Are health insurance companies doomed?

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On January 30, New York Times op-ed columnist Ezekiel J. Emanuel and Jeffrey B. Liebman, a professor of public policy at Harvard, published what they called “a bold prediction for the new year."

“By 2020, the American health insurance industry will be extinct,” they write. “Insurance companies will be replaced by accountable care organizations—groups of doctors, hospitals and other health care providers who come together to provide the full range of medical care for patients.”

Without a crystal ball, of course, it's impossible to know whether this forecast is an accurate one. Talking with other professionals in the health care and insurance industry, however, suggests that the scenario Emanuel and Liebman paint is only one of many possible futures for ACOs and the health benefits industry as a whole.

An ACO overview

Simply put, an ACO is any organization of medical providers that works together to take accountability for the total cost and quality of care given to a defined population, says Harold Miller, executive director of the Center for Healthcare Quality and Payment Reform, based in Pittsburgh.

"ACOs are about moving from a world where we are paid for the quantity of services to a world where we are paid for the quality of services," agrees Sree Chaguturu, medical director of population health management at Partners Health Care in Boston. "Providers go from treating people when they are sick to being paid to some degree for keeping people healthy. Along the way, you ideally improve quality and reduce cost."

Health maintenance organizations tried something similar in the 1980s and 1990s, but they worked by using gatekeepers to make it harder for patients to access care. ACOs, by contrast, do much that wellness programs already address at many workplaces: help to prevent and manage chronic conditions and advocate for overall good health. ACO providers also work to help patients avoid unnecessary hospitalizations and use the least expensive, still-effective treatments for ailments and injuries.

That means gathering a lot of data, Chaguturu says. ACOs must track clinical outcomes, understand costs both by population and by episodes of care, see variance in how providers deliver care and in provider outcomes, and compare providers with their peers.

Partner Health, for instance, has developed software that lets the company identify high-risk and high-cost patients, then develops a coordinated approach to aggressively improve these patients' health and ultimately reduce the cost of caring for them, Chagaturu says. Doing that might involve care managers, skilled nursing and nurse practitioners, patient education, preventative services, compliance monitoring, and even transportation to help get patients to their medical appointments.

ACOs' developing structures

Private sector ACO forms are still evolving. "There is no single definition of ACO. They can mean anything between an insurance company and a physician group practice, or a group practice and hospital," says Anders Gilberg, senior vice president for government affairs at the Medical Group Management Association in Washington, D.C.

In the government ACO, called the Medicare Shared Savings Program, the focus is on cost first and quality second, though "the quality metrics are in place to ensure that quality doesn't suffer," Gilberg says. "The shift has been pretty dramatic in the past 24 months. There used to be a lot more talk about quality first. Now we talk about cost first, with quality seen as constant."

In that model, Medicare pays a fee for service and the program and its providers share in the total savings they generate.

There's no reason, however, that private sector ACOs have to use the same approach, and there are "a million" other possibilities, Miller says.

That's a place the New York Times op-ed piece may have it wrong. Ezekiel and Liebman say ACOs “will typically be paid a fixed amount per patient, along with bonuses for achieving quality targets." Though this structure, known as capitation, is one possible ACO structure—there are many others.

An ACO could bundle services across multiple providers, paying a single fee for an acute health episode such as a heart attack or pregnancy. Or an ACO could accept a set amount of money each month or year to care for a given population, providing all necessary care and keeping—or sharing—whatever money may be left over.

An employer could pay an ACO a risk-adjusted payment, spending more if their employees have more than an average number of any common medical problem. Or businesses could combine stop-loss coverage with an ACO contract or even contract with multiple ACOs, each specializing in a particular kind of medical care.

[Read "Willis launches ACO insurance"]

An ACO could string together multiple individual medical practices, connect a hospital and individual providers, or take the form of a single large medical group. Patients might be restricted to using providers within their ACO or be welcome to use whatever providers they like.

Benefit design structure will also be a question. Will ACOs have co-pays, co-insurance or deductibles? Will benefit structures say you must get all your care from an ACO, or that you're responsible for the difference if you go somewhere more expensive? "We need to change the benefit structure in a way that makes providers feel that it's not just them trying to contain costs," Miller says.

In all these potential setups, ACOs can coexist with third-party administrators and risk-bearing insurance companies. ACOs need the data collection and administrative services that third-party administrators often provide. And companies and individuals will still likely need insurance, whether it's stop-loss coverage for self-insured companies or a combination of insurance coverage plus ACO access for fully insured firms.

