Last spring when my colleagues and I were teaching a class on health insurance in America at the U-M Ford School of Public Policy, we asked our students to write their final papers on what they would change about the Affordable Care Act. Three of our earnest and committed students took on the task of trying to make the Community Living Assistance Services and Supports program (CLASS Act) workable. All three came up with approaches for increasing enrollment in CLASS and making it more financially sustainable over the long term.

As my colleagues and I talked about how to grade these papers, we considered to what degree the students’ solutions were workable. (One of my fellow instructors felt strongly there was simply no way to fix CLASS.) In the end, all the students who took on the challenge of fixing the CLASS Act earned grades in the “A” range because they demonstrated strong understanding of the Act and its pitfalls, proposed thoughtful solutions, and wrote extremely well.

But even so, we were not convinced that any of their solutions could fix the problems inherent in CLASS. And, as events have unfolded, they are at least in good company, since the Secretary of HHS was unable to find a solution for CLASS as well.

The CLASS Act was intended to avert a significant societal problem: increased demand for long term care due to the aging of the population. The cost of long term care causes many seniors to lose their assets and puts an increasing burden on many state Medicaid programs, since Medicaid is generally the only payer to provide coverage for long term care beyond skilled nursing.

The CLASS Act was included as Title 8 in the Patient Protection and Affordable Care Act passed in 2010, championed by Senator Ted Kennedy, who had long felt leaving long term care out of Medicare had been a major mistake. He knew the reality of the aging of the population in the U.S. and the growing need for long term care services. But, from the moment the CLASS Act was passed, it got particular focus from critics of the ACA who argued the program could not become sustainable and would be a cost burden on the federal government in the end.

Ironically, CLASS was included in the savings estimate by the CBO and supported the analysis that the ACA would reduce the deficit. How so? Because premiums would be collected to support long term care coverage long before expenses would be incurred. Congressional intent was for CLASS to be self-sustaining for at least 75 years.

But the Act was designed to be voluntary. That is, the idea was to require employers to offer long term care coverage—and employees to pay for it, in full—but also allow employees to opt out of the coverage if they did not want it. It was this voluntary aspect that made it so difficult to make CLASS financially workable. After 19 months of discussion and analysis, Kathleen Sibelius announced on October 14, 2011 that the Department had not figured out a way to make CLASS sustainable and they were therefore effectively “putting it on the shelf.”

This conclusion was reached based on an understanding of the way private long term care coverage performs over time. Even advocates for CLASS acknowledge that private long term care coverage offered by employers has had a low participation rate—about 2 percent—too low to make the coverage financially viable. The low rate means that only those who are pretty certain they are going to need the coverage purchase that coverage, leading to adverse risk. And while financial strategies could be employed to mitigate this risk, changes to the law would be required – changes not likely to pass in this political climate.

What does the untimely death of CLASS tell us? In some ways, it says more about us and the limits of market-based solutions than it does about federal politics or technical issues with the law. The death of CLASS is really about the unwillingness of Americans to plan for the future. Perhaps it is our boundless optimism that we will never be old or infirm—that technology will find the answer to longevity before we have to face our mortality. But the fundamental problem with CLASS is our low rate of purchase of long term care coverage when it is offered. In the end, a voluntary approach to long term coverage just won’t work. Insurance is all about spreading the risk and sharing the cost. Just like in health care more broadly, halfway measures don’t work. It is time to commit to long term care for all, if that is what we want.

Many Americans have an almost visceral reaction against what is sometimes called “socialized medicine.” Socialized medicine is often discussed in the context of the British Health Service – where the government is both the payer and the employer of those delivering care. But the irony is, we have a superb example of a very similar approach here in America: the U.S. Department of Veterans Affairs.

With roots back to the 1600s, the modern Veterans Administration (VA) was formed in the 1930s to provide a range of services to returning veterans. In 1930 there were 54 VA hospitals; today there are 171 medical centers, more than 350 outpatient, community, and outreach clinics, and 126 nursing home care units. In 2006, the Veteran’s Health Administration employed more than 200,000 full-time equivalent employees and provided services to more than five million veterans and another 400,000 individuals throughout the country.

