Accountable Care Organizations: Explained

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Doctor Smiling PoseOne of the many ways the Affordable Care Act seeks to reduce health care costs is by encouraging doctors, hospitals and other health care providers to form networks that coordinate patient care and become eligible for bonuses when they deliver that care more efficiently.

The law takes a carrot-and-stick approach by encouraging the formation of accountable care organizations (ACOs) in the Medicare program. Providers make more if they keep their patients healthy. About 6 million Medicare beneficiaries are now in an ACO. An estimated 23.5 million Americans are now being served by an ACO. People may even be in one and not know it.

While ACOs are touted as a way to help fix an inefficient payment system that rewards more, not better, care, some economists warn they could lead to greater consolidation in the health care industry, which could allow some providers to charge more if they’re the only game in town.  

Here are answers to some common questions about how they work:

What is an accountable care organization?

An ACO is a network of doctors and hospitals that shares financial and medical responsibility for providing coordinated care to patients in hopes of limiting unnecessary spending. At the heart of each patient’s care is a primary care physician.

Think of ACOs as buying a television. A TV manufacturer like Sony may contract with many suppliers to build television sets. Like Sony does for TVs, an ACO brings together the different component parts of care for the patient – primary care, specialists, hospitals, home health care, etc. – and ensures that all of the “parts work well together.”

In most health systems today, many patients are getting each part of their health care separately. ACOs, like the television, work better as one component rather than assembling a patchwork of services.

Why did Congress include ACOs in the law?

As lawmakers searched for ways to reduce the national deficit, Medicare became a prime target. With baby boomers entering retirement age, the costs of caring for elderly and disabled Americans are expected to soar.

The health law created the Medicare Shared Savings Program. In it, ACOs make providers jointly accountable for the health of their patients, giving them financial incentives to cooperate and save money by avoiding unnecessary tests and procedures. For ACOs to work, they have to seamlessly share information. Those that save money, while also meeting quality targets, keep a portion of the savings.

In Medicare’s traditional fee-for-service payment system, doctors and hospitals generally are paid for each test and procedure. That drives up costs, experts say, by rewarding providers for doing more, even when it’s not needed. ACOs don’t do away with fee-for-service, but they create an incentive to be more efficient by offering bonuses when providers keep costs down. Doctors and hospitals have to meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. In other words, providers get paid more for keeping their patients healthy and out of the hospital.

How do ACOs work for patients?

Doctors and hospitals will likely refer patients to hospitals and specialists within the ACO network. But patients are usually still free to see doctors of their choice outside the network without paying more. Providers who are part of an ACO are required to alert their patients, who can choose to go to another doctor if they are uncomfortable participating. The patient can decline to have his data shared within the ACO.

Who’s in charge — hospitals, doctors or insurers?

ACOs can include hospitals, specialists, post-acute providers and even private companies like Walgreens. The only must-have element is primary care physicians, who serve as the linchpin of the program.

In private ACOs, insurers can also play a role, though they aren’t in charge of medical care. Some regions of the country, including parts of California, already had large multi-specialty physician groups that became ACOs on their own by networking with neighboring hospitals.

In other regions, large hospital systems are scrambling to buy up physician practices with the goal of becoming ACOs that directly employ the majority of their providers. Because hospitals usually have access to capital, they may have an easier time than doctors in financing the initial investment, for instance to create the electronic record system necessary to track patients.

If I don’t like HMOs, why should I consider an ACO?

ACOs may sound a lot like health maintenance organizations. Some people say ACOs are HMOs in disguise. But there are some critical differences – notably, an ACO patient is not required to stay in the network.

ACOs aim to replicate “the performance of an HMO” in holding down the cost of care while avoiding “the structural features” that give the HMO control over [patient] referral patterns.

In addition, unlike HMOs, the ACOs must meet a long list of quality measures to ensure they are not saving money by restrictions on necessary care.

Are ACOs the future of health care?

ACOs are already becoming pervasive, but they may be just an interim step on the way to a more efficient American health care system. ACOs aren’t the end game.

One of the key challenges for hospitals and physicians is that the incentives in ACOs are to reduce hospital stays, emergency room visits and expensive specialist and testing services — all the ways that hospitals and physicians make money in the fee-for-service system.

The ultimate goal would be for providers to take on full financial responsibility of caring for a population of patients with a fixed payment, but that will require a transition beyond ACOs.

Social Security at 80: Eight Savings Strategies

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Social Security 80

Social Security celebrated its 80th birthday on August 14, 2015. And while news about the program’s financial status is rarely upbeat, most Americans are glad it still exists especially women and lower-earning workers.

Here’s why you need to pretend it doesn’t exist: Underfunded as it is, Social Security remains a favorite political football. At the same time, we’re living longer, and our savings need to last. So whatever happens to Social Security, it’s more important than ever to use all the savings strategies at your disposal.

Here are 8 ways to do that, one for each decade of Social Security.

