ACOs and Capitation: the devil is in the details

I am actually thrilled at the announcement last week that Massachusetts will move toward a capitated system, meaning that it would pay patients on a per patient basis if they meet certain quality goals instead of on a fee for service (FFS) model. The center of this is what is called an accountable care organization (ACO). These are integrated centers that would guide patients to reaching these quality goals and reap efficiency savings if they come under budget.

Joanne Kenan at New America has a great explanation of ACOs and why they are great. In fact, ACOs may be something that stops the Cost Connundrum that Atul Gawande mentioned.

However, I say that these are frightening. These are products that have never been done before. That does not mean we should not go ahead and do them. But, it requires a realization that even if they "fail" you cannot just throw it out and return to FFS, but look to tweak the system.

Also, there is a significant question as to exactly how capitation will work. For example, in Massachusetts, where most of the action exists, you have academic medical centers (AMCs). AMCs have higher costs associated with medical education. You have to adjust for risk too. A riskier patient should lead to a larger budget.

Ideally, you would risk adjust, and put in some sort of cost for an AMC on the medical education, but nothing that would affect their margins. Ideally you would do this to encourage people to get care at the Community Hospitals, which for many procedures are just fine, if not better than the big AMCs (MGH, Brigham and Women's, Beth Israel Deaconess, Tufts Medical Center) that dominate the city. And, if people choose to go there, perhaps you should institute more cost-sharing.

But, there is a concern that that will not happen. Clearly something is wrong with the Massachusetts market, as the Boston Globe showed last year. The question is whether these gorillas will use market power to skew captiation in their favor to increase their margins at the expense of everyone else? Could we actually reduce competition in the provider marketplace with this? Also, how do you deal with the risk of say catastrophic events like a swine flu?

All of these kinds of things are not reasons to go against capitation, and they are not reasons not to move forward. But, they are causes for concern that policy-makers must consider. They are areas that will need tweaking. Like any other game changer, you can make a big first step, but that is all it is a first step. There are no such things as big bangs in such a complicated area of policy like health care.