Look Who’s Innovating on Health Care!

By Kristiana Raube


Last month, the nation received some encouraging news about the potential of the Affordable Care Act (“Obamacare”) to tame the spiraling rise of health care spending.

The results are still preliminary, based on the pilot project of an “accountable care organization” to change incentives in health care delivery. But even at this juncture, the results offer several lessons about how government can work with the private sector to develop innovative solutions for vexing public challenges.

I have a two-fold interest. As director of the Berkeley-Haas Graduate Program in Health Management, I spend much of my time on the problem of health care costs.   As Associate Director of the Institute for Business and Social Impact, I have a broader interest in the role of businesses in addressing public needs.

In a detailed report published in the Journal of the American Medical Association, health service researchers at the Centers for Medicare and Medicaid Services concluded that the “Pioneer Accountable Care Organizations” saved the federal government $384 million during the first two years. If those results can be replicated on a bigger scale and sustained over many years, they would total add up to billions of dollars in savings over the run.

Pioneer is the most ambitious of a raft of “accountable care organizations” – networks of hospitals, doctors, and other health care providers that are rewarded more for the outcomes they achieve than for the number of services they perform.

Under the project with Medicare, Pioneer’s participating health care systems received bonuses if they slowed the rise of per-patient costs without diminishing the quality and effectiveness of care (as measured by a battery of indicators). If their costs came in higher, however, providers would be penalized.

Pioneer ACOs began as a network of 32 hospital systems, though 13 of them dropped out along the way. But the researchers found that the project had saved $280 million or 4% in 2012 and $104 million in 2013.

On average, Pioneer’s patients had fewer hospitalizations and used fewer diagnostic tests. The researchers estimated that the monthly spending was about $35 lower for each per person enrolled in Pioneer ACO than for comparable Medicare beneficiaries in the traditional Medicare program.   Yet when Pioneer ACO patients were surveyed about the quality of their experience – about the timeliness and ease of getting care, about access to specialists, and about the quality of clinical communications – they reported satisfaction rates as high as ever.

It’s not clear whether Pioneer ACOs can sustain the progress, given that the estimated savings were lower in 2013 than in 2012. Even if the success is sustainable, it’s not clear that other major health care systems will follow suit. The approach requires a health care system to take on more risk than in a traditional fee-for-service arrangement.

That said, I see several broader lessons here about how government can work with non-profit and for-profit enterprises to solve what often seem like impossibly complex public challenges.

First, Washington was not dictating a specific solution from on high. Under the Affordable Care Act, the federal government framed the general goal – a new model for encouraging more cost-effective care – but solicited proposals and offered incentives for pilot projects of many different types. Laura D. Tyson has described this as the “government as a venture capitalist,” in which the government provides the seed capital for innovation and scales up the ones that are most successful.

Second, this was a public-private collaboration. Most health care providers, including nonprofit hospitals, are in the private sector.   The Federal government can tie incentives to outcomes, but leave it up to the providers themselves to identify the best strategies for achieving them.   The Federal government also gave states the room to experiment with new approaches to Medicaid, and some of those projects show great promise.

Third, effective solutions evolve in part through a process of trial and error and rigorous evaluations.   Public challenges such as health care or education defy simple answers, and programs require a lot of fine-tuning along the way.

It’s worth noting that Medicare has a much bigger ACO program, the Medicare Shared Savings Program, but that its savings have been much more modest.   That may be because MSSP still involves a great deal of fee-for-service reimbursement, which I would argue is at the heart of the problem of health care costs. That’s OK: the point is that we need to test out a range of approaches in order to understand what does and does not work.

Successful innovation is possible, even on a brutally complex public challenge. The federal government cannot impose solutions from on high, but it can set the direction and spur ideas from stakeholders on all sides. If it can happen in health care, it can happen anywhere.


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