1. Make savings simple

Just how important will your personal savings be in retirement? According to the National Academy of Social Insurance, a non-profit group that focuses on “how social insurance contributes to economic security,”  the Social Security program replaces more than 50 percent of income for low-earning workers. Furthermore, high earners would need to radically reduce their lifestyle if they need to rely heavily on Social Security income in retirement.

The Social Security Administration calculates income replacement rates for retired workers across a range of income scenarios, from those with very low income to those who hit the maximum annual amount of income taxed by Social Security (in 2015, it’s $118,500).  Their calculations assume 35 years of contributing to the program and are based on Social Security’s national average wage index (AWI). For 2015, the average is $47,820.

If you’re lucky enough to be at a company that offers a 401(k), you may already be funneling money into it every pay period. Maybe you can even save enough to get all of the company match, if there is one. Saving 12 to 15 percent of your salary in a 401(k), up to the 2015 contribution limit of $18,000, is a very good idea.

That assumes you already have a cash emergency fund of three months at the very least. If your budget allows, try setting up automatic deductions from your checking account into other savings accounts, even if it’s just $25 or $50 a paycheck. And if you don’t notice that it’s gone, kick the contribution up a little higher.

2. Keep 401(k) savings sacrosanct 

One challenge millennials face that their parents didn’t is handling 401(k) accounts while moving jobs every two to three years. Rather than roll an old 401(k) into a new employer’s plan, many young savers just cash it out, which means paying income tax on it and a 10 percent penalty.

In the fiscal year of 2014 that ended on March 31, more than 40 percent of 401(k) participants between the ages of 20 and 29 cashed out all or part of their plan balance after leaving a job, according to Fidelity. Even for those between the ages of 40 and 49, the cash-out percentage was high, at 32 percent.

Barring a lottery win or a fat inheritance, starting to save early, so money can compound over many decades, is really the only way most younger savers are going to arrive at retirement age with a decent nest egg.

3. Wage war on fees 

This means, first, knowing what fees you are paying for different investment accounts. Many people have no idea, particularly when it comes to retirement savings accounts such as 401(k) plans. A Department of Labor rule saying plans must provide participants with fee disclosure has made that information more easily available.

Once you find that information, your plan probably won’t note whether those fees are low, average, or high compared to similar funds. You can get a rough sense of it at brightscope.com.

4. Check your asset mix

If you have multiple investment accounts outside your 401(k), or just multiple 401(k)s, it can be hard to know what percentage of your assets are in cash equivalents, bonds, and stocks. What is the optimal mix?

Everyone’s situation and risk tolerance are different, but the asset allocation in target-date funds gives a sense of what some large investment companies think is ideal.

5. Know your risk tolerance 

To guard against getting too stressed by market swings, investors may want to separate their money in different buckets. Money can be tied to short-, medium- and long-term goals, with each bucket having a different risk profile.

6. Be an employee benefits ninja

If you’re offered a flexible spending program or the ability to pay your commuting costs with pre-tax money, take the time to learn about them. You’ll get more mileage out of your money and lower your income taxes to boot. Making the most of tax-advantaged perks is a small way to give yourself a raise in a time of stagnating wages.

Employers have been shifting more costs to employees, often through the use of high-deductible health-care plans. Companies’ adoption of such plans may slow next year, according to a survey of more than 100 large U.S. employers. Employers are waiting to see if lawmakers repeal Obamacare’s “Cadillac tax” on high-cost health coverage, which is a levy on individual health premiums greater than $10,200.

Health care savings accounts (HSAs), which go hand-in-hand with high-deductible health plans, will likely become a greater part of employee’s lives. These are “triple tax-free”—what you put in is sheltered from income tax, it grows tax-deferred, and the money can be used, tax-free, for medical expenses. Companies usually seed the accounts with a few hundred dollars, pre-tax, and your contributions are tax-deductible. You can contribute up to $3,350 for an individual policy and $6,650 for a family plan. And unlike flexible-spending programs, they are not “use it or lose it,” so your money accumulates.

7. Ignore the fancy stuff 

There are many benefits to keeping your finances fairly simple, like having a clear picture of where you stand. Unless you’re a seasoned speculator whose retirement is already more than provided for, avoid any investment with the word “leverage” or 2x or 3x (or more) in its name.  It’s been said before, but bears repeating: If you don’t understand it, don’t buy it.

8. Eat your spinach 

Health care costs in retirement are the most likely expense to send your finances into the depths of abyss. Fidelity estimates that in 2014 a couple who retired at age 65 could look forward to $220,000 (in today’s dollars) in health care costs. That number didn’t rise from 2013, but it’s still way more than most people have saved for all of their retirement.

The AARP has a pretty simple calculator, and there are many others, that will scare you into the gym if you aren’t there already. It’s like making money!

Seniors Tell Medical Students Their Needs From Doctors

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Belle LikoverWhen doctors told Robert Madison his wife had dementia, they didn’t explain very much. His successful career as an architect hardly prepared him for what came next.

