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Economists Caution: ACOs May Not End Wasteful Health Spending

By Jordan Rau

August 30th, 2011, 10:03 AM

Expensive technologies like proton beam therapy and hot chemo baths are among the reasons America’s health care spending is rising at an unsustainable clip and making the federal deficit so hard to tame.

But two of the nation’s top health care economists are expressing doubts that accountable care organizations — one of Obama administration’s most-hyped mechanisms to save money — will be able to overcome the medical system’s lust for the new new thing.

Established through last year’s health law, ACOs are networks of doctors and hospitals that would collaborate to provide quality care at lower cost, with the motivation of keeping a share of the savings they deliver to Medicare and private insurers. Medicare has been working for months to get the program running by next year.

In a paper delivered last week at a Federal Reserve Bank of Kansas City symposium in Jackson Hole, Wyo., Harvard’s Katherine Baicker and Amitabh Chandra warned that ACOs may not want to rein in the use of expensive technologies that haven’t been proved superior to old-fashioned approaches, since the new stuff is often a major lure for patients.

They write:

[W]e do not know how well ACOs will sidestep cost-ineffective technologies, particularly if the latest shiny innovation increases market share. The viability of ACOs will depend on the receptiveness of physicians to capitated payments — some specialists will see their incomes fall and are unlikely to take these cuts quietly. While their concerns may not resonate with patients, they might if providers claim that valuable care is being withheld. Designers of ACOs are therefore keenly interested in measuring ACO performance and patient satisfaction, but current quality measures only capture truly negligent care.

The authors also warn that even if ACOs do achieve savings by performing fewer procedures, “some of the savings from lower quantities may be offset with higher prices as ACOs exert market power” by charging more to private insurers.

Their paper has the relatively snappy title of “Aspirin, Angioplasty, and Proton Beam Therapy: The Economics of Smarter Health Care Spending.” It’s the latest argument that’s been made about the need to limit the use of fancy technology, as political accusations of “death panels” have receded for the moment.

But the Harvard professors are bleak that fixing most of America’s wasteful health spending, including that on iffy technology, will be enough. They conclude:

The U.S. has yet to wrestle with the question of public policy priorities in a world of scarce resources: even with perfect productive efficiency, we cannot cover all services for all people. … By first ensuring that health care resources are used more productively, we will be in a much better position to move towards spending the “right” amount on health.

6 Responses to “Economists Caution: ACOs May Not End Wasteful Health Spending”

  1. Ed Chory says:

    I agree that medicine has developed an insatisable thirst (?lust) for new technology. I am disappointed robotic surgery wasn’t included as an example of the adoption and aggressive marketing of expensive yet unproven technologies but this is not just an American phenomenon, it is a global problem, we are just leading the way.

  2. Deb Dwyer says:

    This is why it must be combined with a reimbursement scheme like bundling. If you give a set amount per DRG, the provider bares the burden of excess.

  3. David Wiggin says:

    In theory, ACOs will bring some efficiencies into the healthcare marketplace, and reduce waste that might otherwise be overlooked. So-called “expensive technologies” will be scrutinzed for their cost/benefit, just like many other treatment options available today. I look forward to seeing some of these succeed and others fail.

  4. If you compare the US to other western wealthy nations we use fewer doctor visits and fewer hospital days per the OECD data. What we have is the most inefficiemt system for collecting and distributing the resources-the private health insurance industry. We spend 31% of our money on the billing and insurance bureaucracy. John’s Hopkins Hospital has more billing clerks than nurses. We need a simple system that covers everyone. There are only three ways this can be done. A national helath service (think UK or the VA), a mandatory social insurance program (think Germany and several other european countries) or a single payer national health insurance (think Canada, Taiwan, and of course our own system for those over 65 and disabled Medicare).
    The least complicated approach for the US would be to take Medicare and improve and expand it to everyone. Multiple econometric studies at the national and state level suggerst that we cona cover everyone for what we are spending now at no added cost based on the administrative simplicity of this system. We still need to improve the care but it would be much easier to do with all the data about all the physicians in one place. Single payer Medicare for all will save money, save lives and it is the moral thing to do.

  5. Latimer Dross says:

    Specilists in the US make $230,000 per year vs the OECD median of $83,000.

    General practicioners make $161,000 compared to a median of $80,000.

    If you want medicine to cost less then you need to pay doctors and hospitals less money. You also need to lay some of the blame on American culture of diet and lack of exercise, drinking and driving and violence, smoking and other risk factors.

  6. Jonathan H says:

    @Johnathon Ross:

    The US does spend 31% on health care administration, which is about twice what other nations spend. However, note that this number includes all administration, not just health insurance-related. In comparison, Canada spends about 17% of health care on administration, and it is single payer.

    Note also that nations with streamlined and well-regulated multi-payer systems like the Netherlands, Germany and Switzerland have insurance administration costs much closer to single payer systems than to our highly fragmented “system.”