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Are ACOs Unaffordable?

Jeff Elliott, for HealthLeaders Media, March 28, 2011

The accountable care organization might be the Department of Health and Human Services’ healthcare reform darling, but some industry players are urging healthcare providers to be wary. 

Startup costs to join an ACO—large networks of hospitals, physicians groups, specialists, and ancillary healthcare providers—are likely too high for many healthcare providers to overcome in the near term, according to a report authored by executives from group purchasing organization VHA that was published on the New England Journal of Medicine website.

The authors are joining a growing chorus of constituents that are concerned about the potentially anticompetitive forces that ACOs might wield on the market—from acquiring supplies and equipment to entering insurance contracts.

In the article, Drs. Trent Haywood and Keith Kosel write that HHS is underestimating the anticipated three-year period that it will take providers to recoup the average $1.7 million investment (startup costs and first-year operating expenses as estimated by the Government Accountability Office) in an ACO. For many, even the best-equipped provider groups, it could take seven years or more before they achieve any financial benefit.

Their conclusions are based on the Centers for Medicare & Medicaid Services’ Physician Group Practice Demonstration, conducted between 2005 and 2010, which used a hybrid Medicare fee-for-service and shared-savings bonus payment model to compensate 10 large, fiscally healthy physician groups.

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