MELISSA BLOCK, host:
From NPR News, this is ALL THINGS CONSIDERED. I'm Melissa Block.
MICHELE NORRIS, host:
And I'm Michel Norris.
Politicians in Washington may disagree about a lot in the health care overhaul, but pretty much everyone agrees that costs have to come down. One way to achieve that is to give doctors incentives to cut costs. The bills in the House and the Senate include pilot projects to do just that. One proposal is for physicians to form what are called Accountable Care Organizations or ACOs.
Sarah Varney from member station KQED checked out an ACO that has been trying to lower costs for years. It's a clinic in San Bernardino County, east of Los Angeles.
SARAH VARNEY: If you're having a hard time imagining what an Accountable Care Organization is, it's a bit like a building contractor. Let's say his name is Bob. Bob gets together with some other contractors � plumbers, electricians, roofers � and they agree to repair your house for a set amount of money.
(Soundbite of song, �Can We Fix It�)
Unidentified Man: (Singing) Can we fix it? Bob the Builder. Yes we can.
VARNEY: If you've had a home repair that went sideways, this whole approach to managing health care may not inspire a lot of confidence. But there's good evidence to suggest that physicians who have a financial stake in your medical costs are more efficient and more effective.
Dr. ALEXANDER TERRAZAS (Member, ACO, San Bernardino County; Member, Redlands Family Practice): Have a seat here.
Unidentified Woman: Thanks.
Dr. TERRAZAS: How are you feeling?
Unidentified Woman: Well, my eye starts, you know, still hurts.
VARNEY: Dr. Alexander Terrazas is a reluctant poster child for Accountable Care Organizations. When I first called to request a visit to his small family practice in Redlands, he told me flatly, this is not a silver bullet. And yet his three-doctor clinic, which sits in a strip mall between a pet grooming shop and a fabric store, has achieved cost savings and quality scores usually only seen at much larger, elite health care systems.
Dr. TERRAZAS: This was a psychological transition for the physicians, but it also was a transition for the patient.
VARNEY: Dr. Terrazas and his colleagues began their experiment in 1984. That's when a San Bernardino health plan proposed paying them a fixed monthly fee per patient. Today, Medicare pays about $11,000 a year to private insurers and Redlands gets the vast majority of that amount. The clinic has to stretch the so-called global payment to cover all of the patients' visits, any specialist referrals, lab tests, even surgeries and hospital stays. If there's a surplus left over, the partners divvy it up. If they're over budget, they take a hit.
Dr. TERRAZAS: The main transition was to what extent can I coordinate and treat the medical problems the patient has and at what levels do I really need assistance?
VARNEY: Today, about half of Dr. Terrazas' patients are covered under global payments. Dr. Terrazas says he's managed to make it work by reassuring his patients that their doctors aren't shortchanging them on quality to make a bonus.
Dr. TERRAZAS: We had to get the patients comfortable that they were going to receive whatever care they needed. If they needed orthopedic surgery, we were going to get you to the orthopedist.
VARNEY: In fact, the doctors at Redlands decided there were some patients they wanted to see much more often. Those with multiple chronic illnesses come in almost monthly, even when they're doing well. Hospitals also had to get on board. The clinic offered the local hospital financial incentives for getting patients out quickly and safely and avoiding unnecessary and costly readmissions.
Executive Director Sandee Derryberry says the clinic focuses almost obsessively on helping patients make a smooth transition out of the hospital.
Ms. SANDEE DERRYBERRY (Executive Director, Redlands Family Practice): We, I think, all quickly realized that we needed to know where the patient was in all of the processes, if they'd gone to the hospital, what were the next steps? What specialists were seeing them? What were they going to need when they arrived home?
VARNEY: The Redlands clinic closely monitors its performance. At monthly meetings, physicians compare the medical services they've charged and the number of specialist referrals, ER visits and preventive screenings.
Ms. DERRYBERRY: You want the doctors to see how they're comparing against their peers, because a lot of times that encourages a discussion of, well, you know, I keep having this problem with patient X.
VARNEY: For all these efforts, Redlands Family Practice spends 15 percent less than the regional average. The clinic has faced tough times. Derryberry says one month, five patients went into the hospital for costly open heart surgery. But those are balanced out by relatively quiet periods and the clinic's aggressive management of chronically ill patients.
Despite the clinic's lower costs, private insurers continue to raise premiums, and Dr. Terrazas says that threatens to unravel the tacit agreement he and his colleagues have made with their patients.
Dr. TERRAZAS: The people coming into the office say, hey, they just raised my premium 10, 12 percent. I want to make sure I'm getting something for this. I want this stuff. I want this stuff. That's on our fiscal responsibility.
VARNEY: Congress is not prescribing all physicians accept global payments. In fact, the Accountable Care Organization program included in the health care bills is quite flexible and promotes a pretty simple idea. If all the doctors who take care of you, your primary care physician, any specialist and your hospital work together and their financial fates were somehow connected almost like business partners, you'd get better care and it wouldn't cost as much. These affiliated provider groups could earn bonuses if they met or exceeded certain quality and cost targets for their Medicare patients.
Dr. Elliot Fisher is a leading health policy researcher at Dartmouth who has closely studied the ACO concept. He says greater savings will come if the model spreads.
Dr. ELLIOT FISHER (Health Policy Researcher, Dartmouth College): One question is, will all payers � Medicaid, Medicare and the private payers � adopt the same reimbursement model and the same aligned incentives?
VARNEY: Although there's been no political opposition to ACOs and the American Medical Association supports the approach, Dr. Terrazas is skeptical the accountable care model will catch on.
Dr. TERRAZAS: Every time I've gone out in the community and tried to sell it, develop it, everybody seems to be so hesitant. As soon as we stop talking, it's, oh, this won't work for me.
VARNEY: Physicians tell him they don't have the time or management expertise to negotiate contracts with other physicians and hospitals. And Dr. Terrazas says, when you cut costs by reducing hospital readmissions, duplicate lab tests or unnecessary specialist referrals, someone somewhere loses out.
Randy Brown, director of health policy research for Mathematica, a nonpartisan research firm, shares that criticism. Brown says the U.S. health care system is littered with pilot projects and research studies that map out how to reduce medical spending, but implementing them requires tough political and business decisions.
Mr. RANDY BROWN (Director of Health Policy Research, Mathematica): If you're going to cut costs, the spending pie has to shrink. And that means somebody is going to make a lot less money. And there's no discussion about who that's going to be. Who's going to take that hit? It's very much a Kumbaya thing.
VARNEY: Brown says while some celebrated health care systems and physicians like Dr. Terrazas have made those tough choices, it's unlikely large numbers of providers will do so. Congressional leaders and health system reformers, though, are optimistic there are enough incentives in the bills for physicians to at least give it a try, though, perhaps less enthusiastically than Bob the Builder.
(Soundbite of song, �Can We Fix It?�)
Unidentified Man: (Singing) Can we fix it? Bob the Builder. Yes we can.
VARNEY: For NPR News, I'm Sarah Varney.