Potential complications favor insurance companies and TPAs

So far, Miller says, no one has tried a capitation-based ACO, at least in part because the capitation model is particularly vulnerable to potential regulatory snags.

For example, PPACA requires that health insurance companies spend either 80 or 85 percent (depending on the insured group's size) of premium dollars on claims. It's unclear whether that rule could apply to ACOs, Miller says. As long as an ACO accepts a fee for each service, they’re not selling insurance. But under capitation, "the upfront-payment system kind of looks like insurance," he says, because it takes on both performance and financial risk.

If a capitation-based ACO is subject to PPACA rules about premium usage, must it also be licensed and regulated as an insurer? Or should it be otherwise regulated? An affirmative ruling could force a capitation-based ACO to follow rules for investments and cash reserves, among others, that medical providers may not be ready to tackle.

Other potential regulatory problems could affect both capitation-based ACOs and those employing other structures.

Anti-trust issues could come into play, says Beth Kase, an attorney and chairperson of the regulatory and transactional practice at Fenton Nelson LLP, a Los Angeles-based law firm. "There's a certain amount of consolidation in making an ACO. If you're going to have competitors bid together or do pricing together, you have a potential price-fixing or anti-trust concern," she says.

More business integration could also mean fewer consumer choices, which might worsen existing cost problems.

It's not clear how entities that work together in an ACO should share savings, Kase says. If a referring physician retains more savings than do other practitioners, anti-kickback laws might apply.

Medicare’s ACO program has rules to ensure that providers offer patients necessary care. Private sector ACOs would need ways to make sure that the system doesn't save money by ignoring patient needs, Kase says, and new regulation would likely need to govern the question of whether ACOs are allowed to offer patients incentives, such as free goods or services, to choose them as providers.

ACO use could be an issue for tax-exempt organizations, because the combination could be considered a joint venture between a non-profit and a for-profit organization. In addition to the potential tax complications, the two could have divergent interests and competing needs to govern an ACO.

Right now, ACO contracts being inked are concerned with accountability systems, and less concerned with organizational structures, Gilberg says. Eventually the marketplace will need to flesh out ACOs’ organizational details. Its many possible structures mean it will take time to sort out those details.

"This is going to stress out insurance companies and state departments of labor. If there are 700 versions of this, are all of them okay?" Miller asks.

 

A place for insurance companies and third-party administrators

Though they may not expect that capitation-model ACOs will render them obsolete, hospitals, doctors, and insurers still expect ACOs to gain substantial market traction. All three entities are vying to show the marketplace that they're the ones to manage ACOs.

Insurers are currently leading the race to head these developing organizations, says Felicia Wilhelm, CEO of Prairie States Enterprises, a third-party administrator offering health management services.

"With some notable exceptions, the accountable care movement has morphed in to a model dominated by large insurance companies that engage with hospital systems," Wilhelm says. 

"Independent physician practices and group practices are disappearing as the costs of simply maintaining such practices increases, the malpractice insurance premiums have become prohibitively expensive, and the bureaucratic demands of insurers coupled with the reduction in reimbursement levels have created a perfect storm.  More and more physicians are becoming staff members of hospital-owned practices.

In this triad, the insurance companies play the dominant role because they have more financial resources and play the payment role," she says. 

Insurers who don’t want to direct ACOs outright might add value and help individual physicians maintain solo or small practices by coordinating care, Kase suggests. "I'm starting to read about insurance companies saying they'll begin to pay for care coordination," she says. "That would be a very good thing for doctors. Coordination is enormously time consuming."

Care coordination is also a place where third-party administrators might find a additional market niche.

“I see that you could have individual providers working with an insurance company to look at the totality of patient care and have somebody quarterbacking the care. I'm not talking about a gatekeeper—I don't think that's a good idea,” Kase says.

Insurers and third-party administrators might also continue providing administrative functions, paying claims, reconciling budgets, recommending stop-loss coverage, or managing the data collection that's crucial to an ACO's effectiveness.

Like Wilhelm's Prairie States, many third-party administrators have substantial expertise in managing employee wellness, making them natural partners for ACOs. And of course other current market players want to stay relevant. "We're scrambling to find out how we can be of help," Wilhelm says. "We want to make sure we play a valid role. How can we hold hands with a provider community and improve the employee experience?"

That partnership's ultimate form, however, will be a while in the making.  "It's going to be at least ten years before we learn to do ACOs right and they have a substantial market presence," says Robert Berenson, an institute fellow at the Urban Institute in Washington, D.C. For insurance companies and third-party administrators, that's a decade to prove Emanuel and Liebman wrong.

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