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How Are Accountable Care Organizations (ACOs) Doing?

Posted Jan 23 2013 8:16am

Stanley Feld M.D., FACP, MACE

 In a word the formation of Accountable Care Organizations is doing poorly.

In the past, I have gone into great detail on why I believe Accountable Care Organizations will fail.

I believe physicians and hospital systems should be accountable for outcomes but only the outcomes they can control.

They should not be accountable for outcomes they cannot control.

ACOs are really HMOs on steroids. Risk is transferred from the government to the healthcare providers.

HMOs failed in the 1980’s and 1990’s because physicians and hospital systems realized that they could not evaluate risk or manage risk.

It is impossible for providers (physicians or hospital systems) to control patients’ behavior in adhering to treatment for their disease.

It is almost impossible for the government to commoditize reimbursement accurately for diseases unless the government can weigh the risk of poor disease outcomes.

No one has figured out the way to accurately risk weight the outcome of a patient’s disease and treatment.

CMS believes by increasing the number of cod es in ICD-10  to 68,000 codes vs. ICM-9 18,00 codes, the old coding system, the government will be able to weigh risk leading to accurate cost assessment.

I believe this is a fantasy of healthcare policy wonks working for the Obama administration.

Many physician groups and hospital systems believe they will lose money taking on these risks. These are the groups that are holding back and not forming ACOs.

Nevertheless on January 1st CMS proudly announced that it has nearly doubled the number of ACO programs in the country by adding 106 new ACOs to the existing 148 programs for a total of 254 programs to date.

The CMS  announced its latest and largest round of accountable care organizations  under the Medicare shared-savings program.

I would not be as proud as CMS is to applaud this level of participation in the ACO program. ACOs are the keystone of Obamacare.

Complete national participation is supposed to occur by January 2014.

There are a total of 254 ACO’s signed up in 50 states or 5.08 ACO’s per state.  There are many more potential ACOs per state than 5.08 per state.

CMS said half of ACOs are physician-led and care for less than 10,000 Medicare enrollees.” 

This is not a good sign. The success of the ACO program is defined as shifting the risk of medical care to hospital systems and physicians.

What is the problem?

The problem is obvious. The definition of insurance is,

“Insurance is the equitable transfer of the risk of a loss , from one entity to another in exchange for payment. It is a form of risk management primarily used to hedge against the risk of a contingent, uncertain loss.”

“An insurer, or insurance carrier, is a company selling the insurance; the insured, or policyholder, is the person or entity buying the insurance policy. The amount to be charged for a certain amount of insurance coverage is called the premium.

Risk management , the practice of appraising and controlling risk, has evolved as a discrete field of study and practice.”

Risk management is far from an exact science. Risk management depends on a large number of people paying premiums who are not at risk for disease.

Obamacare’s goal is to have all the low risk consumers pay for the higher risk consumers.

However, President Obama has provided low risk consumers an out. The penalty for not participating is modest compare to the cost of the insurance. If a low risk consumer gets sick he can immediately join the health insurance exchange program without restrictions.

The increased cost of illness is compounded when a large number of patients have chronic diseases.

A contributing factor to developing chronic disease is obesity.

America has a national obesity epidemic.

Patients with Diabetes Mellitus are vulnerable to multiple diseases such as hypertension, hyperlipidemia, kidney disease, eye disease and vascular disease.

Each might be at a different stage of progression. The risk for costly complications is different for each at each stage of disease progression.

The diabetic might or might not adhere to the treatment regime outlined. It is difficult to risk weight these patients. It is risky to take the responsibility for the medical care outcomes for these patients.

In reality the principle risk managers are consumers.

Healthcare policy experts have not practiced medicine. They either do not understand these risks or they want to place the risk with physicians and hospital systems and provide undervalued reward.

Many medical outcomes are dependent on patient responsibility for managing their own risk. Patients must participate in their own care to receive maximum benefit and the best medical outcomes.

Patients must become professors of their disease.


There are many reasons ACOs will fail

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 medical care and provider performance.

3.  Consumer driven healthcare creates real incentives to promote price competition by physicians and hospital systems. True competitors will constantly work to improve their products, attract consumers, and ultimately increase market share.  

In a systems of ACOs consumers do not play a role in stimulating completion. Consumers are passive recipients of treatment from an assigned ACO.

4. Most physicians are reluctant to assume accountability for patient outcomes.  Physicians recognize that most medical outcomes are directly under consumers behavioral control.

5.  ACOs structure does not include consumers’ incentive to be responsible or accountable for their own medical care.

 ACOs undermine any attempt to create a truly accountable healthcare system that can drive down medical costs.

6. ACOs do not encourage provider accountability.  ACO’s shared savings incentive does not seem to be adequate for the risk assumption.  

 Providers will continue to be paid for each service they perform until the government provided funds run out for that ACO.

7.  There are also grave uncertainties and practical complications of distributing government funds and savings if any between the hospital system and physicians on the hospital systems staff.

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

 9.  This is the reason hospital systems are trying to form ACOs. Hospital systems think they will make money. I believe hospital systems will lose money. The government will have to supplement payment for hospital systems to stay afloat.

10. When hospital systems lose money they will fight with their staff physicians over the distribution of government reimbursement.

 The cost of hospital services will then skyrocket further. Consumers will be the losers.

11. Groups of independent practitioners as well as other types of small and mid-sized practices may lack the infrastructure, information technology facilities, or other resources needed to qualify for ACO eligibility.

12.  They will be forced to join hospital systems. Hospital systems have a long history of taking advantage of physicians skills and intellectual property.

 Tension between hospital systems and staff physicians will be created. Hospital systems’ ACOs will crumble. The cost of medical care will continue to increase further.

These are just a few of the reasons ACO’s will fail.

No matter how hard CMS tries to change the narrative these are some of the reasons explaining the lack of hospital and physician participation to this point.

 The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

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