Accountable Care Systems

NHS reorganisation

I’m going to talk about Accountable Care Systems/Accountable Care Organisations today.

My thesis is a simple one: that ACSs/ACOs are not new and they don’t work. They promise 20-30% savings but they cost at least an extra 15-20%. There are better ways of saving money and improving quality.

I will look at them from two different perspectives: a commercial perspective and a scientific perspective.

I will ask can Accountable Care Systems work in theory and have they worked in practice.

I will leave you with what I believe are the lessons for the UK (and the USA) and where I believe the focus should be instead.

My perspective is as someone who has worked in and around the NHS for almost 40 years:

  • As an NHS-trained accountant
  • Ex Director of Finance
  • Ex Chief Executive Officer
  • With 20 years management consultancy experience
  • And with 10 years advising local authorities on NHS reconfigurations/transformations.

Most recently I have written, with my colleagues, a review of Sustainability and Transformation Plans. I have also prepared a review of plans in Huddersfield as a precursor to a legal challenge in West Yorkshire. I’ve worked on some of the largest PFI developments in the country, witnessed at close hand the NHS IT project, and even set up a Health Maintenance Organisation in the private sector, in the mid-1990s. I have a lot of experience of the claims of the “transformation” industry.

And I do work for a living so if anyone wants to pay me, then do come and see meet me afterwards.

So turning to Accountable Care Organisations.

First the commercial perspective

They derive from the American model of Health Maintenance Organisations.

These are defined as a medical insurance group that provides health services for a fixed annual fee. It is an organisation that provides or arranges managed care for health insurance, self-funded health care benefits plans, individuals, or other entities, acting as a liaison with healthcare providers on a prepaid basis. Which is a mouthful for just being a middleman in the healthcare business.

Accountable care systems are organisations in the English NHS that are intended to replicate the features of the American accountable care organisation. They are defined by NHS England as an area ‘in which commissioners and providers, in partnership with local authorities, take explicit collective responsibility for resources and population health’.

This resembles the definition of Health Maintenance Organisations that emerged in the 1970s. Like an HMO, an ACO is “an entity that will be ‘held accountable’ for providing comprehensive health services to a population”. They were designed at the outset to deal with American problems of buying effective group cover for American employers.

American Healthcare Costs rose rapidly from 5% of GDP in 1960 to 9% in 1980, 16% in 2008, and 17.9% in 2016. Nixon responded to a healthcare funding crisis in 1970 when healthcare was 7.1% of GDP and passed the Health Maintenance Organisation Act 1973. It was said General Motors spent more money on medical insurance than on developing new cars. In other words healthcare costs were the cause of lost market share and HMOS were the answer. HMOs were sold on the basis “All the incentives are towards less medical care because the less care they give the more money they make”. See the NIXON tapes on Youtube.

In 2002 it was claimed that Kaiser Permanente provided cheaper, better cover than the NHS. This has been rubbished comprehensively by a number of researchers. But it hasn’t stopped the momentum in the USA or the UK.

We cannot emphasise enough that the costs of US Healthcare are colossal. They were about $3.4 trillion in 2016, 17.9% of GDP and set to rise to 20% in 2020 and 25% by 2025. But its not surprising when average earnings of doctors start at $200,000 and reach $606,000 for electro-physiologists.

HMOs were supposed to control costs. They haven’t. Yet this hasn’t stopped claims that the US system is the model for the UK to follow. HMOs have had plenty of time to work. They promise 20% savings but they cost at least 15% of the care provided. They have made money not by promoting efficiency but by managing membership (excluding bad risks), excess billing and charging high fees for services. HMOS are an £180bn turnover industry in their own right and made profits of $13.5bn in 2014.

The CEO of United Health made $66m in 2016, that of Aetna $17.3m.

Who are the HMOs/ACOs?

