The accountable care conundrum


Mar 29, 2018

Since passage of the Affordable Care Act in 2010, reform efforts impacting provider payment have largely focused on holding them responsible for the cost and quality of care they provide. The law has spurred proliferation of capitated, shared savings, and bundled payment models as replacements for fee-for-service arrangements. Those piloted by The Centers for Medicare and Medicaid Services encourage participating providers to spend within a budget by paying them in aggregate for an episode of care, or in per member per month fees. In this way, rather than standing to profit from providing excess care, providers are put at risk to front the cost. As a result, many providers are altering the way care is delivered.

To their credit, those who have adopted these models have focused on reducing inappropriate emergency department utilization, pushing appropriate services into lower cost venues of care, and improving care coordination to root out waste. This system-oriented approach, targeted at waste, is a vast improvement upon the fee-for-service paradigm. However, more needs to be done to truly enable providers to share financial accountability for patient health.

The buck stops where?

The nature of the healthcare problem facing America is increasingly defined by chronic conditions. In 2014, 60% of Americans had at least one chronic condition, and 42% had multiple chronic conditions. Treating those suffering from chronic disease accounts for a whopping 90% of total healthcare spending in the U.S.

Chronic conditions are not cured, but managed over a long period of time, often lasting the remainder of a person’s life after diagnosis. Effective treatment simply aims to prevent additional adverse reactions associated with the condition over time. However, potential savings from such long-term treatment plans typically don’t materialize until years down the road.

Given this long time horizon, one limitation of these new models is the rate at which patients churn in and out of the programs. Consider those piloted by the Center for Medicare and Medicaid Services, known as Accountable Care Organization (ACO) programs. The average amount of time patients are actually part of newly formed ACO models is short, with annual churn rates among patients estimated at around one in four. This means that after three years, there’s less than a one in two likelihood that a patient is still enrolled in the ACO model.

This presents a problem, as financial accountability for patient health lasts only as long as the patient is expected to be within the accountable care model. In the grand scheme of things, placing patients in accountable care programs for only one year or two doesn’t do much to align the care delivery model with long-term patient health, because the time horizon for effectively managing the chronic conditions plaguing the U.S. is significantly longer. High rates of patient turnover in health plans mean that providers risk footing the upfront costs of chronic disease management, but fail to reap the long-term cost savings from averted complications and improved patient health.

For example, one study analyzing the business case for a practice to implement a diabetes disease management plan found that the initial cost of such a program is substantial, and potential savings may not be realized until ten years after patient enrollment in the program. It’s understandable, then, why many practices find such necessary interventions to be financially unfeasible. Unless they have confidence that their patients will remain with them for at least ten years—unlikely—those that perform the intervention will surely lose money, rather than be rewarded for attempting to improve patient health.

How can we escape?

Unsurprisingly, providers that have thrived over the long-term under such accountable payment models maintain a high patient retention rate. For example, Kaiser Permanente, a health system that has covered its members for decades on a capitated basis, had a churn rate of merely 5.8% in the first quarter of 2017—well below the industry average. By extending the average time horizon of care, Kaiser is able to feel confident making long-term investments in its members’ health that will pay off for both them and their patients in the long run.

But the task of improving membership retention rates to levels comparable to Kaiser is no easy feat. For large, established players, attempting to discover Kaiser’s secret sauce for membership retention may be a worthwhile target, but for smaller institutions in highly competitive environments, such an ask is likely too much.

These healthcare institutions may be able to learn from those outside of the realm of healthcare, seeking inspiration from products and services with time horizons that span multiple years. Financial services like student loans or mortgages may provide fresh insight, and even an opportunity for integration.

Just as millions of students invest in their education and finance it over the span of decades to reduce the risk of default, individuals could purchase healthcare coverage over the same long-term time-frame, and enable their care providers to invest in their health. To the patient, things wouldn’t look so different from how things are now. Premiums could be paid monthly, but towards a contract of, say, ten years with an insurer that contracts with a provider within an accountable payment model. Such a financing model would ensure coverage for an individual for multiple years to come, and would be the foundation for a long-term relationship with a provider network.

For those individuals willing to participate, this kind of innovation in purchasing care, would instill the confidence necessary in our healthcare institutions to seize accountability for long-term patient health. In so doing,  we can begin to make the investments needed to combat the chronic disease epidemic afflicting the U.S.

For more, see:
Health for hire: Unleashing patient potential to reduce chronic disease costs

As a Research Associate, Ryan investigates potentially disruptive healthcare delivery models and the technologies that will enable their success. He is particularly interested in health information technology and is currently researching Disruptive Innovation in the space of electronic health records.