Recent analyses show the VA outperforming both Medicare and the private sector on overall quality and cost. Adjusting for the changing mix of patients, the Congressional Budget Office estimated the growth of VA budget authority per enrollee (in real terms) to be just 1.7 percent from 1999 to 2005 (0.3 percent per year), while Medicare’s real rate of growth was 29.4 percent in cost per capita (4.4 percent per year) and private health insurance premiums increased from a low of 5.3 percent (1999) to a high of 13.9 percent (2003). While private sector data were not adjusted for changes in benefit design, few would doubt that real cost growth in the private sector was higher than the VA’s for the same period.

Of course, the VA has certain inherent advantages over other health systems. For example, federal law enables the VA to purchase pharmaceuticals at lower prices than virtually any other payer, and because the VA is a single system with a defined set of benefits, it is less administratively complex than the highly pluralistic private sector.

In the 1990s, VA leadership began a concerted effort to improve quality. They adopted key tenets proposed by the Institute of Medicine and disseminated them throughout their facilities and programs. By the mid-2000s, the VA began to be recognized as a leader in health care quality and safety. A study in the New England Journal of Medicine showed VA patients receiving quality of care better than the Medicare fee-for-service system. And, a study reported in the Annals of Internal Medicine noted that 67 percent of VA patients received the care specified by key quality indicators, compared with 51 percent of the patients in the national sample.

While there are many potentially confounding variables when analyzing the VA’s performance compared to the private sector or Medicare (e.g., different benefit designs; different patient populations; different geographic distribution), there is little doubt that it supports the view that a fully federally funded and run entity can provide high-quality care at a lower cost than the private sector. In looking at the reasons behind this performance, the Congressional Budget Office concluded that the “VA’s structure as a vertically integrated system that operates on an appropriation may have helped the system to focus on providing the best quality of care possible for a given amount of funds.” This finding is consistent with what has been found with health care internationally: strong, centralized systems have generally outperformed the United States with both lower per capita health spending and better population health performance.

While some in the U.S. believe that a centralized, federally-run system could not work in this country, the VA is a clear, real life demonstration that that belief is simply not true.

While there has been considerable attention of late focused on the Affordable Care Act and the courts, many states, health care providers, and employers are continuing to move forward on the assumption that the Affordable Care Act will stay in effect—at least in its broadest dimensions. While a Supreme Court decision is now expected by the end of the 2012 term, getting ready for implementation of the major provisions of the ACA that go into effect in 2014 cannot wait for that court decision.

Much has been made about provisions in the Affordable Care Act affecting employers: expansions of benefits, affordability provisions, automatic enrollment requirements, and limited penalties for not offering coverage. Surveys abound, predicting what employers will do as a result of the ACA, and they are wildly different: predicting everything from a significant decrease in the number of employers offering coverage post-reform to a significant increase.

The Affordable Care Act is complex, and many employers know only the well-publicized elements of the law. Most surveys to date have been conducted by asking employers about various future scenarios, and human resource directors have responded based on those scenarios. At best, these surveys are highly speculative. And, even with a deeper understanding of the law and its key provisions, we believe most employers won’t jump to decisions about whether or not to continue offering coverage but will rather take a wait and see approach to see how some of the new structures—like health insurance exchanges—develop over time.

When employers respond, for example, that they would likely drop health benefits as a result of the Affordable Care Act, they may be thinking about only one part of the equation: the current cost of premiums and the likelihood that direct penalties for dropping health coverage will be less than the premiums they pay. But that answer doesn’t take into account what the competition will do, how important health benefits are to attracting a skilled work force, and/or what wage pressure might develop if employers that are currently offering health coverage drop it and encourage employees to purchase their coverage on the Exchange. All of these issues are more complex and will take considerable sorting out by employers.

To help employers better understand the relevant provisions of the ACA, we developed and published a guide called The Affordable Care Act for Midsize and Large Employers. This guide highlights some of the nuances employers will need to consider when thinking about changes they might make to their health benefit plans: nuances such as—how many of their employees are part time, how rich are the benefits they offer today, and how health insurance benefits relate to the average compensation levels of their employees. Our hope is that this guide will inform employers and help them begin to think about the relevant questions as they determine their best future direction for employee health benefits.

The Affordable Care Act will set in place a whole series of changes to the health insurance market place that are interrelated and will lead to some fundamental differences from the ways health coverage is purchased today. How those changes affect the employer market will be an unfolding story over many years. Becoming educated on what those changes are is, however, something all employers can and should do starting right now.

