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Physicians Generating Millions of Dollars in Losses and the Implications for Accountable Care Organizations (ACOs)

Posted Jan 22 2013 10:05pm
"I wonder how I can lose less money?"
The ever resourceful HealthHombre Blog quotes an interesting academic review paper to make an important point: many of the widespread assumptions of smooth sailing for the 106 new ACOs still remain unproven.

The DMCB agrees with this important HealthHombre insight. In addition to the many " known unknowns " (including just how physician-hospital organizations will perform in managing insurance risk), there are also the " known known " year-to-year random fluctuations in claims expense.  And, as the DMCB noted, there's the " unknown unknown" "antifragile " threats to a highly protected sector of the economy that could bring the whole ACO-thing down, 2008-style.

And here's a case in point that backs up HealthHombre.  "Wellspan" is a highly regarded and well-run hospital system that is local to the DMCB. This recent news report is telling because Wellspan's success and challenges probably apply to other emerging integrated institutions that have an appetite for risk contracting.

According to the press report, Wellspan garnered an excellent credit rating because...

"766 physicians — more than 75 percent of those in the hospital's market — are affiliated with WellSpan, which [was] counted as a key credit strength."

But the bad news is that the rating also....

.....noted that WellSpan's physician group, which employs 411 of those doctors, generated losses of $19.6 million in 2011 and $21.4 million in 2012 (bolding DMCB).

The DMCB has heard similar statements from seasoned health system administrators both locally and nationally.  If "physician integration" is supposed to be the bedrock of ACOs, how is it that the docs are responsible for millions of dollars in losses?  What is the likelihood that these organizations will  finish December 31, 2013  in the black?
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