Contact FreedomWorks

400 North Capitol Street, NW
Suite 765
Washington, DC 20001

  • Toll Free 1.888.564.6273
  • Local 202.783.3870

Issue Analysis

    Meet the New HMO -- Same as the Old HMO

    09/21/2012

    Dean Clancy is right that health reform debate is about only two basic alternatives -- the HMO or the HSA. Reform either comes with top down, authoritarian price controls and foolish attempts to control the market with bureaucratic systems like Health Maintenance Organizations, or with a thin layer of structure to allow free people to make their own decisions, as happens with Health Savings Accounts. 


    Controlled Costs

    The Manhattan Institute's Avik Roy agreed that in order to achieve cost reductions, there are really only two kinds of solutions: "What you would have to do is have really strict rationing, as the UK does, for example," or a consumer-driven, market-based system in which people pay cash for small expenses and can shop for insurance to cover catastrophic care.

    Obamacare introduces a new iteration of the same old HMO formula, the Accountable Care Organization or ACO. Joshua Archambault of the Pioneer Institute described ACOs as they are seen in Massachusetts:

    They are moving toward a system in which the ACO acts as an umbrella to try to save money, by keeping patients within the ACO, and having the providers hold greater risk for the health outcomes of their patients.

    The way they talk about this is that the ACO would be given a capitated or global payment for the year for your care. Say for example the ACO was given $10,000 for your care. If you exceed that as a patient then they would pay a portion or all of the greater expense for you. Now on the flip side, if you incur less than the $10,000 in medical care, they keep at least a portion of that savings and it’s distributed among the doctors and health care professionals in some way. It’s unclear how it’s distributed. 

    It’s very similar to the HMO. It’s HMO’s by a different name with a couple of twists, but it’s operating on the same principle as HMOs did, with providers holding the risk and trying to save money by keeping people inside of your organization.

    But while that gives providers the incentive not to provide treatment, it also gives them incentive to be efficient.

    “There are two sides to this coin." continued Archambault. "The ‘pro’ argument is that they’ll be a little bit more efficient and effective, a little bit more conservative in how they treat you. The downside is you could have examples where doctors are not providing the full spectrum of care in an effort to try to save money. So that’s the concern."

    Scott Gottlieb at Real Clear Markets describes ACOs, writing that they are not likely to be adopted by many providers and insurers:

    The crown jewel of Obamacare's effort to contain healthcare costs, the creation of Accountable Care Organizations, is so unwieldy that major provider groups have said they won't participate. The idea is to consolidate doctors, turning them into employees of large systems, and then pay these systems lump sums of money to take care of groups of patients. A letter from 10 major medical groups that previously ran similar programs said, "it would be difficult, if not impossible" to accept the financial design created by Obamacare. In another rebuke, an umbrella group representing premier medical organizations said 90 percent of its members wouldn't partake.

    But cost is not the only factor in designing a health care system. Quality of care is in many ways more important. It's pretty easy to minimize cost at zero by not providing any services -- and to shave costs by not providing some particular service or set of them.

    The hope is that ACOs would come up with clever ways of controlling costs so they could reap the savings, but it's far more likely that doctors in ACOs would respond to bureaucratic pressures and the ongoing fear of lawsuits that have plagued the medical industry for decades.

    ACOs would force doctors and other providers to further focus on managing costs. Rather than having the incentive to care for patients, ACO doctors are judged on how much their care costs to provide. Whether the judgment comes in performance reviews or as financial incentives and penalties for providing more expensive care, the behavior change is the same. 

    The change to ACOs in Medicare has already begun, as seniors are being put into ACOs without their knowledge or consent. As John Goodman pointed out back in July, in a typical Obama Administration move, they put seniors into the ACOs and called it a benefit:

    Just weeks ago, the Department of Health and Human Services announced that 2.4 million Medicare beneficiaries have been enrolled in a new type of HMO called an Accountable Care Organization, or ACO. But here’s the rub. In most cases the beneficiaries have no idea that it’s even happened!

    Like the rest of Obamacare, ACOs save money by telling people to save money, not by empowering patients to balance their budget and their needs. Medicare patients can not even choose a physician-owned hospital for their care, even though those hospitals tend to be better and cheaper. Continues Goodman:

    These are examples of a much larger trend: Washington telling the medical community how to practice medicine. Even though a recent study finds little relationship between the inputs Medicare wants to pay for and such outputs as whether the patient gets well or lives or dies, and even though the latest pilot programs show that paying doctors and hospitals for performance doesn’t improve quality, we are about to usher in the era of big brother medical care.

    ACOs were put into Obamacare without much fanfare, and like every other bureaucratic "cost-saving" method in the law, they will ultimately fail -- unless success is defined by not providing health care.