“A week before she passed away her behavior was different, and I was angry because I thought she was deliberately not doing things,” Madison, now 92, told a group of nearly 200 students at Case Western Reserve School of Medicine.

“You are knowledgeable in treating patients, but I’m the patient, too, and if someone had said she can’t control anything, I would have been better able to understand what was taking place.”

Belle Likover (pictured) recounted for the students how she insisted when her husband was dying of lymphoma that doctors in the hospital not make decisions without involving his oncologist. “When someone is in the hospital, they need an advocate with them at all times,” said Likover, who turns 96 this month [October 2015]. “But to expect that from families when they are in crisis is expecting too much. The medical profession has to address that.”

Madison and Likover were among six people all over the age of 90 invited to talk to the second-year medical students. The annual panel discussion, called “Life Over 90,” is aimed at nudging students toward choosing geriatric medicine, the primary care field that focuses on the elderly. It is among the lowest-paid specialties, and geriatricians must contend with complex cases that are time consuming and are often not reimbursed adequately by Medicare or private insurance. And their patients can have diseases that can only be managed but never cured.

Students often are attracted to more lucrative specialties such as orthopedics or cardiology, said Jeremy Hill, who was in the audience. One undeniable factor is money: the 35-year-old North Carolina native may owe as much as $300,000 when he graduates, enough – he is quick to point out – to buy “a nice-sized house.”

Yet Hill is one of the few Case students who say they are leaning toward choosing geriatrics.

The American Geriatrics Society estimates that the nation will require about 30,000 geriatricians by 2030 to serve the 30 percent of Americans over age 65 with the most complicated medical problems. Yet there are about 7,000 geriatricians currently practicing. To meet the needs, the society estimates medical schools would have to train at least 1,500 geriatricians annually between now and 2030, or five times as many as last year.

The low number of geriatricians is not surprising considering that their average salary was $184,000 in 2010, almost three times lower than what radiologists earned, the American Geriatrics Society has reported.

Elizabeth O’Toole, a geriatrician and med school professor who arranged the panel discussion, acknowledged in her introduction that most students were interested in other specialties. Yet she warned them not to overlook the needs and outlooks of older patients.

“No matter what you’ll be doing, you are going to be working with these people,” she said.  More than 400,000 people 80 years old and older received knee replacements last year, 35 percent of men over 80 and 19 percent of women have coronary heart disease and the most common medical procedure among people over 65 is cataract surgery. Successful outcomes depend on the patient’s cooperation and that, she said, requires “an understanding of who the patient is.”

Students who braced themselves for a solemn litany of medical problems from the panel were in for a surprise. It wasn’t just what the visitors said that made an impression, but how they said it.

The group offered the students advice, telling the doctors-to-be to look at their patients instead of typing notes into a computer, take more time with older patients and answer their questions.

“Having to see so many patients a day is tragic,” said Simon Ostrach, 92, a professor emeritus of engineering at Case, who recalled being rushed through an appointment with an orthopedic surgeon who did little for “excruciating pain” after his hip replacement.

When it was her turn, Likover (pictured) pushed back her chair, stood up and had no need for the microphone she was offered.

“Getting old is a question of being able to adapt to your changing life situation, having a little less energy, not being quite as healthy as were you were before,” said Likover, a retired social worker. Four years ago, she was hospitalized twice for congestive heart failure until she learned how to manage the disease through diet. She also has an occasional irregular heart beat and only recently began walking with a cane. She swims at least three times a week, serves on several committees addressing seniors’ issues, and is a Jon Stewart fan because “getting a laugh every day is very, very helpful.”

“I have lived a very good and hopefully useful life and death does not concern me. It is going to happen,” she told the students. “And I think that kind of outlook, not worrying about every little ache and pain makes a big difference and a very happy life.”

“That’s a perfect seque to my story,” said Ostrach. “I attribute my longevity to smoking, drinking and overeating,” he told the students. And doctors who tried to reform him “are all long dead and gone.” He was an athlete in college, wrestling and playing tennis, “but as I got past 60, I found that listening to opera, smoking good cigars and having a little cognac was much more pleasant.” All in moderation, he added.

Efforts to introduce relatively healthy older adults to medical students can “reduce the sense of futility and show [the students] that there are real people with real lives who can benefit from quality health care,” said Chris Langston, program director at the John A. Hartford Foundation, which focuses on aging and health who has been analyzing the trend for the past several years.

But Jeremy Hill and the roughly two dozen members of Case’s “geriatric interest group” are the exception. For them, the challenge of a complicated patient — “figuring out the puzzle” as one student put it — is what makes geriatric medicine worthwhile, even when a cure is out of reach.

“I have such respect and admiration for this population, and if I could somehow give them one extra good day they would not have had otherwise,” said Hill, who then paused for a moment, “I would be privileged to work with them.”

After the session, Hill went up to Ostrach, who had said he’s been lonely since his wife died. After chatting for a few minutes, he told Ostrach, “If you’d like to have lunch sometime, please call me,” and handed him a scrap of paper with his phone number.