Accountable Care Organizations (ACOs): California or Bust?

A brochure recently crossed my desk. The brochure announced on October 25 to 27 National Accountable Care Organization Congress will be held in Los Angeles.

All the big guns from Washington and the West Coast will be there to tout ACOs as ideal vehicles for health reform. The California Association of Physician Groups and the Integrated Health Care Organizations are sponsoring the event.

The brochure contains this language:

“ACOS provide a mechanism to transition from paying for value and intensity to paying for value. They are compatible with a range of other payment reforms to improve quality such as medical homes and bundled payments; they can help assure that these reforms lead to sustainable quality improvements and cost reductions.”

Why am I skeptical?

I suppose one reason is that I have been down the road before as a founder of the Physician Hospital Care Organization, later the Integrated Care Organization, in the 1990s, both now defunct because of mutual physician-hospital distrust and conflicting competitive goals.

Secondly, California’s business and health care climate, politically and in health care, are not representative of the U.S. as a whole.

Thirdly, California is a budgetary basket case, with a budget deficit of $20 billion.

Fourthly, I am dubious of the Congressional Business Offices estimate that ACOs will save $4.9 billion over 10 years through a limited pilot program.

I may be wrong, of course, but there is room for skepticism.

I am not alone. DCAPartners, a Philadelphia hospital consulting firm that seeks to align hospitals and doctors, sees two threats for hospitals in the AC0 movement.

Threat One, doctors may form ACOs on their own. If doctors succeed, hospital admissions will fall – and hospitals will not receive shared savings. ACOs would reduce hospital ancillary revenues. If hospitals choose not to participate, they may lose all of these revenues. Hospital=physician integration is not a given.

Threat Two, If hospitals choose to step away from ACOs, they may lose all of their primary care referral base. Competitors may lure away these doctors with negative effects on referrals. Primary care doctors may find ACOs attractive because they may provide them with doing things they want to do for patients, spending more time on patient education, and coordinating care with specialists.

So much for risks, now for rewards. Hospitals may want to seize the opportunity to form an ACO to attract doctors and reward the hospital to share savings, qualify for more Medicare reimbursements, and meet regulatory requirements.

For hospitals, whether to form an ACO comes down to how to motivate doctors to participate and to work with the hospital leaders.

For hospitals, one way around this is to hire doctors as employees so they will be obligated to support the ACO. This may already by happening. A current survey by Healthleadersmedia.com indicates 79% of hospitals are hiring more physicians.