The Prisoner’s Dilemma in ACOs

Not Running a Hospital
This is cross-posted from Paul’s blog, “Not Running a Hospital.”

Now comes the Society for General Internal Medicine, jumping on the global paymentbandwagon. John Commins at HealthLeaders Media reports that the SGIM has concluded, “Fee-for-service medicine is a financially unsustainable payment model that should be phased out by the end of the decade.”What is this really about? SGIM has finally concluded that the existing rate structure, which favors proceduralists over cognitive specialists, will never be changed under the fee-for-service rubric.  But, if we adopt capititation, will the reallocation will somehow mysteriously occur?  Not likely.There remains remarkably little discussion about how capitated, or global, budgets should be allocated among the various types of doctors and facilities engaged in providing care.  As Bruce Landon noted last year, this is a key issue:

The fundamental questions become how ACOs will choose to divide their global budgets and how their physicians and other service providers will be reimbursed. Thus, this system for determining who has earned what portion of payments — keeping score — is likely to be crucially important to the success of these new models of care.Under ACOs and many commercial global payment products, providers will continue to receive traditional fee-for-service payments, and hospitals will receive their usual contracted payments, through either the diagnosis-related-group (DRG) system or per diem payments. All spending for each patient that is attributed to the ACO will then be tracked and compared with the calculated budget retrospectively at the end of the performance year in order to calculate savings or losses. Thus, standard fee-for-service payments remain the de facto method for keeping score.

Let’s go further, though, and posit a potential adverse impact of global payments that has not been discussed to date.  It derives from a phenomenon known as the prisoner’s dilemma,which “shows why two individuals might not cooperate, even if it appears that it is in their best interests to do so.”Let’s say that you are a surgeon in an ACO being paid per procedure.  You have been advised that, if there is a surplus for the ACO at the end of the year, you will get a small percentage of that.  You do a calculation of the likelihood of a surplus occurring and of your likely share.  You conclude that doing one or two more surgeries per month will give you more income that your likely share of the surplus.  You also figure out that the same will be true for your colleagues.  How do you act?  If you are economically rational, you do the extra procedures.  Ironically, if all the proceduralists do the same, the ACO might run a deficit rather than a surplus and might cause a clawback of all physicians’ paymentsincluding those internal medicine doctors represented by SGIM who so strongly advocated for global payments.