If you look up Zacks HMO industry survey 12 companies are listed (This is their capitalisation ie how much they are worth) some of which are small but the big players are:

  • United Health, worth $205bn
  • Nobilis, $109bn
  • Aetna $57bn
  • Anthem $54bn
  • The Joint Corp $62bn
  • Humana $37bn
  • Centene $17bn

The total Industry was worth $560bn in 2016. so what was this referring to from above? It was a $180bn industry in its own right. By comparison the top four UK banks are Barclays $40bn, Lloyds $63bn, RBS $43bn and HSBC $193bn. Rolls Royce £23bn and Tesco’s $19bn are small beer. Even BP $133bn and Glaxo $87bn are smaller than United Health. or the HMOs are worth as much as Amazon.

HMOs have grown by 268% in five years, and by 38% in 2017 alone.

The threat of Obamacare seems to have been seen off but they are looking to expand overseas. The Industry is the biggest investor in lobbying in the USA. They pay politicians directly and in jobs in call centres. Top 10 companies in health/pharma made more profits than the rest of the Fortune 500 over last ten years

The facts are however that the costs of Medicare and Medicaid have been growing slower than the HMO sector. The choice for America is more Medicare or more HMOs. The battle is not yet over.

In the UK HMOs have been promoted by the King’s Fund since the eighties. I first came across them while on senior manager training courses at the King’s Fund. Simon Stevens worked for United Healthcare, the largest supplier of HMO services in the USA. He is now CEO of NHS England and heavily promoting ACOs and ACSs (the new name for HMOs). The message is that they are the future for the delivery of managed healthcare across the world. It is what HMOs mean by integrated care. But their vision of integrated care is the creation of a monopoly healthcare manager, who receives the money, procures services, manages services, monitors services all under one roof whether at home, GP surgery or in the hospital or care home.

When you hear integration is a good thing remember to ask: who it is best for?

Scientific medicine

The second strand of thinking about AC Systems is informed by “Scientific Medicine” or “Evidence based Medicine”.

There has always been distrust of medical practice. Quackery, dubious practices and fashions and the need to sell solutions to desperate patients creates opportunities for the unethical. The medical professional bodies have been able to sell self-regulation of quality control in return for professional control of supply of doctors. But evidence has accumulated over the years showing that medicine can cause ill health (iatrogenic disease), much of medical practice has a poor evidence base, and poor practice is common. Many interventions are harmful and useless, and there is both over-treatment and under-treatment. Patients are not well-informed of choices and risks. Promoting evidence-based medicine has been the professional academic response and is implicit in new care models promoted by ACOs and ACSs.

Feinstein has pointed to flaws in clinical judgement. Most practises are based on heuristic rules of thumb. But memory is highly fallible, prone to error, and to suggestion. The more intelligent suffer the most.  Biases lead to cherry picking evidence to support hypotheses, first impressions are difficult to escape, there is a propensity to overestimate predictability (through hindsight), there is overconfidence, neglect of missing data and blind spots about own biases.

Wennberg has stated:

“the basic premise that medicine is driven by science and that doctors are capable of making decisions on well-established fact and theory is …incompatible with the facts”.

Most clinicians spend less than an hour a week keeping up with their profession, but there are 19 new articles in journals every hour of the day.

It is estimated that there are 250,000 deaths from medical errors for one reason or another in the USA every year.

It is said , in sweeping claims justifying the HMO industry that:

  • 20-30% of care may be inappropriate
  • 60% may lack a solid evidence base
  • Medical productivity varies by 50%, with 30% unwarranted.
  • Day case rates could be increased by 10-35%
  • More harm may be being done than good in many cases.
  • Watchful waiting is often the best policy.

Evidence presented by McKinsey in 2012 identified the following 26-50% levels of waste in the US system:

Failures of care delivery (iatrogenic  causes) $102-154 bn
Failure of care Co-ordination (largely for chronically ill) $25-45 bn
Overtreatment $158-226 bn
Administrative complexity $107-398 bn
Pricing failures(overcharging) $84-178 bn
Fraud and abuse (incl overregulation) $82-272 bn
Total $558-1064 bn

Archie Cochrane in the UK vigorously promoted effectiveness guidelines and Evidence Based Medicine.