Many of those working to improve health care in America have advocated for the use of electronic prescribing as an important tool for improving patient safety and moderating health care cost trends. A recent report released by the U.S. Government Accountability Office (GAO) documents abuses in the Medicare drug benefit that underline the potential value of electronic prescribing tools. According to the GAO report, some beneficiaries were able to obtain more than a year’s worth of narcotics by “shopping” different doctors. Electronic prescribing tools can enable health plans, physicians, and pharmacists to detect doctor-shopping, and assure that multiple prescriptions are not filled for the same condition within a given time period. Such an approach can both protect the health of patients who may receive duplicate prescriptions in error, and prevent fraud and abuse by those who seek prescription drugs for non-medical purposes.

In a recent review of the literature[CHRT E-PRESCRIBING] on e-prescribing, our center noted that despite the evident potential of e-prescribing, use is still very low. In 2010, only 25 percent of eligible prescriptions were prescribed using electronic tools. Indeed, Michigan had the second highest rate of e-prescribing in the country in 2009 – 20 percent – up from 4 percent in 2007. But even though rates are increasing, they are still extremely low relative to the opportunity. In a recent issue brief, the Center for Studying Health Systems Change found that in 2008, 42 percent of physicians in the country had access to e-prescribing, but only one-third were routinely using the technology.

The American Recovery and Reinvestment Act (ARRA) included significant components to promote the use of electronic medical records (EMRs). Starting this year, there are incentives for physicians who document “meaningful use” of EMRs, and starting in 2015, there are disincentives for physicians who don’t. There is already evidence that physicians are responding to these incentives to some degree, and because e-prescribing is included as part of EMR meaningful use standards, these incentives/disincentives may provide impetus for a further increase in e-prescribing. However, there are many who believe that the uptake is too slow and the incentives and disincentives included in the ARRA won’t make a big enough difference in the use of these tools.

So, why is it we can know so well that something will improve quality and safety and yet don’t use it to its potential? One key reason: the increasing availability of information and technology often outstrips the speed at which human systems change. The meaningful use guidelines recognized this by providing not only incentive and disincentive funding but also technical assistance to help physicians make the needed changes. Aligning incentives between public and private payers such that physicians get consistent messages and consistent support to embrace technology will also help.

But technical assistance and aligned incentives will only help to the extent that physicians want that help and are open to change. There is a telling statistic in the study reported by the Center for Studying Health Systems Change: the degree of e-prescribing use by age of physician. Of physicians over age 60 with access to e-prescribing, 66.5 percent used it routinely, compared to 87.2% of physicians between the ages of 29 and 40.

It would be nice if the trend toward adoption of EMR/e-prescribing didn’t rely on the retirement of older physicians. But it does appear that over time, one way or another, we will eventually reach a tipping point, and e-prescribing will become the norm, not the exception.

It is difficult to find an issue that is more politically contentious than health care; particularly the policy changes and programs that are needed to assure that Americans have access to needed care.  The liberal position tends to see health care as a right, and seeks a strong centralized public role in assuring that all Americans have access to the same kinds of benefits and care.  The conservative position sees fiscal and personal responsibility as the top priorities; tending to favor decentralized, private market solutions.

Most would agree central authority does a better job assuring equity of coverage to a defined set of benefits (best evidenced in Medicare, where there is a uniform, national benefit package). There is less agreement on whether centralized or decentralized authority is preferable in terms of health care quality improvement and effective cost control, but there is strong evidence in support of the need for centralized authority to accomplish these goals.

The case for central authority begins with a critique of state/local government authority. The problem with state based approaches is that a significant degree of decision making is delegated to each of the 50 states, making it extremely difficult to achieve uniformity unless there are strict and prescriptive federal guidelines.  Most often it creates a situation where there is success based on anecdote:  we hear about the innovation that occurred in Massachusetts through its health reform initiative, or the single payer system planned for Vermont, or Hawaii’s success in reducing its rate of uninsured.  These glowing stories of success blithely gloss over the fact that these are truly exceptions, in aggregate affecting less than 5 percent of the U. S. population with little or no chance of adoption by other states.

