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Taxpayers Laughing at, Not with, Obama's Accountable Care Organizations

Tevi Troy

It is always a bad sign when the only way to explain a government program or rule is with a joke. Ronald Reagan was famous for collecting the jokes told by the Russian people about the infamous bureaucracy and inefficiency of the Soviet state. Now, in the critical area of health care, similar types of jokes are beginning to crop up—about a serious initiative that is supposed to save patients and taxpayers money.

The story started like this: The Department of Health and Human Services has released draft rule governing Accountable Care Organizations. ACOs are groupings of health-care providers who join together under specific rules in order to create shared savings. The idea is to bundle a single payment for a patient so that providers do not have incentives to prescribe additional services that generate additional fees. This sounds like a relatively simple concept, and is worth exploring different ideas for needed payment reform. But the truth is that changing payment systems is far from simple. The devil is in the details about the “specific rules” that define an ACO’s structure.

Now the draft regulation with those details is out: It is 400-pages long, containing 65 separate metrics for success. It also has odd limitations such as the effective prohibition of creating ACOs in medical specialties such as oncology, as well as penalties for organizations that try but do not hit their metrics. Even Elliott Fisher, the so-called father of the ACO concept, has said that given the heavy-handed approach, primary care groups “may want to think twice” about them. If this sounds like something Washington can screw up, then keep reading, because the jokes almost write themselves.

Joke No. 1: “I don’t know how to define an ACO, but I know it when I see it.” This joke, which draws from Justice Potter Stewart’s famous definition of pornography in the obscenity case Jacobellis v. Ohio (1964), highlights the indefinable nature of ACOs. For a year since the passage of President Obama’s trillion-dollar health law, we have been waiting to see what rules will govern their development. Unfortunately, now that the rules are out, things do not appear to be much clearer.

Joke No. 2: “We have tried ACOs already, they were called HMOs.” This joke refers to the fact that there is nothing new under the sun when it comes to attempts to rein in health-care costs. You have two choices—ration care or increase free market competition, innovation and choice. Health Maintenance Organizations became extremely unpopular precisely because they represent the former. In the effort to reduce costs, patients suffered because care was cut. The prevalence of HMOs in the 1990s led to the famous and vulgar anti-HMO rant by Helen Hunt’s in As Good As it Gets, which prompted cheers at theaters across the country. This same resentment was updated for our times: An ACO is an HMO on steroids, or perhaps on Red Bull. However the joke is configured, the idea of ACO’s being nothing new is the key, and the new rule suggests continued heavy handedness from Washington.

Joke No. 3: “The three greatest mythical creatures are the abominable snowman, the Loch Ness monster, and ACOs.” This joke gets at the poor record of previous attempts at health savings via payment reform. Seeking such reforms is a worthy and necessary goal, but they have been hard to attain in the past. Also, it highlights the context of the Obama approach to finding cost savings via health care, which is to try a bunch of different kinds of untried government-directed cost-saving proposals and see what works. At a recent panel on the Obama health care law, I called this the “spaghetti against the wall approach.” Co-panelist Joel Ario—an Obama HHS appointee—did not disagree with my assessment, but he had a different name for the effort: “aggressive experimentation.”

Joke No. 4: “The true meaning of ACO is Awesome Consulting Opportunities.” The Washington Post recently ran an article on how the “Complex health-care law turns into payday for consultants.” According to the article, consultants’ phones have been “ringing off the hook” and the ACO rule is going to make consultants even more popular—and prosperous as they collect on bureaucratic loopholes and gaps. The article quotes consultant Ian Morrison, who said that ACOs have “all the pieces that drive consulting.” According to Morrison, “There are legal, information technology and cultural changes needed to make it work, so lawyers are happy as hell, IT people are happy as hell and so are the management consultants.”

Again, payment reform is a good idea, and our nation certainly needs to rein in health care costs. But the early reviews on the new ACO rule are pessimistic: The Obama administration’s prescriptive approach will not solve the problem of surging medical costs and bureaucratic waste. One way to see this is by reading the entirety of the 400-page rule, which few Americans are likely to do. Another way to get at it is to see the sad truth behind the myriad jokes the new rules inspire. But gallows humor provides little comfort when it comes to providing health care to Americans who need it.

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