administration. I recently spoke with Vladeck, who is now a consultant at Nexera Consulting, which is owned by the Greater New York Hospital Association. He also chairs the Medicare Rights Center, which advocates on behalf of the system’s beneficiaries.
GoozNews: Do you think ACOs will succeed in slowing the pace of rising health care costs?
Vladeck: There’s nothing wrong with them. But I don’t think it’s going to solve our cost problem. We will see quality improvements from clinical integration, the portmanteau word for doctors and hospitals working together. But our costs are so high because our prices are so high, not because of waste.
GoozNews: Former government officials like Peter Orszag (who ran the Office of Management Budget during the health care reform debate) say 30 percent of health care services are waste. Is he wrong?
Vladeck: There’s waste in every human activity. But studies have shown that two-thirds of the difference between the U.S. and Europe when it comes to health care spending is due to the higher prices in the U.S., not overutilization of services. . . The health care system in the U.S. is a marvelously efficient system for redistributing income from average households to health care companies and professionals.
GoozNews: The Super Committee in Washington is contemplating new cuts in Medicare as part of its deficit reduction package, which is due in a couple of weeks. How should it go about cutting the program, if at all?
Vladeck: The substance matters. I’m opposed to raising out-of-pocket costs for beneficiaries. They already have the highest out-of-pocket costs for any insured population in the U.S. The idea that they can afford it more than other people is ludicrous. They’re poorer and they’re sicker.
GoozNews: Would you support raising the eligibility age?
Vladeck: That’s just stupid. Insuring people through the exchanges when they’re 65 and 66 will be more expensive. And that’s where many of them will wind up because they will be uninsured either because they are unemployed or can’t find jobs with insurance. People in that age bracket have half the income and spend three times more of their disposable income on health compared to younger people.
GoozNews: Do you support further cuts to providers?
Vladeck: The biggest cut in the Affordable Care Act was to Medicare Advantage plans, and the data seems to show the insurance companies have weathered that just fine. They’re still in the market and still signing up beneficiaries.
The hospital cuts – it’s still too early to know. . . At some point, (the cuts) become untenable. On the other hand, the price of prescription drugs for seniors is an obvious place to start (President Obama has proposed giving seniors the same price break that states get for Medicaid beneficiaries). Of course, the pharmaceutical industry opposes that, saying you’ll never get new drugs. But I don’t think that’s true.
Merrill Goozner is an award-winning journalist and author of “The $800 Million Pill: The Truth Behind the Cost of New Drugs” who writes regularly at Gooznews.com.
