Accountable Care Organizations – Rosy and Not So Rosy Scenarios

A rosy scenario is a bright, cheerful, or optimistic forecast.

Proponents of the health reform law view prospects for accountable care organizations through rose scenario lens of accountability, cost savings, greater quality and heightened productivity, all engendered by greater collaborations between hospitals and doctors.

According to Robert Kocher and Nikhil Sahni of the McKinsey Center for Health System Reform, The Brookings Institute , The Harvard Business School, and The John F. Kennedy School of Government at Harvard,

“Under this law, our fragmented , fee-for-service health care delivery system will be transformed into a higher-quality, higher productivity, health care delivery system with strong incentives for efficient, coordinated care.”

In other words,

Roses are red,
Violets are blue,
And doctors and hospitals,
Will be saints too.

This is the way it is supposed to work. ACA provisions will catalyze a shift from fragmented to coordinated care, and to cooperation, collaboration, connectivity, communication, consensus, and consolidation as well.

• Patient-centered medical homes (provision 3502) will drive improved organization of outpatient care, and the government will fund care coordination and a team-based approach.

• Accountable care organizations (provision 3022), hospital and doctors working together, will save costs and will share savings.

• Bundled payments (provision 3023) for “episodes of care” from 3 days before admission through 30 days after) will reduce costs and increase margins.

• Readmissions reduction program (provision 3025) will reduce payments for readmission by encouraging hospitals to hire care coordinators.

• Hospital-acquired conditions (provision 3008) will provide an incentive to standardize protocols and procedures to reduce hospital acquire conditions by reducing payment for those conditions.

These rosy scenarios assume hospitals and doctors will work together harmoniously and in tandem to bring about the desired results.

Jeff Goldsmith, president of Health Futures and an associate professor of health sciences at the University of Virginia in Charlottesville, says these rosy predictions may be pipe dreams.

"In many communities in the southern and western states, the two groups have engaged in bitter competition for control of lucrative ambulatory services, such as advanced imaging, ambulatory surgery, and radiation therapy.”

"The result has been much ill will and duplication of services. In some communities, physicians have controlled the lion's share of ambulatory diagnostic and surgical cases, to the point of damaging the local hospital financially."

“ Not only are there trust issues, but there's a new disconnect between most community physicians and medical or surgical services provided in a hospital. “

"There is no such thing as an 'extended medical staff.' The medical staff consists of physicians who actually practice at the hospital, which is a shrinking percentage of the physicians in most communities"

There are the five major obstacles for ACOs, which could cause them to fail:

1. EHRs

Most physicians still do not have or trust electronic health record systems, and they do not work in integrated systems that would allow them to manage non-hospital care across their patient populations. Despite financial incentives from the Health Information Technology for Economic and Clinical Health (HITECH) of the American Recovery and Reinvestment Act of 2009, it may take a decade to have doctor-hospital systems that communicate with each other.

2. Income redistribution

The payment system still rewards individual specialists for increasing the volume of clinical services, and for generating revenues from procedures and imaging, and that is not likely to change soon.

3. Lack of patient incentives

There's no incentive for patients to be actively involved in joining an ACO. Rather, they will be more likely be affiliated with their primary care physician and will have no reason to cooperate with strategies to reduce cost.

4. Cost management confusion

Providers lack actuarial or insurance expertise, and so are unlikely to be able to successfully manage health costs of a population.

5. Cost shifting

Physician markets will continue to be consolidated through hospitals' acquisition of practices, forcing private insurance costs higher through cost-shifting.
And there are always the control issues.

If physicians dominate, the census of hospitals and their revenues will fall, and outpatient services will decline. This will cause hospital bond ratings to fall, and lower abilities of hospitals to invest, expand, and hire employees.

If hospitals dominate, the will reap the benefits of savings, physicians will become employees, and their incomes and status as independent professionals will decline. Once reduced to employees, they will have a hard time regaining income, status, capital, and influence.

The crucial question, according to Kocher and Sahni, is: who will control ACOs.

If it’s doctors, they will control the flow of funds through the marketplace. If it’s hospitals, they will employ doctors. Whichever scenario prevails; “Whoever controls the ACOs wil capture the largest share of any savings. How to divide profits between primary care doctors will be contentious. Specialists who end up losing incomes will resist ACOs.

No matter who you slice the ACO pie,or tint the scenario lenses, there don’t seem to be many rosy scenarios – at least in the short term.

1. R. Kocher and N. Sahni, "Physicians versus Hospitals as Leaders to Accountable Care Organizations," New England Journal of Medicine, December 30, 2010

2. Jeff Goldsmith, "Accountable Care Organizations: Not Ready for Prime Time," Health Affairs, August 17, 2009

3. Cheryl Clark, "5 Reasons Why ACOs Could Fail," Healthleadersmedia, January 7, 2011