Attacking a root cause of the nation’s soaring health care costs, the Patient Protection and Affordable Care Act of 2010 will try to limit wasteful spending and reward quality care with new Medicare regulations scheduled to take effect later this year. If the effort proves successful, it may serve as model for broader reform throughout the health care system.

The idea is to nurture teams of doctors and hospitals – Accountable Care Organizations (ACOs) – that coordinate patient care across the full range of medical issues and along the full duration of any particular episode of treatment.

Currently, the typical Medicare patient has five chronic health problems and, in many cases, sees a different doctor for each concern. Moreover, if a particular problem flares, requiring hospitalization followed by recovery care and monitoring, a number of additional health care providers get involved. Inevitably, each doctor or provider conducts tests, prescribes treatment, issues prescriptions and maintains its own records. The net result is a fragmented system of care that can be loaded with duplicated and, sometimes, contradictory services.

As the LHSFNA pointed out in 2005, data indicated that as much as one-third of all American health care expense is wasteful. Citing the fragmentation of care, the Fund joined a growing movement of patients and insurers that was educating elected officials about the cost crisis and demanding state-level reform to require cost, quality and transparency standards for health care providers.

While scattered state reforms in the years since did not bring much change, some doctor and hospital groups acknowledged the problems, suggesting that reforms might succeed if improved incentives for coordinated care were put in place. Because government-provided Medicare is the nation’s single largest health care purchaser, the Bush Administration launched a five-year experiment in 2005, offering “performance payments” to ten selected providers if they could meet most of 32 measures of quality care while spending at least two percent less on Medicare patients.

Meanwhile, as the experiment progressed, President Obama was elected with health care reform among his main issues. Accepting the logic that more coordinated care should reduce costs, Congress wrote ACOs into the PPACA, expanding the experiment into an option available to any group of doctors and hospitals that provides primary care for at least 5,000 Medicare patients. The program’s rules, issued on March 31, 2011, define 65 health quality standards in five areas. If an ACO meets most of these standards and achieves a lower cost of care than the government would otherwise expect, it will earn a share of Medicare’s savings for itself.

As with several other aspects of the PPACA, the ACO provision has spurred controversy. Critics believe the plan could backfire because it encourages hospital mergers without any assurance that savings will ensue. If they do not, the increased market control by a smaller group of providers could lead to higher prices in the long run. This fear was buttressed last month when the five-year experiment concluded, and results showed that only four of the ten participating teams slowed costs enough to qualify for the bonuses.

Moreover, due to the complexity of the new PPACA program, it may prove ineffective simply by discouraging health provider participation. Participation is voluntary, yet the program’s detailed rules will open hospitals and doctors to increased regulatory scrutiny.

Despite the criticisms and apparent obstacles to success, the notion of managing care to ensure increased coordination, reduced redundancy, better record-keeping and improved outcomes remains an appealing health care goal. If the PPACA survives legal and political challenges, the broadening and perfection of its managed care provisions for Medicare may eventually enhance and contain the cost of health care delivery across the board.

The LHSFNA’s Health Promotion Division continues to monitor developments with regard to the PPACA at its Health Care Reform Updates webpage.

[Steve Clark]