Under the Affordable Care Act — Obamacare — Vermont's Fletcher Allen Healthcare and Dartmouth-Hitchcock Health have organized a massive new, for-profit Accountable Care Organization (ACO). ACOs are intended to manage Medicare, the federal government's health insurance program, for the biggest health-care population to come down the pike: retiring baby boomers. The Governor and U.S. Rep. Peter Welch announced on Jan. 21 that the Vermont ACO had just been approved.

By mid-January, 106 ACOs had been created regionally, and approved for participation in the federal Medicare Shared Savings Program.

Vermont holds the distinction of coming in second in the nation for its percentage of oldsters. U.S. Census Bureau figures for 2010 estimate the total Medicare-eligible, over-65 population of both New Hampshire and Vermont at just under 280,000—around 15 percent of both states' total populations.

The purpose of Vermont's new organization, OneCare Vermont—a for-profit, limited-liability company—is to coordinate the Medicare providers of Fletcher Allen's and Dartmouth's affiliated hospitals and providers into one system, to cut overuse and duplication of care, and lower costs to Medicare and thus to taxpayers.

There is a "shared savings" arrangement: If the ACO provides appropriate care, and bills Medicare for lower-than-predicted fees, the feds will still pay part of the predicted amount to the ACO. The shared savings will then become part of the revenue stream of the parent structures: not returned to patients, but to Fletcher Allen Healthcare and Dartmouth-Hitchcock Health. What neither hospital discloses, while publicizing its reform, is that both hospitals are riddled with debt and looking for every bit of income they can find.

History & Definitions

Dartmouth-Hitchcock was one of 32 ACO "Pioneer" pilot programs to start testing the program in 2012. It showed sufficient savings over two test years to be approved for a "population-based payment model." According to Medicare, "Population-based payment is a per-beneficiary per-month payment amount intended to replace some or all of the ACO's fee-for-service (FFS) payments with a prospective monthly payment."

About 40,000 Medicare beneficiaries are expected to be "attributed" to, or enrolled in, OneCare Vermont. Since this includes a fraction of both states' boomer population — and only about 35 percent of Vermont's Medicare recipients—the number of people going without care is still cause for concern.

It is the providers that belong to the ACO, with their patients automatically "attributed" without having to apply. The ACO includes a long list of participating medical providers and provider organizations – hospitals and clinics, as well as approximately 280 primary-care physicians, including rheumatologists, urologists, radiologists, and optometrists. According to its application to Medicare, OneCare Vermont will be:

"operated and funded by the founding organizations, Fletcher Allen and Dartmouth Hitchcock. It will provide tools and support including software, training, data analysis, reporting, and clinical leadership to the participating network providers. In return these providers have agreed to share accountability for cost and quality performance across the network, provide clinical data for attributed Medicare beneficiaries from their Electronic Health Record systems, participate in defined case-management processes, and assist in designing and implementing protocols and other interventions to improve outcomes for the Medicare population."

It is unclear, given the rather small percentage of "attributed lives" out of Vermont and New Hampshire's total senior populations, whether those numbers are expected to increase. It does seem likely that, in a practice with both ACO-attributed Medicare patients and non-beneficiaries, if the attributed patients rack up costs beyond Medicare's predicted payment, other patients will eventually pick up the tab.

Boomer Economics

Most retired workers already shell out hundreds of dollars per month for additional premiums to supplement their basic Medicare packages, which fall short of meeting the high costs of providers such as Fletcher Allen Healthcare and Dartmouth-Hitchcock Health.

The ACO is a way to direct the revenue stream from the federal government to these mega-hospital corporations through their member providers.

The question is whether another level of managed care will do anything to cut patients' costs. Or is it just another layer of lipstick on the same old pig?

At a recent forum on accountable care, Fletcher Allen vice president, Church Hindes, was skeptical: "Old wine of unsuccessful reform efforts repackaged in new bottles? Another step down the road to healthcare perdition? Time-wasting distraction from truly comprehensive reforms?"

