Six months ago Gov. Peter Shumlin hailed the state's progress on launching an essential ingredient of single payer health care: Accountable Care Organizations. ACOs are the device for moving Vermont from traditional fee-for-service medicine into the new era of "payment reform." Under fee-for-service, the providers generate their revenue by adding up billable services (X-rays, EKGs, catheterizations, inpatient days, office visits, etc.). The payers, whether governments, insurance companies, or self-pay patients, can end up paying for lots of services that may swell the providers' income and protect them from malpractice suits, but which do the patients little good.

Under "payment reform," the ACO provider will charge a set price for a particular combination of services provided ("fix broken collarbone") to its covered population. In another version, supposed to appear in 2017, the single payer - the Green Mountain Care Board - will assign a "global budget" to each ACO, which in turn will decide how to spend it on the covered population (until it runs out).

Vermont currently has three ACOs. The largest is One Care Vermont, which includes all 14 Vermont hospitals plus Dartmouth Hitchcock Medical Center, several federally qualified health centers and rural clinics, and hundreds of independent physicians.

If an ACO meets quality standards for the care of a patient population at a cost below the payment received, it splits the savings with the payer.


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This gives the ACO "an incentive to cut costs and improve care." Now, this is a perfectly rational approach, provided you can swallow the idea of an "incentive to cut costs and improve care." In practice, it won't be easy.

What "quality" standard must the ACOs meet? Is it mandated or controlled by the most important payer, state government? How will the ACO ensure that its patients follow the treatment protocols - take the medication and show up for appointments? (Can the ACO expel a patient for not following the rules, thus making the ACO look bad?) Will the ACO providers offer bundled prices for, say, arterial catheterization, the same for every patient who received the treatment, regardless of complications? Or will the providers offer all medical services to all persons in the "population" group, and be paid an average per person price (capitation) or a government-determined lump sum amount (global budget)?

After the initial three year "no penalty" period, the "shared savings" offer from the state to the ACO will go something like this: "You are responsible for maintaining - to a certain quality level (which we prescribe and interpret) - the health of all the patients in your covered population. In return we'll pay you $X per person per year. If you provide "too much" care, you'll have to eat the extra costs. If you provide really efficient care, you can keep half of the savings." "However if you cut corners on quality to produce "shared savings," the deal is off, you won't receive any more payments, and you may also risk malpractice lawsuits." "Payment reform" can work where an integrated health care system has complete control over its own facilities and personnel. Whether it can be made to work where the facilities are owned by dozens of different nonprofit corporations and physician practices, only loosely organized into ACOs, does not seem likely.

As Morgan True of Vermont Digger (8/28) reports what's coming: " If hospitals are going to be paid based on keeping the people they serve healthy . . . they need to invest in primary care services, state regulators and hospital executives say." Translation: "Your doctor" will increasingly become "their doctor."

In 1997 I wrote a piece titled "MegaMedicine" on the push by single payer advocates to achieve their grand objective, using the Health Maintenance Organization (HMO ) model. I noted then: "Like any major corporation, the HMO is run by its finance managers. The doctor-employees of an HMO are under pressure from the bean counters in the finance office not to run up too big a bill with a patient, because it damages the bottom line. Typically HMO doctors who overspend on treatments can see their pay docked at the end of the year. This naturally means that patients, small and insignificant before this mighty hospital-insurer combine, become as David before Goliath, but without the rock." The HMOs of the 1990s lost their luster in large measure due to patient resistance to corporate cost cutting pressures. Now, as ACOs, they're back. There's little reason to believe the results from ACOs will be any different.

John McClaughry is vice president of the Ethan Allen Institute.