It has been only slowly taken up by clinicians, but was seized upon by NHS managers as a way of justifying cutbacks. For example, excluding patients who do not “need” care, denying treatment to those with little chances of success, delaying and diluting care, increasing productivity. But it remains controversial as patients still expect doctors to do their best for them.

So could a fusion of HMOs and new scientific models of care work in theory?

In theory yes. A commercial approach and a scientific approach could be wedded.

Most healthcare systems are commercial in large part. The UK has self-employed GPs working in partnership with privatised social care and there is a close relation to private medicine, who are taking on more contracts with the NHS. Governments have supported public-private partnerships. The commercial world has not spurned new models of care but looked to champion them.

So what’s the problem then?

It hasn’t worked in practice. HMOs have not worked well enough in the USA or elsewhere.

As I have said, and it bears repeating, they add at least 15% to the costs of the care provided and there is no evidence that they have saved the 20% or more that was claimed for them. At best the increase in costs has been mitigated but even that is stretching the facts. Healthcare spend as a proportion of GDP was 7% in the USA when HMOs were created; it’s now 17.9%. Any successes are overstated and more than likely could be achieved in other ways, more easily.

Performance monitoring, outcomes measurement, reducing clinical variation, managing chronic diseases, and aligning incentives to evidence based medicine does not require HMOs. The NHS has been doing much of this already.

So what are the lessons for the NHS?

McKinsey identified the following scope for 15-22% savings in NHS England (2009):

£bn (2009)
Drive acute and non acute sector productivity 3.2-4.9
Supply chain procurement 2.3-3.7
Estates optimisation 0.5-0.6
Optimising care pathways and enhancing self care and CDM 5.6-7.4
Enforcing standards 1.1-1.7
Local Health reconfigurations 0.8-1.6
Total 13.4-19.9

The focus of Accountable Care Systems is supposed to be delivering new models of care, at scale and at pace. But it’s the wrong solution. The NHS spends far less, with fewer inputs, and delivers less, not surprisingly, than other countries. Looking to trim output further will be counterproductive. Looking to America and copying systems based on extravagant waste, inflated salaries and huge transaction costs on the one hand and institutionalised inequality, restrictions of care for those without full insurance cover and dumping of the sick once the money runs out is the wrong route.

We are being peddled the wrong solution for the wrong reasons. Claims of 20% savings are just marketing claims that don’t stand up. The NHS is not perfect but that is no reason to squander resources on ACOs. Neither is integration an answer in the UK. It is a cloak to justify commercial monopolies. In my view the intention is to contract out management of health and social care to monopolistic private management companies by letting 10-year contracts.

The real problems in America are the shortages of doctors, the excessive control of supply of doctors by the AMA and the extravagant salaries, transaction costs and the immorality of denying care to people who cannot afford it. HMOs/ACOs have not solved these issues but made them worse.

Is there an alternative? There certainly is.

  • I would ensure more doctors were trained so that salaries could be reduced and supply increased through internal competition.
  • Professionalism should be encouraged and not seen as a poor relation to financial incentives.
  • The state can and should increase its role and expand social provision under its own control rather than subcontracted through commercially-managed ACOs.
  • In the UK it makes little sense to integrate health and social care. The NAO couldn’t find the evidence for it and the DH has still to provide it. The real problem is the inadequate funding of both health and social care. Expecting both to support the other is like asking two drunks to help each other stand up. It is not practical.
  • By all means examine the science of new models of care but do not rush to judgement and do not rush to allocate 10-year service contracts to commercial providers.
  • Priority should be given to today’s problems not to false hopes for the future.

If there is a crisis it is just the consequences of the NHS being starved of resources. It’s a slow motion car crash but there is still time to avoid the wall.

I’m aware that the NHS in Manchester and their local government partners may think that creating an Accountable Care System is a good thing but they need to be aware of where some powerful players are looking to lead them.

Caveat emptor is always good advice.

Presented at our conference on Accountable Care Systems