Why Accountable Care Organizations May Flounder and Fail

June 3, 2011 - In The Health Care Blog, America’s most widely read commentary on health reform and its consequences, David Dranove, a professor of health industry management at Northwestern University's Kellogg Graduate School of Management, introduces his post “The Sequel of Sequels" by writing:

“I have seen this film before. Folks get all excited about the potential for vertical integration to save our healthcare system, and then the facts emerge.”

“The results of the first major ACO demonstration project are in and unless there is some hidden meaning behind all the data, it looks like ACOs may not be the magic bullet that the Obama administration had hoped."

"The demonstration began under President Bush and the specific payment structure and quality incentive differ somewhat from the ACO rules under the Affordable Care Act, but the main features are the same – give an integrated provider organization a share of the savings if it can hold down Medicare spending while also offering some quality bonuses.”

“Despite the fact that the participants included ten of the nation’s best known physician-led integrated organizations, less than half were able to lower Medicare costs by the final year of the project and only two demonstrated consistent cost savings. And the methods used to achieve savings – nurse call centers and telephone health checkups – are the sorts of thing that don’t exactly require vertical integration.”

The Health Care Blog asked me to comment on professor David Dranove’s blog.

Here is my comment:

“Why Accountable Care Organizations are destined to fail, and may not even get off the ground, is no mystery to me. Why would hospitals and physicians join together to form an organization that requires $11 million to $26 million to form (AHA estimate); that demands an inordinate amount of time, trouble, and grief to negotiate; that is designed, even guaranteed, to decrease reimbursements of hospitals and doctors; that hands over the reins of dispensing “savings” to your competitors and the government, reimbursements CMS may choose to reduce in the future; that subjects you to the risk of being sued by the Department of Justice for monopoly behavior; that requires you to be accountable financially for the behavior and complications of populations of patients before, during, and after hospitalization over whom you have little control; that 94% of members of the Medical Group Association of 400 integrated health organizations, supposedly ideal candidates for ACOs, have said they will choose not to join. Hospitals, doctors, and leaders of integrated health organizations are not dimwitted lemmings anxious to jump off the ACO cliff into an unknown abyss.”