ACOs' Real Test Will Come with Two-Sided Risk

The announcement earlier this week that 89 ACOs have been chosen by CMS to serve the healthcare needs of some 1.2 million Medicare beneficiaries is important—but not because it reflects a validation of the process by which the government hopes to get better value for the dollars they spend on Medicare beneficiaries. It doesn't. The news also doesn't reflect a validation of the contention that routing patients through so-called accountable care organizations will save money. It might. Finally, it doesn't mean that the "baseline," on which cost of care growth will be measured (which is yet to be determined, by the way) will be able to balance the reward for cost-limiting with the risk of joining the program.

The ACO announcement is important because it shows willingness by a large percentage of organizations to change their work patterns in order to find ways to better coordinate care for their patients. It's an important first step in an industry that has never had to be judged on results.

In that way, the notice to the 89 is sort of like a college acceptance letter. Great work so far. You got in. Now the real work begins.

The program has proved enticing enough that a large group of providers are willing to join, and that's a good start. But let's not fool ourselves that by signing on with this initial ACO demonstration, providers are enthusiastically looking forward to taking risk on patient outcomes. Because the fact is, most of them aren't taking much risk.

Of the 89 who were approved, only five took risk on both sides of the equation. That means 84 of the groups will face no risk of loss through the ACO demonstration. Let that sink in for a moment. They can benefit from any cost savings they achieve over traditional fee-for-service reimbursement, but they can't lose. In short, for providers, what's not to like? The majority of these ACOs are physician-oriented organizations, and much of the savings they are expected to generate for CMS will come from decreased hospital utilization. Therefore, most of these organizations won't be goring their own oxen.

The five that chose to accept risk of losses are taking on true risk, but the others are not. They're smart not to do so.

Here's why, according to a sentence buried in a release from CMS: "Because the Shared Savings Program is part of the original Medicare fee-for-service program, beneficiaries served by these ACOs will continue to have free choice about the care they receive and from whom they seek care, without regard to whether a particular provider or supplier is participating in an ACO."

That's the rub. You can hope patients will seek all their care from your ACO, but you can't make them, and therefore you have little control over the costs they will incur for their care.

CMS says this and other Medicare Shared Savings programs (including the 32 organizations in Pioneer ACO program and the six Physician Group Practice Transition Demonstrations) could save up to $940 million over four years.

I hope they do. But the fatal flaw of patient attribution needs to be fixed. None of this can work without patient compliance, and other than the hope that such well-coordinated care organizations will sell themselves to patients and make them want to receive all their care under one roof, there's nothing to compel them to do so.

We'll really find out if this project is viable only when it comes time for ACOs to sign up for their second contracts, which will require two-sided risk. An educated guess based on the initial response is that, without some way to ensure that ACOs have some control over where patients receive care, the risk rules of that second contract might make initial participants think twice.

Until then, success will be gauged only on the hype.