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Accountable Care Organizations

Stanley Feld M.D.,FACP, MACE

Accountable Care Organizations (ACO) are supposed to manage Medicare cost. Policymakers are desperate to control costs. Proponents of ACO want to test it along with such alternatives as patient-centered medical homes, pay-for-performance and payment bundling.

President Obama’s practice models pilots are going to be a great waste of money. Each model has major defects.

None of the models offer patients the ability to control of healthcare dollars. None of the models provide incentives to patients to be responsible for their own health.

The models replace individualism with collectivism. They replace individual self-responsibility with community governance. Bureaucracy stifles initiatives and innovation, two characteristics that have been the engine of progress in medical advances.

The models subject medical care to the deadening hand of bureaucracy. The net result is a more costly healthcare system and increasing federal deficits. Bureaucracy always has loopholes. The advantaged vested interests always game the system to the disadvantage of consumers.

What are Accountable Care Organizations (ACO)?

“The goal of ACO is to encourage physicians and hospitals to integrate care by holding them jointly responsible for Medicare quality and costs.”


A typical Medicare ACO would include a hospital, primary care physicians, specialists and potentially other medical professionals. Services would still be billed under fee-for-service. The ACO’s members would coordinate care for their shared Medicare patients.

I do not know when hospital systems have not tried to profit from its physicians’ intellectual property. What will suddenly get them to not take advantage of physicians intellectual property?

“Because ACO members are held jointly accountable for this care, they would share in any cost savings that stem from the quality gains.”

Cost overruns would be deducted from the fees billed. Realistically surgeons have always dominated the primary care physicians. It is unrealistic to believe surgeons would relinquish this position passively. Surgeons would not agree to increase compensation to primary care cognitive physicians at their expense

The goal of ACOs is to pay providers in a way that encourages them to work together, to pay providers in a way that does not encourage supplier induced demand, and to create an organization that is rewarded for providing high quality care.”

The Medicare Advantage program pays a lump sum to private insurers. The government holds the healthcare insurance industry accountable for all medical care. The healthcare insurance industry is in control of the healthcare dollars.

Medicare pays the healthcare insurance industry a $3000 premium per patient above and beyond the average cost of $6600 per patient. Patients pay on average 33% of the total $9600 premium. The healthcare insurance industry decreases physician reimbursement to increase its profitability.

Medicare Advantage looks good to the patients because premiums are low. Patients do not realize restriction to access to care exists. Patients are happy.

The government was happy despite the large subsidy because it had a fixed cost. The insurance industry was happy because its profit increased.

The problems with ACO are:

Accountability rests with the providers.  Providers or provider groups, rather than insurance companies, are evaluated on the quality and efficiency of care.”

Physicians are unhappy. They are being judged on utilization without concern for medical risk their patients present or the need for defensive medicine to avoid malpractice liability.

Patients’ responsibility for their health and medical care is not considered. Obesity, substance abuse, or noncompliance are not considered as a patient responsibility in this or any other model considered by President Obama’s healthcare team.

Eighty percent of healthcare dollars are spent on treating the complications of chronic diseases. When the risk of disease and complications of disease is high the risk management is the responsibility of physicians and not patients.

“ACO allow for flexibility in the type of organization.  Some regions may prefer independent practice associations (IPAs) while others may prefer a physician-hospital organization (PHO).”

The ACO is a fixed reimbursement system. Cost overruns will occur at the expense of physicians. Physicians and hospital systems will not know how to price reimbursement in advance. Utilization of medical care services is dependent on both patient and physician behavior. If patients were healthy there would be great cost savings. There are no incentives in ACO for patients to remain healthy.

“The physician-centered organization makes much sense to many policymakers because “the resources that flow from the decisions physicians make with patients account for a major portion of overall health care costs, regardless of where the care actually takes place.”

Physicians are good at treating illness. They are not good at risk management. Patients must be incentivized and taught to manage the risk of complications.

Many physicians will get stuck with high-risk patients. Medicare will have to increase payments to those physicians or risk losing them as providers. ACO will become insolvent. This will increase the deficit.

 If participant believe that ACOs are essentially tightly managed ‘HMOs in drag’ that are going to restrict their choices, undermine the doctor-patient relationship, and result in cheaper but lower-quality care, the concept will be met with skepticism, if not overt opposition.”

Physicians and patients should view ACO for what they are. ACO are HMO in disguise. They represent a fixed reimbursement for variable amounts of necessary service.

Physician groups and hospital systems are allergic to HMO because they did not know how to price the reimbursement adequately. They also do not know how to price risk and manage risk.

Neither the healthcare insurance industry nor the government knows how to manage or price risk. The healthcare insurance industry compensates for overuse by increasing the premium next year.

How can they expect physician groups to price risk? Many physicians’ practices and hospital systems lost money on HMO. This resulted in non participation in HMO.

Many patients hated HMO because medical care became commoditized, choice was restricted and the doctor-patient relationship was undermined. The resulting cost was not lower.

The HMO were a failure. ACO will be a failure. The result will be opposite of the intent with increasing cost, increasing deficits and decreasing quality of care.

The only way to manage risk is to
motivate consumers to manage risk. This is the definition of consumer driven healthcare using the ideal medical savings account.

The opinions expressed in the blog “Repairing The Healthcare System” are, mine and mine alone.

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