On a computer in his St. Louis medical office, Dr. John Rice often pulls up a list of his 10 patients with the largest bills. They suffer from diabetes, heart disease, or emphysema. They sometimes land in the hospital where they rack up a long list of charges.
Rice's job is to make sure they don't set foot in that emergency room. To accomplish this, the chief medical officer of Esse Health, an 80-physician practice, does what policy makers say too few doctors do now and what they hope all doctors will do in the future. Using technology supplied by a private insurer, Rice has a window into his patients' health that extends far beyond the clinic's examining rooms. He can tell when patients have stopped taking their medication or when they're overdue for a routine test. Armed with that information, he can direct his staff to fill out a prescription and deliver it to a patient's home or schedule an appointment at a diagnostics lab. Rice once spent $40 on cab fare for a patient whose daughter couldn't pick her up from the hospital—a bargain, considering an additional day's stay would have cost $1,500.
The 57-year-old internist has a good incentive to take these extra steps. Every time he avoids a hospital admission or emergency-room visit, Esse splits the savings with the patient's private insurer. "I don't do it because I'm a great guy, I do it because I get paid to do it," says Rice. By Rice's estimates, his elderly patients spend 39 percent fewer days in the hospital over the course of a year than Medicare patients nationwide.
President Barack Obama's health-care overhaul is just beginning to deliver on one of its goals: spurring physicians, hospitals, and health insurers to work together more closely to deliver better care at lower costs. The 2010 law calls for the creation of so-called accountable-care organizations. The idea behind ACOs is that doctors and hospitals agree to share with insurers the financial risk of caring for patients. In exchange, they get a cut of insurers' savings, under a formula that benchmarks the cost of treating an individual against a broader sample of patients.
Aetna (AET) estimates that ACOs could deliver savings of 40 percent compared with the existing fee-for-service system. The Hartford-based health insurer has spent $2 billion to become a leading player in the field. "Accountable care is one of those models we see as the future of the company," says Dr. Charles Saunders, Aetna's head of strategic diversification. UnitedHealth Group (UNH) has also been snapping up technology and care management companies, inking six deals in the last 18 months. Essence Group Holdings, a Maryland Heights (Mo.) company that administers a private version of a Medicare plan, estimates that setting up ACOs will be an $80 billion business. Essence, which works with Rice's practice and others, plans to double or triple its 400-person staff over the next year to keep up with demand, says spokesman Andrew Shea.
One thing that could slow the spread of ACOs are new federal regulations that apply to Medicare, the $524 billion program that covers 47 million Americans. Many in the industry say the draft rules published on Mar. 31 are too stringent and are lobbying the government for changes. Most controversial is the proposal to cap the amount of savings Medicare will share with insurers and doctors. In a June 3 letter to Medicare chief Donald Berwick, Mayo Clinic Chief Executive Officer John Noseworthy wrote that the proposed regulations would "inhibit the necessary innovation that leads to improved quality and cost-effectiveness among providers."
Rice's own experience indicates that financial incentives for doctors can yield positive results. The physician says he makes more than other internists, while practicing medicine the way he believes it should be practiced—by focusing on the long-term health of the patient. "It's not that we're better doctors," he says. "We're just paying attention."
The bottom line: Insurers, technology companies, and medical groups are competing for a piece of the $80 billion accountable-care market.