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To Be An ACO, Or Not To Be

Karen Minich-Pourshadi, for HealthLeaders Media, April 4, 2011
Participation Concerns

Though there will be some cost savings afforded to ACOs, the overall financial benefit to participants of an ACO is still cloudy. Financial leaders don’t do well with “cloudy” when it comes to numbers, which is why many healthcare leaders haven’t been quick to support this initiative. Nevertheless, under the heading of “he who hesitates,” it may be time to look into participating in an ACO, so you don’t miss out on future market share opportunities.

In another New England Journal of Medicine article, researchers remark that the power struggle between physicians and hospitals will only heat up as ACOs come online. The article’s authors suggest that those who make the first move will control ACOs in a local market for many years into the future.

The authors write, “If physicians come to dominate, hospitals’ census will decline, and their revenue will fall, with little compensatory growth in outpatient services, since physicians are likely to self-refer. This decline will, in turn, lower hospitals’ bond ratings, making it harder for them to borrow money and expand. As hospitals’ financial activity and employment decline, their influence in their local communities will also wane. And it will be hard for them to recover from this diminished role.

“Conversely, if hospitals come to dominate ACOs, they will accrue more of the savings from the new delivery system, and physicians’ incomes and status as independent professionals will decline. Once relegated to the position of employees and contractors, physicians will have difficulty regaining income, status, the ability to raise capital, and the influence necessary to control health care institutions. Therefore, the actor who moves first effectively is likely to assume the momentum and dominate the local market.”

While the thought of losing market share is often enough to stir healthcare leaders into action, there’s a very important challenge to also consider—the legal, antitrust ramifications of ACOs. The new ACO antitrust guidelines indicate that CMS, the Federal Trade Commission, and the Anti-Trust Division of the Department of Justice will all be closely monitoring these organizations. Just getting approval by CMS to launch an ACO may be very time consuming, and may make it more trouble than it’s worth for some hospitals and health systems.

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3 comments on "To Be An ACO, Or Not To Be"


Mike (4/5/2011 at 3:30 PM)
"the enthusiasm increases with the square of the distance from clinical practice and inexperience with the realities of full-risk capitation." Great line. Thirty years of healthcare finance and CFO of a large system with a large health plan has taught me that providers will likely take a bath with an ACO. No control over underwriting/actuarial, administrative burdens (but not money) consistent with what I get in an MA plan, 10% risk (see actuarial/underwriting concerns above) with no game plan for how to capitalize these ACOs, no real time utilization management system, savings/risk sharing based on current beneficiary costs (which means minimal opportunity for anyone in a low cost Medicare community), etc. etc. If you're still enthralled with this, take another look at the 400+ pages as if this was a contract proposal from a health plan? Would you take it? Only if you wanted to lose your shirt, which is exactly what you're going to do.

Bruce Landes (4/5/2011 at 12:01 PM)
I can see a limited market for ACOs, perhaps in a small city 200,000 to 300,000 where one hospital dominates the market. But the problem there is the FTC/DOJ who, interestingly enough are still referring to their 1996 "DOJ/FTC Statements Of Antitrust Enforcement Policy In Health Care" in their new ACO regulations. Commercial insurers enjoy anti-trust exemptions dating back the McCarren-Ferguson Act of 1945. In a major market you not only will not be able to keep patients in the ACO network. You won't even know that they went out of network and spent your money until weeks or months later. As far as building a network, if the doctors are not hospital-employed, you will have trouble signing up some doctors when they hear that they have to turn over their entire Medicare billing information to the ACO Administrator on a regular basis for the FTC reports. Not to mention all of the reporting needed for only a fraction of their patient base. You will be competing for patients with Medicare Advantage plans who are getting paid 14% higher capitation PMPM. They will be adding patient-friendly features, like dental and eyeglasses while you are adding administrative costs and more hassles and a smaller network. Competition? You won't be close. Finally, I am the president of a 1500 physician IPA which has been in existence since 1983. With the ACO you are becoming an insurer. When we took full risk-capitation in the mid-to-late 90's on 83,000 patients, both commercial and Medicare, it took less than thirty complex patients to blow our budgets out of the water. What will it take with 5,000 patients or just a few more? I think the worst place for a Hospital or Physician group who don't have the experience of managing risk and running an insurance company like Kaiser-Permanente or Hill Physicians Group in the SF Bay Area is to be on the "bleeding edge" of ACO development. This is one of those political ideas for which the enthusiasm increases with the square of the distance from clinical practice and inexperience with the realities of full-risk capitation.

TumTum (4/5/2011 at 9:41 AM)
The only way to reduce costs is to get away from fee-for-service medicine and adopt a better payment system where the interests of the patient, the payer and the provider are aligned. That's exactly what ACOs (and a decade earlier PHOs) do. The rules will evolve, and in time, we will see the playing field leveled - and free-market forces entering healthcare. True hospitals in some areas may continue to gouge certain communities butif ACOs catch on their gouging days are numbered. (One non-profit hospital in an East Coast city is spending its huge profts in building a "healthcare museum" even while they remain unaffordably high cost!). And there will be doctors who will invest in multiple "side" businesses but none of them will survive just from servicing their ACO patients - too small a population. They'll survive only if they market their servioces and offer competitive rates - like any other business. We need "sunlight" and thanks to Dr. Berwick we are creating a system that has patients and doctors at the very center. Even if they "fail" I can see it benefiting patients - and that's a "good" bet.