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BUSINESS OF
MEDICINE

their volumes of services. People do what we pay them to do. may include a much broader scope of patient health, health out-
That was essentially a price-control system that did little or comes and quality measures. But it is still essentially a capitated
nothing to curtail volumes of services. In fact, it paid providers system, albeit a conceptually better one. If all of the providers in-
to increase the volumes of health services. And it was still bank- volved work together to produce better health outcomes at lower
rupting the country. So we tried capitating the money we gave to cost, everyone shares in the cost savings. However, it still does not
providers. We provided a fixed total amount of money to certain address the mobility of the American population. If an ACO in
healthcare providers for a fixed population of patients, regardless San Antonio invests in the preventative care of its patient base,
of what it cost to treat them, or how much volume of health serv- and every three years a portion of that population moves on to
ices they needed. OK, that addressed the volume issue. This con- some other ACO, the cost is incurred, but some other ACO gains
cept was promoted as “managed care.” The idea was that if a the benefits of the healthier patients. If there were only a limited
provider invested in preventative care for their patient population, number of ACOs in the entire country, then as patients cycled
the patients would stay healthier, and the provider would gain the from one to another, all would eventually gain the benefits of
benefit over the long run of healthier patients who are less costly healthier patients. But we have nowhere near that kind of a closed
to treat. And thus the provider would benefit financially. system in our country.
I have advocated for years that what we may need is an oligop-
MOBILITY oly of three or four national-scale health systems. That way, a pa-

But we forgot to consider the mobility of the American popu- tient could sign on with one plan and stay with it for life, no
lation. On average, every three years, Americans change employ- matter where they moved throughout the country. The providers
ers, or move to a different geographic region. So if a capitated would gain the long-run economic benefits of maintaining health-
provider invested in preventative care for their patients, the ier patients. It could be made up of large, private-sector health
provider incurred the additional up-front costs. But, when the plans. But could a limited number of national health plans collude
patients moved away or changed health plans, some other to fix prices at artificially high levels? Certainly. But price regula-
provider would gain all the benefits of the healthier patients. And tion is nothing new — and PPS is already a price-control system.
the reverse also was true. If a provider saved money up front by So I don’t know if we’d lose much on that front. Would they ac-
deferring treatments or undertreating patients, after the patients cept the low-income and high-cost pre-existing condition pa-
moved away some other provider would have to incur the extra tients? Would they refrain from annual or lifetime cost limits?
costs of treating the sicker patients. So we pitted the financial in- What about patients who could not afford the premiums? Those
centives directly against appropriate levels of care. From an eco- factors would all have to be stipulated by law as conditions for
nomic perspective, we ended up with a system of “managed cost,” health plan licensure. Would it bring down costs of care, or just
rather than “managed care.” create another bloated bureaucracy, riddled with vested interests?
So now we are trying bundled payments and accountable care Maybe. One thing is for certain: They will do what we pay them
organizations (ACOs). Bundled payments are essentially “case- to do.
capitation.” In bundled payments, we set a fixed amount of
money for all of the treatment needed for a specific patient case Dana A. Forgione, PhD, CPA, CMA, CFE is the
(or types of patient cases). If all of the providers involved find Janey S. Briscoe Endowed Chair in the Business of
ways to reduce the costs of care (subject to certain quality stan- Health program at the University of Texas at San An-
dards), everyone benefits from a share of the savings — the physi- tonio. He is also an adjunct professor in the School of
cian, the hospital, the payer and even the patient — through Medicine, Department of Cardiothoracic Surgery,
reduced deductibles or co-payment amounts. There is no partic- Department of Pediatrics and School of Public Health, all at the Uni-
ular emphasis on preventative care. On the other hand, ACOs versity of Texas.

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