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How accountable care organizations (ACOs) performed the first time around

Posted Feb 08 2011 3:17pm

Tuesday, February 8th, 2011

By Mike Stephens
Former CEO, Hoag Memorial Hospital Presbyterian

In a recent blog entry I expressed my reservations regarding the expectations that accountable care organizations (ACOs) will provide a meaningful reduction in the rate of increase in healthcare costs. A couple of my colleagues called to ask why I was so negative in my view of ACOs. I pointed out I don't question the principles on which ACOs are to be established; that is the application of managed care incentives into a fee-for-service environment. What I can't accept is the hope that the impact will be soon enough or large enough to avoid the impending healthcare meltdown.

In an effort to be responsive to their criticisms I decided to do some research to determine if the ACO concept had in fact been tested in the real world. I found the answer in an article in The New England Journal of Medicine called "Assessing an ACO Prototype – Medicare's Physician Group Practice Demonstration." You can read the entire article by clicking here .

The demonstration began in April 2005, with 10 large group practices. Groups had anywhere from about 230 to more than 1,200 physicians and were located in various regions of the country. The groups received regular fee-for-service payments, but were also eligible for an 80 percent share of Medicare's savings when the physician group practices (PGP) per capita expenditures were compared on a case mix adjusted basis to other Medicare beneficiaries in the same geographic area.

At the end of 2010, in the fourth year of demonstration project, the results from the participating groups were compared with those of the comparison group of patients. Five of the 10 PGPs had beat the comparative target. What was most interesting, however, were the observations made by RTI International, the firm retained by the Department of Health and Human Services to evaluate the project.

Four of the PGPs were already below their per capita expenditure targets in the second year of the study, leading to the observation that the performance of the groups were almost matched in the pre-demonstration period when no incentives were offered. The hypothesis is that the groups had established the practice management principles before the incentives were introduced.

The five PGPs that did not qualify for performance payments were part of integrated systems that included hospitals or hospital sponsors. RTI commented that the presence of hospitals was a potential deterrent to achieving savings and that the majority of savings at all sites occurred in outpatient, not inpatient services.

Because the PGP demonstration retained the fee-for-service structure, there was no enrollment process or lock-in feature preventing the insured from seeking care elsewhere. If a patient left the group, the cost of care continued to be the responsibility of the PGP. Some question how managing care can be successful when the patient is not aware of the ACO and is not a partner in the process.

One skeptic (not me) was quoted as follows: "Proponents of the shared savings model have designed an approach that attempts to upset or dislocate no one." In other words, above all, let change cause no pain to the patients or physicians. 

Finally, the author observes that Congress may need to take more sweeping changes to slow the growth of Medicare spending long before the ACO model can prove that it actually can work to change behavior and cost.

So the question still remains. Are ACOs simply an attempt to avoid reality? What do you think?

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