Even when the federal government partners with the states to meet policy objectives, states tend to take advantage of any discretion, thereby creating state to state differences based more on fiscal ability and political priority than on variations in local need.  Take Medicaid as an example.  In 2009, 17 states set eligibility thresholds for working parents at less than 50 percent of the federal poverty line.  Another 17 states set eligibility for working parents between 50 percent and 99 percent of the federal poverty line.  Lastly, 16 states set their eligibility threshold at income greater than the poverty line. What is the policy justification for these differences?  Are working families in Tennessee (greater than 100 percent of poverty) significantly different from working families in North Carolina (less than 50 percent of poverty)?

The differences from state to state in Medicaid are significant, impacting who is eligible, who gets access to care, and the quality of care they receive.  A recent study from the Commonwealth Fund highlights this issue. The study looked at Medicaid managed care and compared the performance of publicly traded health plans with the performance of non-publicly traded plans (mostly provider owned).  It found that publicly traded plans tended to devote a higher percentage of each premium dollar to administrative expense—including profit—and receive lower scores for quality related to preventive care, treatment of chronic conditions, and members’ access to care and customer service.  Again, this leads to disparities among states because for-profit plans tend to be concentrated in certain states.

The major reasons for Medicaid’s profile on cost and quality performance involve two interrelated factors:  states’ political culture and fiscal capacity.  States with the largest poverty populations tend to have less fiscal capacity than more affluent states. So when these poorer states are asked to match federal dollars, they simply do not have the tax base to afford more generous benefits and higher eligibility thresholds.

Secondly, Medicaid is not a popular program in most states.  Legislators would rather allocate incremental tax dollars to other purposes, such as elementary and secondary education, higher education, corrections and/or tax relief.  Even though two-thirds of Medicaid dollars go to pay for care for the elderly and the disabled, these dollars are generally viewed as going into the pockets of providers, who are thought to be well off and not a priority for extra tax dollars.  As a result, in most states there is not an effective political constituency to advocate for the Medicaid program.

In summary, state based accountability tends to result in programs with wide, and unjustified, disparities from state to state.  There are some success stories, but these tend to occur in more progressive and affluent states and represent the exception and not the rule.  Yes, state accountability is better than no accountability, but it is not the way to develop an equitable and effective coverage program for all Americans.  State control can be effective in cost control, but when cost control becomes the overriding policy priority, that success can come at the expense of quality, coverage, and access to care.

Healthcare consultant Kevin Seitz, MSW, is the former executive vice president for Health Care Value Enhancement at Blue Cross Blue Shield of Michigan. Seitz was a founding member of CHRT’s board of directors and served on the board from 2006 to 2010.

In early August, when the debt ceiling agreement was reached, many news reports noted the agreement did nothing to address core reasons for the debt, namely: Social Security, Medicaid and Medicare. Indeed, nearly every article written about the debt ceiling talked about the need to “deal with” (aka: cut) Medicare, Medicaid, and Social Security.

But every time there is a serious proposal on the table to cut federal spending for health care, health care stocks fall—and this is considered a bad thing.

Recent reports from the Office of Chief Actuary noted the rate of increase in health care spending was at a historic low (3.9 percent) in 2010. Now you would think the media would frame this as good news, especially in light the need to reduce health care spending to address the national debt.

Instead, news reports carried headlines like: “Health-Care Use is Sluggish.” These reports cited the “fragile recovery” as the reason fewer people went to the hospital, which had a negative impact on medical suppliers’ earnings reports (though, a positive impact on for-profit health plans). Indeed, the article profiled stock problems at Johnson and Johnson, noting (among other things) the “sluggish sales of replacement hips and knees.”

We rarely talk about the business of health care in those direct terms: “sluggish sales of hips and knees.” We prefer to think of health care in more altruistic terms: care that is patient-centered, care that helps people in need, care that improves population health. Indeed, in the 1990s, there was a brief, consultant-driven movement when patients were called “customers” with the idea that that would focus practitioners more on quality and service. That movement quickly died because those receiving health care services didn’t like being viewed as “customers” or “consumers,” and those providing services didn’t like being viewed as just any other business.

