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2014 Law & Public Policy

Can Accountable Care Organizations reduce healthcare costs?

DSC_0001By Nicholas Doherty.  In 2012, Massachusetts legislators decided to experiment with Accountable Care Organizations (ACOs) as a tool for controlling healthcare costs.  But the goal of cost-savings through ACOs may be difficult to achieve, because legislators did not address the standard of care that defines the legal liability for physicians and hospitals.  As long as confusion about the standard of care persists, medical providers may not have strong incentives to set up ACOs.

In recent years, Massachusetts residents and businesses have been burdened with unsustainable growth in healthcare expenditures.  Recognizing the average 6.8 percent rise in expenses, the Massachusetts Legislature aimed to contain costs by passing Chapter 224 of the Acts of 2012.   Chapter 224’s intent is to hold the annual rate increase in total health care spending to that of the Commonwealth’s gross domestic product until 2017. Legislators believe this new policy could save Massachusetts’ taxpayers upwards of $200 billion over a 15-year period.

One approach to achieve savings is laid out in section 15 of Ch. 224.  The section encourages more hospitals and physicians to move away from traditional fee-for-service billing and adopt alternative payment methods (APMs) to improve the quality and efficiency of health care delivery.  ACOs are the mechanism for making that shift.

An ACO is a group of physicians or hospitals that shares responsibility for providing coordinated care to patients with the hope of limiting unnecessary spending.  Typically, an ACO is paid a flat amount to provide care for each of its patients.  A portion of the money not actually spent on patient services is retained by the ACO.  This is done to create financial incentives for ACO members to collaborate and avoid unnecessary tests and procedures.

There is, however, a legal problem that could prevent ACOs from achieving their goal of cost control.  Physicians also have to worry about their legal liability for care that is alleged to be inadequate.  Currently, physicians order extensive tests that may be clinically unnecessary, but help satisfy the standard of care that is expected by courts.  If courts continue to apply the same standard of care, then physicians’ may not alter their practice methods, even if ACOs provide some financial incentives.

By enacting Chapter 224, the Massachusetts Legislature assigned a new independent agency, the Health Policy Commission (HPC), the task of examining whether standards of care for ACOs should be revised.  The HPC has made some progress toward guidelines to achieve Chapter 224’s goal.  The law, however, is approaching its two-year anniversary in July, and physicians and health plans interested in forming ACOs have not been fully advised of what the regulatory framework will be.  If the HPC does not establish a reasonable standard of care and its corresponding liability for ACOs, the unknown costs of medical malpractice insurance coupled with continued practices of over-treatment may offset any incentive for ACO formation.

ACOs ought to have a clear understanding of the standards in which physicians must treat patients.  The entire concept is predicated on not ordering extensive tests the physicians feel are clinically unnecessary. ACOs’ cost-saving methods rely on physicians to move away from a fee-for-service model. Should there be no clear guidelines to determine liability, there is no incentive for a physician to shift from a cautious approach of over-treatment.

Political changes are diminishing the prospects for action on ACOs.  The fall of 2014 will mark an end of an era.  Governor Patrick and Senate President Murray, both prominent backers of the HPC, are leaving elected office.  It’s too early to forecast the legislative agendas of future leadership, but it is unlikely there will be an appetite for substantive action to address healthcare reform. All of these unaccounted variables may cast a shadow over the HPC’s long-term ability to successfully implement initiatives to achieve cost-savings.

A clear standard of care for ACOs is imperative.  ACOs are a formidable solution to contain healthcare costs but until the question is answered about the minimum standard of care, it is unlikely an ACO model will result in significant savings. The Legislature itself ought to re-examine section 15 of Chapter 224 and fully define the standard of care in state law.

Nicholas A. Doherty is a third-year student in the Evening Division at Suffolk University Law School, with an interest in healthcare policy, gaming law and public service. He received his B.A. in History from Boston College in 2007. He is currently the Legislative Director for a member of the Massachusetts State Senate. Upon graduation, he plans to continue a career in public policy.



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