Investor-owned hospitals want to cherry pick patients for the Medicare ACO program

Medicare pay-for-performance is a part of the Patient Protection and Affordable Care Act (PPACA) legislation. The health reform law requires the Centers for Medicare and Medicaid (CMS) to create entities that will share in any cost savings for treating Medicare patients. The bonuses would be distributed to these “Accountable Care Organizations” based on healthcare quality performance criteria, such as reduced hospitalization infections.

In a letter to CMS regarding PPACA’s Accountable Care Organizations, the Federation of American Hospitals recommended that ACOs be able to “bring to the agency a list of at least 5,000 Medicare patients that they wish to be assigned to their ACOs.” Among the reasons for this recommendation, FAH writes, is that providers know better than CMS which patients “incongruously bounce from provider to provider, irrespective of the ACO physician’s recommendations (i.e., not a good ACO fit if the patient is unable or unwilling to follow the physician’s advice or remain within the ACO provider network).”

Essentially, FAH, an industry group for a 1,000 investor-owned hospitals, is recommending that they “cherry pick” the best patients. In other words, FAH wants CMS to allow ACOs to behave in ways that lower the likelihood of attracting the unprofitable members.

In my posting last month, I discussed the concept of “cherry picking” in terms of managed care. (This problem is also called risk selection, selection bias or “cream skimming.”) This is a significant problem for the insurance marketplace for which risk-adjusted capitation payment methods are being employed.

With risk selection in mind, CMS must be careful when promulgating the final ACO regulations so as to not inadvertently encourage the discrimination of certain patients (mentally ill, minorities, transient, etc.) that may not score well in performance assessment schemes.

It has already been shown that incentive-based programs exacerbate risk selection problems. Evidence from Mehta et al. (2008) on hospital incentive-based programs studies shows that case mix can exert powerful influence on performance rankings. For example, one study by Karve, et al. (2008) showed that the proportion of African-Americans patients treated by a hospital was inversely associated with performance for certain process-related performance measures. Blatant risk selection policies for the ACO program will make this problem even worse.

If CMS accepts FAHs recommendation for the ACO pay-for-performance scheme, there will be negative unintended consequences.  In my earlier posting about ACOs, I commented that the CMS staff responsible regulations for the ACO program may have an anti-managed care bias. Even if the regulators at CMS dislike managed care, surely they’re aware of the “cherry picking” problem. Hopefully, they will view FAHs recommendation with skepticism.