The answer is that no one is sure. In his blog on the Fletcher Allen web site, CEO Dr. John Brumsted writes about the benefits and the risks of ACOs:

"At the beginning, the ACO will be given a budget target for the population of Medicare beneficiaries for whom the ACO is 'accountable,' based on the prior year's expenditures. If the annual rate of growth in cost for this population is less than the national average, savings are generated, and ACO providers will share in these savings. Notably, if the target is not met, providers will receive the usual Medicare reimbursement for services—i.e., they are not taking a financial risk on the population.

"The principal risk to the delivery system is being unable to provide the necessary care with the allotted funds and having to absorb the excess expense with no additional revenue to cover the loss."

In other words, both benefit and risk are real possibilities. And while providers may be assured of Medicare reimbursement in an ACO, it is patients paying insurance premiums and federal taxes who will continue to take the greater risk.

Accountability

Fletcher Allen states, in both its IRS Form 990 and in its application to the government for the ACO, that the organization and its affiliates serve a population base of 1 million. But, according to most recent U.S. Census Bureau figures, the actual population of the Vermont and New York counties in the hospital service area is about 530,000.

Exaggerating its patient population by nearly 100 percent may make the organization's per-patient costs appear lower, but actual per-patient costs remain chokingly high. A rush-through appointment with a primary care provider in a Fletcher Allen affiliate averages around $150; an emergency department visit, with tests and scans, can easily run $100 per minute. It would seem that OneCareVermont's parent company already has issues with accountability.

Industry critics point out that previous attempts by providers to manage costs have failed dismally, and that ACOs are no more likely to fix the problem than other managed-care efforts. As doctor and CEO Brumsted suggests, concentrating the Medicare market may well force providers who run over budget to seek more revenue from private insurers. This will raise premiums even higher for those Medicare patients who are already shelling out for supplementary plans. That's already happening in the present system.

Too big to fail?

Fletcher Allen's current $1 billion operating expenditures and Dartmouth's $1.6 billion budget, are rooted in the "greed is good" era of the 1980s, when the practice of medicine became the "healthcare industry," and hospitals went into full expansion mode.

A cultural shift occurred in which patients were no longer a population to be served, but a market to be tapped. "Managed care" -- promoted as the way to liberate healthcare practitioners from the burden of paperwork, billing, and finance -- created layers of hospital administrators devoted to extracting ever-higher fees from patients to support their rollicking income expectations.

Practitioners bought into the corporate lifestyle, generating a new breed of MD/MBA doctor-managers with "CEO ego," according to a 2005 New York Times report. In it, a doctor-manager characterized the culture as "kingdom-building," which he described as, "I've got to have more beds... more hospitals... the biggest empire." The lure of cash flow appeared irresistible.

Vermonters are still paying for the excesses of the Fletcher Allen Board of Trustees in the late 1990s, which allowed a capital expansion plan that has saddled the organization with a $400 million debt load. The money was used mostly for pass-through outpatient areas, leaving the worst of the oldest part of the hospital—the inpatient wards—looking like remnants of the Victorian era.

Fletcher Allen's CEO of the time, Bill Boettcher, ended up in prison for hiding costs for the overhaul—for which patients are still paying. The hospital is looking at taking on another $300 million in debt to finance renovation of the inpatient wings.

Dartmouth-Hitchcock took a similar route, racking up $300 million in debt for its fancy lobby and parking garage. Now both medical centers are pushing for consolidation—buying up practices, and affiliating with smaller hospitals in a Wall Street-like, leveraged-buyout model—even as evidence increasingly indicates that hospital consolidation inevitably drives up costs. In a consolidation, smaller, fiscally healthy hospitals are saddled with the debts of the mother ship.

The federal government is well aware of this problem. Its antitrust division is scrambling to keep up with complaints nationwide that consolidation cuts out competition, and increases prices to consumers. The main objective of these consolidation buyouts is increased revenue, not best patient care or lower costs.

Patients in buyout practices often see shorter visits with a rotation of in-and-out, part-time practitioners, and pay more for the experience. An unintended result of ACOs may well be an increase in monopolies that drive up costs, and lower the quality of care.

Unregulated Growth

The costs of running a major healthcare facility — electricity, heat, drugs, supplies, equipment, and personnel — are considerable. Despite ongoing efforts at energy efficiency, there is little economy of scale in a 665,000 square-foot tertiary care structure; Fletcher Allen is without doubt one of the most expensive buildings to run in Vermont. As with any building, maintenance, repairs, and necessary improvements are ongoing. The hospital expansion craze of the 1990s has left Vermonters with structures we can barely afford.

