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ACO-Bound? Consider the Financials First

David A. Lips, for HealthLeaders Media, December 30, 2010

As commentator Trent Haywood tellingly observed, "given that eight out of 10 participants did not receive any shared savings from Medicare in the first year, these investment costs were significant and not offset by any savings. Thus, healthcare executives should anticipate losses prior to gains in the implementation of the ACO model."

Reflecting on his experience in the demonstration project, the president of Everett said that the 5,000 minimum number of patients for an ACO is most likely too small.

The current fee-for-services model may encourage physicians and hospitals not to enter into arrangements like ACOs that will cut their volume of services and, hence, their revenue, at least if the potential shared savings are not great. On the other hand, Medicare and private payers may give preference over time to ACOs. Providers that are not associated with an ACO may find themselves either left out of potential payer networks or otherwise penalized for not having joined an ACO. The exercise of creating an ACO and being accountable for quality and cost improvements may spawn efficiencies and better patient care that will outlast any contract with HHS.

As with much of healthcare reform, uncertainty rules the day at present. The chief medical officer of one organization involved in a pilot ACO, organized in 2009 under the auspices of the Dartmouth Institute for Health Policy and Clinical Practice and the Brookings Institution's Engelberg Center for Health Care Reform, explained that even estimating the shared savings that would financially justify participating in an ACO is hard to calculate.


David A. Lips is an attorney at the Indianapolis office of Hall, Render, Killian, Heath & Lyman, a healthcare focused law firm. He may be reached at dlips@hallrender.com.

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