But the reality is, just as is exemplified in the Wall Street Journal article, today much of health care is developed by or delivered through the for-profit world. And, the for-profit world has different incentives than the federal government or, indeed, consumers at large. In fact, the interests of shareholders may require behaviors that are at cross purposes with the public interest as expressed during the debt ceiling debate. This is part of what makes any discussion about cutting Medicare in particular so difficult. After all, Medicare beneficiaries are among the biggest consumers of health care, based both on their demographics and their generally extensive health benefits. So, any cuts to Medicare means cuts to those whose income and returns are dependent on the use of health care services.

It is important to note that this issue is not just about for-profit health care. Though nonprofit providers do not have shareholders, they often develop a parallel goal to for-profit providers: survival of the entity itself, and not just the services they provide. And, as many of those in religious orders running hospitals came to understand, there is no mission without a margin.

So, though many in health care don’t like to view it as a medical-industrial complex with customers instead of patients, in the end, it truly is. And, until we understand the truth behind the financial structures of health care that create conflicting incentives, we really won’t be able to have a realistic conversation about the need to cut health care spending at all.

When I was in graduate school and early in my career, hospices were viewed as one of the most altruistic components of the health care system. With a philosophy of caring holistically for those at the end of life by controlling symptoms, supporting families, and providing a “good” death (preferably at home), hospices seemed to represent the vision of compassion that should be embodied in a caring profession. Hospice care was formalized in Great Britain in the late 1960s, and federally funded in the U.S. for the first time in a 1979 demonstration project. The hospice benefit became a part of the Medicare program in 1982 and fully incorporated in 1986.

Perhaps it was inevitable that, when formalized as an insurance benefit, the nature of hospice care would change. In every aspect of the health care system, as coverage makes it easier to make money by providing a given benefit, entrepreneurs enter the system. After all, this is the American way – with all of its pluses (creating incentives for innovation) and minuses (creating opportunities to make money in ways that don’t actually add value to patient care).

Even if it was inevitable, I find what has happened to the hospice movement to be a sad story in the journey of American health care.

In the early years, hospices saw themselves as part of a movement to give better, more compassionate care to the dying. The overwhelming majority of these organizations were non-profit, often led by charismatic leaders and community boards of directors.

In today’s environment, for-profit hospices are on the rise and non-profits on the decline. In 1990, for profit hospices cared for only 9 percent of hospice patients. By 2009, they cared for 35 percent. In 1986, Medicare reimbursement for hospice care totaled $68.3 million; by 2009, that number had grown to $12 billion. As baby boomers become senior citizens, these numbers will go nowhere but up.

While there is nothing inherently wrong with for-profit hospices, an increasing body of research says their care is less comprehensive and admission criteria more selective (to focus on more profitable patients). Indeed, in 2007, profit margins of for-profit hospices ranged from 12-14 percent while that of non-profit hospices ranged from -2.9 to -4.4 percent.

Recently, the New York Times ran an article about the changing profile of hospices and increasing concerns about the cost of hospice care. An aging population and increases in Alzheimer’s and other forms of dementia account for part of the increase in hospice spending. But the Times article also reported on abusive practices by some hospice providers, and large financial settlements resulting from whistle blower and other lawsuits. As a result of ballooning costs, Congress is now considering a change in the reimbursement methodology for hospice providers.

There is no question that hospice care can improve the end of life journey for many individuals and families—but it is still under-utilized by many who could benefit. The shift from a “movement” to an “industry,” –and publicity around industry abuses—have the potential to discourage patients from seeking the care they need.

Too many times in the history of American health care the “medical-industrial complex” has overrun patient interests. Let’s hope this is one time when Congress can reverse a dangerous trend. Returning to the values of “the movement” would be a truly beneficial “back to the future” moment.

Health care policy happens at many levels, but health care delivery: just one. Policy is made at the federal, state and local levels—but delivery is at the local level: in organized systems of care or with individual or teams of practitioners working with patients and families.

There must be a nexus between policy and practice in order for policy related to medical care to have any real impact on the health of individuals and populations. Though there is some recognition of the importance of the nexus (see the formation of clinical translational research entities—CTSAs—at many universities), policy makers often overlook this important step. To make true change in the way care is delivered in America, this translation of policy to local level implementation must be explicit.

