ACO's A Viable Concept? Print
Written by Michael Casanova   
Saturday, 15 January 2011 14:56

At the current annual percentage rate of healthcare consumption expressed as a percent of GDP, the Medicare Trust Fund will go belly-up (bankrupt) by 2017. Making matters worse, there is a critical need to provide more coordinated and cost-effective care to all Americans with emphasis on the growing number of seniors and other segments of the population with chronic illnesses.

Logic dictates  if we desire a different outcome under the same conditions we need to do something different otherwise insanity is indicated. To my mind, since we cannot change the human condition we need to change either the reimbursement system or the delivery system; and/or change our traditional values toward life, liberty, and the pursuit of happiness.

Accountability has long been identified as the culprit causing much of our system woes. That is, patients are insulated from healthcare costs, providers do not bear typical business risks, and insurers just raise their prices to meet demand for profits. In short, the traditional buyer-seller dynamics inherent in most other economic transactions are absent or have different consequences within the U.S. healthcare delivery system.  That is why some would say we Americans do not have a healthcare system at all or that our system is irrational. Accountable Care Organizations (ACOs) have been proposed as a new way to slow healthcare inflation and improve quality in traditional Medicare and even other third party payment programs.

ACOs are defined as provider groups, consisting at a minimum of primary care and specialists, and hospitals, which have the legal structure to receive and distribute payments to participating providers, provide care coordination, invest in infrastructure, redesign healthcare processes, and incentivize high quality, and efficient services.

The model is predicated upon: 1) provider led organizations that are collectively accountable for the entire continuum of care; that is, the bottom-line quantitative, and qualitative results for a defined population of patients, geographic area, and for a specific period of time; 2) the concept rewards providers for slowed inflation costs and continuously improving quality outcomes; 3) incentivizes reliable performance measurement to support improvements, and provides for consumer confidence that lower costs are achievable without sacrificing quality outcomes that Americans have come to expect; and 4) the times require we take a new approach to the old problem of healthcare inflation, potentially moving us into a new paradigm where local physicians and provider organizations have the accountability, license, and  incentives, to add greater value.  And since it's all local, profits return back to Main Street and not Wall Street.

You may ask, so what's different from current capitated-risk arrangements?  Essentially, what is different about ACOs, is that the locus of accountability has shifted from insurers and HMOs toward healthcare providers themselves and the actual delivery system that is closer to site of healthcare delivery and away from the "over-management" structure. For those of us seasoned enough to remember the IMC experiment, this seems strange. Proponents of retrying capitation schemes hope that past problems with capitation can be overcome by learning from these past mistakes by utilizing new risk-adjustment payment models. Thus, ACOs will offer a better vehicle for direct contracting with Medicare.  In a nutshell that is what is different according to your humble correspondent.  Here again, technology and the evolving marketplace promise to give us a possible solution.

Pundits point to Multi-Specialty Groups (MSGs), Independent Physician Associations (IPAs), and other organizational vehicles success in managing capitation in California and elsewhere. The assumption here is that providers are now more experienced, have improved infrastructure, and therefore are better able to managing financial risk than decades past. They argue that with payments based on risk-adjustment tools that account for adverse selection, ACOs, will be better able to become viable delivery systems even with sicker patients. In theory, ACOs will become more than a match for current more expensive healthcare delivery vehicles with better consumer-provider satisfaction.

One interesting twist on this old theme is the introduction of a combination of risk-reward sharing similar to the Medicare Prescription Drug Plan (PDP) established by the Medicare Prescription Drug, Improvement, and Modernization Act of 2003. Certainly this requires more analysis than the space here allows.

Another approach is to have an ACO for outpatient services and a different one for acute care to better manage the financial component costs between primary care, specialist, as well as, the technological and mortar and brick components instead of traditional Medicare part A and B comparisons. As if we could do away with any component either primary care, specialists, pharmacy or acute care components. We must not forget that healthcare is an assembly process requiring that ingredients work together in a highly effective manner for the benefit of the patient as well as the nation.

No doubt, there are many substantial challenges to rolling out the ACO concept, not least of which is antitrust protection just to mention one major hurdle. Nevertheless, the concept deserves further consideration.

The Patient Protection and Affordable Care Act establishes a national voluntary program in which ACOs apply for certification from the Department of Health and Human Services (HHS) to participate in a Medicare Shared Savings Program, which will be created on or before January 1, 2012. In addition, the law creates a Pediatric Accountable Care Organization Demonstration Project and expands the scope and purpose of the Medicare Rural Flexibility Program to allow for ACO incentive payments.

Michael Casanova is a healthcare executive, consultant, and author. Should you wish to opine he can be reached at

Last Updated on Monday, 24 January 2011 18:29