Spreading the cost around the region is one way to support overlarge monsters. Fletcher Allen and Dartmouth are following the national trend to consolidation of revenue streams with OneCare Vermont. Any "savings" in Medicare costs that result from this new organizational shift will be paid back in part to the providers—but with a hefty share flowing upward to the organizations to which the providers belong.

Even so, it is unclear whether federal government subsidy will be enough to offset the cost of the organization. Since 2010, Vermont has received $49 million in federal ACO funds, according to the Kaiser Foundation, but few Vermonters have noted any decreases in insurance premiums or health care bills.

Ten percent of the ACO budget will go to "administrative costs" -- including more executive compensation, offices, and updates to the electronic health record systems that are already costing an arm and a leg -- while requiring ongoing instruction, maintenance, updates and interfaces.

And if the government payback does not cover the cost of the ACO organization, it will surely fall to private payers to pick up the tab — which could mean more premium increases for everyone.

With never-ending budget increases for hospitals' so-called "fixed costs" on the supply side, any "savings" must come from lower usage: providers seeing patients less often, and doing fewer things to them; or seeing twice as many patients for the same charge — which is referred to as "increased efficiency," and is already happening in Fletcher Allen satellites.

In some ways, a less-is-more approach may be a good thing. We know that patient outcomes have not justified the exuberant and costly overuse of procedures such as cardiac catheterization, spine surgery, prostatectomy, endless scans, screenings, imaging, and a lot of end-of-life interventions that do little more than prolong the agony, while racking up enormous charges.

Vermont is already putting a lid on some of those tendencies, by developing home hospice and palliative-care programs, for example. Still, there is room for improvement.

Any Good News?

Part of the purpose of an Accountable Care Organization is to keep track of protocols and practices that work, and weed out those that don't. Improving electronic record-keeping is part of the plan.

Coordinated electronic health records are the wave of the future. The sales pitch for them is that they make it easier to keep track of best practices and outcomes. Vermont's progress in that area may already be ahead of the pack.

Still, any record-keeping system is useless if a doctor doesn't have the time to look beyond the first page of the chart, whether on a computer screen or in a manila folder. Problems with compatibility plague the various record-keeping systems in use. With endless upgrades and maintenance costs on top of huge installation fees, the benefits of information technology in health care — from the patients' viewpoint, in both cost and performance — remain to be seen.

Consolidation of hospital systems may also be the wave of the future as we head toward state or national healthcare. Yet the systems in place — Fletcher Allen and Dartmouth — still function on an exuberant growth model, even as regional populations and economies are lagging. Stricter regulation and price controls will be necessary if we are to craft a system driven by something other than the Wall Street profiteering model.

A tightly-regulated, reduction-based budget for Vermont's newly approved ACO could be a first step toward changing this growth model. Indeed, if healthcare systems are working correctly, those served should need less of their services, and healthcare economies should have shrinkage, rather than growth, built in. For all its faults, the structure of the ACO could be a move in that direction.

But reducing the cost of healthcare cannot come solely from efficiency and reductions in services to patients. It must also come from cost cutting throughout the supply side — and that includes price reductions for hospitals, Big Pharma and other purveyors; slashing capital expenditures; closing unnecessary facilities; cutting executive compensation; and streamlining administration—instead of continually increasing it. Patients' bank accounts indicate that this kind of accounting is long overdue.

References

• U.S. Census
  
• Kaiser Foundation
  
• John Brumsted, MD. Fletcher Allen, CEO Blog. "Prepping For Accountable Care" 8-14-12
  
• Hospital CEO culture in Lisa W. Foderaro's, "Half-Empty Hospitals in a Shrinking City."
• Green Mountain Care Board
  
• GMCB Public Comment Page
  

Katharine Hikel, M.D. and Vermont Woman contributing editor lives with her family in Hinesburg. Look for Dr. Hikel's second article in the upcoming Spring issue: "An Arm and A Leg: How corporate welfare, marketing, executive privilege, oversized facilities, and overpriced technology add up to the high cost of the health care industry."