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Why Accountable Care Organizations (ACOs) Will Fail To Reduce Costs

In an ideal world ACOs should work. There is no evidence that  untested and complex organizational structure of ACOs developed by Dr. Don Berwick (head of CMS) will improve quality of care and reduce costs.

ACOs are supposed to provide financial incentives to health care organizations to reduce costs and improve quality. There are too many defects in the ACOs infrastructure to improve the financial and medical outcomes.

At a conceptual level, the incentive for ACOs would be to increase efficiency and avoid overuse and duplication of services, resources, and facilities. In this model, ACO members would share the savings resulting from the increased coordination of care.

I have said over and over again that excessive administrative fees and ineffective management of chronic disease is the main source of waste in the healthcare system. ACOs do not deal with these main drivers of costs.

The only stakeholders who can demand that this waste be eliminated are consumers/patients. Patients must control their healthcare dollars.  They will make sure there are competitive prices and will not permit duplication of services.

ACOs are not a market-based system. They do not put patients at the center of their medical care or permit them to choose their medical care. The government controls the healthcare dollars and is at the center of patients’ medical care decisions directly and indirectly.

In order to truly repair the healthcare system a system of incentives for patients and physicians must be created. There is no question that the processes of care for chronic diseases must be improved. More importantly, the medical and financial outcomes must be measured and not the process changes.

In theory, ACOs provide financial incentives to health care organizations to reduce costs and improve quality. In reality, given the complexity of the existing system, ACOs will not only fail; they will most likely exacerbate the very problems they set out to fix.”

ACOs are merely the latest in a long history of unsuccessful health policy innovations. Since the 1970s, Congress and successive administrations have tried a number of tactics to control rising health care costs.  The tactics tried have been:

  1. Payments for diagnostic related groups of services, or DRGs.
  2. Health maintenance organizations (HMOs).
  3. Preferred provider organizations (PPOs).

They all failed. Consumers reacted negatively to the care provided. Healthcare costs continued to rise. ACOs are being promoted as the new structure that will address the lack of success of the past tactics.

Under Obamacare, the Secretary of the Department of Health and Human Services (HHS) is charged with developing a method to assign Medicare beneficiaries to ACOs.”

“ Because the statute is unclear about the resolution of many vital issues, the crucial details will be supplied and refined by federal regulators—as is the case for so many other provisions of the new health law.”

Congress has relinquished its power to the unelected portion of the executive branch of government to construct a system that will reduce the rising costs.

ACOs create a new organizational structure to remedy problems inherent in the existing healthcare system.  The complexity of the structure of ACOs will result in the same or similar types of unintended consequences that led to earlier failures.

There will be consolidation of providers. ACOs will result in increased costs rather than decreased costs.  It might decrease duplication of testing. The resulting savings will be small. There is no evidence that ACOs will provide improved medical and financial outcomes. I believe it is Dr. Berwick’s naïve wish that it will improve medical and financial outcomes.

The are at least 7 key deficiencies with ACOs

  1. ACOs do not empower consumers to be responsible for their own medical care.  Healthcare should be consumer-driven with consumers controlling their healthcare dollars. They will then make informed choices about their care and insurance coverage.

2. ACOs create artificial incentives to improve quality and provider performance. Consumer-driven           healthcare creates real incentives to promote price completion. Competitors are constantly           working to improve their products, attract consumers, and ultimately increase market share.

Consumers have no part in driving that competition in an ACO system.

3. Most physicians are reluctant to assume accountability for patient outcomes.  Physicians                           recognize that much of the outcome is directly under the consumer/patient behavioral control.

4. ACOs remove the patient/consumer from being responsible or accountable for their medical                   care. ACOs undermine any attempt to create a truly accountable healthcare system that can                   drive down costs.

5. ACOs do not encourage provider accountability even though it seems that provider buy-in would            be integral to an ACO’s success with its shared savings incentive.  Many physicians believe the                  share savings incentive is bogus.

Providers continue to be paid for each service they perform until the government-provided funds             run out. There are also grave uncertainties and practical complications of distributing production             and savings between the hospital system and physicians.

6. ACOs create an unfair competitive advantage for large organizations that are hospital                 centric. Eligibility requirements are vague and ambiguous. The eligibility requirements                 suggest that larger organizations have an unspoken eligibility advantage.

This is the reason hospital systems are trying to form ACOs. Hospital systems think they will                 make money. I think they will fail. Hospital systems will lose a lot of money. They will fight                 with their physicians over the distribution of government reimbursement. The cost of hospital                 care will then increase. The consumer will lose.

7. Groups of independent practitioners as well as other types of small and mid-sized practices                     may lack the infrastructure, Internet technology, or other resources needed to qualify for                     ACO eligibility. They will be forced to join hospital systems. Hospital systems have a                     history of taking advantage of physicians and their skills and intellectual property. More                     tensions will be created. Hospital systems’ ACOs will crumble. The cost of medical care                     will continue to increase further.

I have presented some common sense observations. Common sense does not seem to prevail in the difficult world of repairing the healthcare system.

*This blog post was originally published at Repairing the Healthcare System*


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