The coverage provisions of the Affordable Care Act (ACA) offer great examples of the importance of this connection, and how the centrality of the local role has been overlooked. The ACA relies heavily on Medicaid and health insurance exchanges to expand health coverage. We know from Massachusetts’ experience that when coverage was expanded, many people tried to find a practitioner to treat them and could not. This meant that those with newly acquired coverage were more likely to get care in the emergency department or other facility settings: high cost and ineffective approaches to primary care.

Where is planning occurring in the rest of the country to prepare for 2014 and avoid what happened in Massachusetts? There does not seem to be a coordinated strategy in any states or with the federal government to address this important issue—but we have a great example right here in Washtenaw County.

In the early fall of 2010, the former CEO of the St. Joseph Mercy Health System in Ann Arbor, Robert Laverty, started talking to a number of community leaders about coming together to identify ways to improve care for the poor in Washtenaw County today (Medicaid recipients and the uninsured), and to begin planning for health care reform long before 2014. He got commitments from the CEOs of the two major health systems in the community to co-sponsor this effort, and enlisted other community leaders to chair and facilitate the work. Ultimately, 40 individuals got involved—on a voluntary basis—representing providers, safety net organizations, the Department of Human Services, county employees, public health, patients and their advocates, and the like. The group worked for 6 months focusing on how to improve care—here and now—as well as to plan for the future.

The first step the group took was to document the current state of affairs and what care in Washtenaw County might look like in the future. For example, the group noted that there were approximately 6,400 people currently eligible for Medicaid but not enrolled and 50,000 uninsured in Washtenaw County. By 2014, an additional 25,000 individuals were expected to be eligible with most (but not all) of the uninsured expected to enroll in private coverage with the help of subsidies.

While there are many primary care providers active today in Washtenaw County, the group estimated that the expansion of coverage would increase demand for primary care services by something like an additional 54,000 visits and more than 33,000 of the uninsured appear not to be connected to primary care at this time.

These numbers should be startling and galvanizing: and they have been in Washtenaw County. The groups are now working together on the strategies needed to fill these gaps and more (dental, mental health, and substance abuse treatment were also areas of focus for the group, along with ways to simplify and improve the Medicaid enrollment process). Working together, the health systems and safety net providers are looking at how to restructure what already exists and bring more capacity to the community to be prepared for the expected increase in demand.

This is where the nexus between policy and practice happen. Washtenaw County is off to a great start in preparing for 2014. How many other communities can say the same?

In the May 18 issue of the New England Journal of Medicine, Rashi Fein and Arnold Milstein tackled the question of why evidence-based care diffuses so slowly. The article is compelling because of its fundamental conclusion: institutionalized interest group pressure against change in health care and consumer misunderstanding of health care financing make it hard to envision how health care spending could be reduced in significant ways.

Fein and Milstein note, as many have, that other countries have addressed this issue much better than we have in the United States. They conclude that if we could do as well as some of these other countries, we could save $640 billion – no small sum, especially with the focus on deficits in today’s environment. But they go on to enumerate the obstacles to getting evidence-based guidelines embraced and used on a routine basis.

Those who are steeped in health policy often focus on macro level trends and impacts. But in the U.S., unlike most developed countries, health policy decisions are not made on the macro level. Health policy in the U.S. is fragmented, with many different actors creating the environment and cost trends. State and federal governments have significant health policy roles but they are not alone in their influence. They are joined by thousands of health plans, hospitals, physicians and other provider entities, device manufacturers, pharmaceutical manufacturers, billing agencies, research entities, and other administrators, all with a stake in the current health care system. This diffuse decision making makes it harder to effect change in the U.S. than in countries where decision making structures are more centralized.

So, what can we do about the environment we are in? Well, the Affordable Care Act has a number of strategies for changing the cost trajectory of health care in the country. But most importantly, it will be essential for groups throughout the country to focus on things that can truly be changed and not get lost in those macro trends.

A great example is the concept of waste in health care. Some people argue that as much as 30 percent of spending on health care is “waste” because so much care doesn’t have good evidence behind it—and that may be true. Others think of waste as process re-engineering: simplifying and streamlining functions for efficiency. These points of view may not be in conflict, but viewing this as a macro issue, encompassing both, can make it hard to tackle any part of the problem.

Looking at waste in health care on a global basis can get us mired into looking at every possible approach to reducing spending. This was the approach taken in the Affordable Care Act. Make no mistake: there are great ideas in the Affordable Care Act and they should all be tested. But, for those not in the federal government, focusing on the laundry list of ideas can actually be paralyzing. Community and even statewide groups can come to the conclusion that “solving” the cost problem is out of their hands.

Perhaps a better way to look at the question of waste in health care is to say: in a highly decentralized system, how do we influence enough individual actors to make a noticeable difference in overall health care spending? Put that way, community and state groups can focus on efforts that can be undertaken to make a difference and build from there. Think of hospitals coming together to work on Lean Engineering to make a difference in the efficiency of health care at the hospital level. Think of health plans and physician organizations sharing data about best practices in certain clinical areas to learn from each other about evidence-based guidelines and ways to do things differently. And, think of communities focused on physical fitness and nutrition in the schools and working with parents to prevent obesity before it happens.

Starting from the community and going up rather than the macro and going down can give us more hope that the promise of reducing waste—and in that process freeing up billions of dollars for other purposes—could be achievable after all.

Sixty-five quality indicators? Retrospectively attributed patient populations? Risk after the fact? Significant management and financial investment required with uncertain payback?

This may not sound like a strategy to win the hearts and minds of providers who are on the fence about whether or not to participate in CMS’ new approach to care: accountable care organizations (ACOs). So, what is going on?

Well, first a little background. Several events coincided to encourage CMS (and some private insurers) to embrace the ACO concept.

To begin with, years of research done in connection with the Dartmouth Health Care Atlas led some researchers to advocate for a model similar to ACOs. For many years, Dartmouth noted the tremendous variation in use of health care services in the country. In this context, they also looked in more detail at the use of services by types of institutions and noted that some systems (generally, academic medical centers) were better at managing care than others – especially when looking at the experience of the entire case and not just the cost per day of care. These institutions had lower rates of complications and readmissions – making the episode of care lower cost than those at other institutions where the quality indicators did not look as good. The idea of rewarding hospitals and physicians who work together in an integrated manner and encouraging others to create such structures became formalized in the ACO framework.

The concept was also attractive to those who had observed that the fee for service structure was not effective at managing the cost of care, but knew that managed care systems – popular with employers in the mid-1990s – were not popular with patients. The ACO concept was designed as a mid-point – a system that attributes patients to provider entities, holds providers accountable for the care of the attributed population, but doesn’t make the patients choose anything. From a patient’s perspective, they get care as they always have – with perfect freedom to choose the provider they want – and all of the “management” occurs behind the scenes.

Finally, the concept also coincided with Don Berwick’s move to head the Centers for Medicare and Medicaid (CMS), bringing a concept he championed at IHI: Triple Aim. In Triple Aim, an entity (a provider, or payer, or government) takes responsibility for population health and tries simultaneously to improve population health and patient experience while lowering health care spending. The ACO concept would seem to be a good model for testing whether or not these goals can be achieved – with the right incentives. And, the already-extant CMS Physician Group Demonstration project would seem to be a good project to build upon.

The challenge of ACOs, however, is that they are an entirely unproven concept and it is completely unclear whether or not they could really be structured in an environment that includes community hospitals and independent physician groups – not just academic medical centers.

There is no question that integrating care across practice settings (hospitals, offices, nursing homes) has the potential to improve both the quality and the efficiency of care. The question is, however, in an environment as fragmented as the one we have today, will a strategy like ACOs (as articulated to date by CMS) really get us there? And, if tightly managed care networks that required patients to select and stick with a primary care physician didn’t work, how likely is it that a loose structure like ACOs can really improve care such that the “juice is worth the squeeze”?

All of this is, of course, unknown. And, perhaps that is why CMS chose a route in its interim regulations that wasn’t very popular with providers. Maybe, in the end, CMS doesn’t really want too many participants as they move down this uncharted path.

But, the optics are important here. Since every provider and their brother announced that they are, in fact, ACOs – long before the term was defined by CMS – having significant providers saying they won’t be (e.g. Mayo), could be a serious setback for the future of this concept.

Only time will tell, of course, and Paul Ginsberg has given an elegant defense of the CMS rules here. But, if I were a betting person, I would say the odds are long that the ACO model articulated to date will have the kind of broad sweeping impact that early proponents hoped it would.