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Are ACOs Really Different from HMOs?

By Greg Freeman  
   November 27, 2013

Accountable care organizations are a "fad" and "not very different from the HMO model… [with] a few bells and whistles, but otherwise it's the same old incentive to do as little as possible and find the healthiest patients you can," says a director of the Association of American Physicians and Surgeons.

Originally published in Managed Care Contracting and Reimbursement Advisor December, 2013

Accountable care organizations (ACO) aim to completely revamp how healthcare is delivered in the United States, promising better quality and lower costs. But physicians who have heard these promises before are wondering if ACOs are just the new version of HMOs, the same lofty concept dressed up in a new way.

ACOs are the just the latest fad, according to Richard Amerling, MD, associate director of clinical medicine at Albert Einstein College of Medicine in New York City, director of outpatient dialysis at Beth Israel Medical Center, and a director of the Association of American Physicians and Surgeons.

HMOs also were touted as the revolutionary way to save healthcare in America, Amerling says. In that model, the physician served as a gatekeeper for the insurance companies to control access to high-level care, tests, and hospitalizations. Under a capitation arrangement, the physician was paid a set amount per patient to coordinate care, which Amerling says provided a strong incentive to restrict patient access to care.

In addition, capitation provided a bonus to the physician if total spending on patients was kept below a certain amount. The plan worked well if the physician's patients were overwhelmingly healthy, which encouraged cherry picking of the most profitable patients. But eventually the very sick had to receive care, and that threw the whole system off, Amerling says.

The differences between the HMO and ACO models are purely cosmetic, he says. ACOs also will have strong incentives to cherry-pick the healthiest patients and limit access to expensive medical care, and eventually that strategy will fall apart just as it did with HMOs, he says.

"It is fundamentally not very different from the HMO model," Amerling says. "There are a few bells and whistles, but otherwise it's the same old incentive to do as little as possible and find the healthiest patients you can."

Amerling says his concerns are borne out by the experience of the Pioneer ACOs that recently reported their results. All of the 32 health systems in the Pioneer ACO program reported improved scores on quality measures such as cancer screenings and controlling blood pressure, but only 18 were able to lower costs for the Medicare patients they treated. Two hospitals reported losing money on the ACO program, and seven notified CMS that they will switch to a different ACO because of the monetary strain. Two said they will dump the ACO model and find another approach with less financial risk.

Some providers and insurers will be able to make the ACO system work for a few years, but eventually the financial pressures will force providers to opt out and many of the ACOs will fold, Amerling predicts.

"Companies are going to jump on board and hope to make money as long as they can, but ultimately things start to play against you," he says. "The fact that in the demonstration project several of the providers who tried it lost money, that is a warning sign. When you try to apply this generally it's going to be a money loser."

Even aside from the cost concerns, Amerling has no faith in the ACO model to improve quality of care. Seriously ill patients will still need care that keeps them from falling through the cracks and costing more than necessary down the line, he says.

"Nothing does a better job at that than a fee-for-service model," he says. "When I have a patient with unstable angina, I can get them cath-ed the same day. When that mechanism is not available in an ACO, we're going to be delivering late and untimely care, which is inevitably worse and more expensive."

Amerling recalls the recent effort to decrease costs for dialysis by bundling the costly hormone erythropoietin (EPO) into the reimbursement. For that reason, and because of clinical data supporting the reduction of EPO, dialysis providers started using less of the medication.

"So they were getting somewhat of a windfall until the government caught wind and wanted to cut the reimbursement for the bundled rate," he says. "It's the same sort of thing with ACOs. They're going to give a bundled payment to cover everything, creating a huge incentive to get only healthy people. When that cuts costs for that type of treatment, the government will say it only makes sense to lower the reimbursement."

The bottom line for physicians, Amerling says, is that they will not be able to increase revenue by doing a better job.

"They are essentially going to be salaried in a lot of these organizations, and they will have the incentive to do the minimum rather than the maximum," he says. "There's nothing in it for them to go the extra mile. They are going to be squeezed by the administrative staff at these ACOs, and there are going to be a lot of administrators necessary to run these things."

Others aren't as certain as Amerling that the road ahead for ACOs will be a rocky one. Even if they are not a complete success, ACOs won't be a retread of HMOs, says Ben Wanamaker, executive director of the healthcare program at the Clayton Christensen Institute, a nonprofit, nonpartisan think tank dedicated to improving the world through disruptive innovation, based in San Francisco.

"HMOs were a method of controlling costs with gatekeepers, and the mechanism for payment was almost exclusively fee-for-service," Wanamaker says. "ACOs seek to control costs and improve quality-something HMOs didn't claim to do-by changing the payment mechanism so that providers are going to be at risk for what they are calling quality. But most of the measures are not what I call quality measures, but process measures."

Wanamaker acknowledges that the move to ACOs is shaking up physician practices and could have some downside for doctors. The move to ACOs is bringing a rapid number of acquisitions because "he who has the largest number of members wins" in the ACO model, Wanamaker says. The income upside for a physician is less attractive to those physicians at the higher end of their experience and skill levels, he adds.

"I suspect ACOs are a bit disconcerting to some physicians who are concerned about maximizing their economic position," Wanamaker says. "We do not believe that ACOs as they are structured now will result in dramatic reductions in the cost of care, but we see ACOs doing a good job of better aligning provider and payer incentives for quality."

For the best chance at economic success within an ACO, Wanamaker says physicians should seek maximum transparency between fee-for-service and ACO patients so that they can develop clinical care processes that optimize the economic outcome. Know who is in which payment bucket, and develop clinical care protocols for both types of patient.

There might be more than one way to do the right thing for a patient, resulting in the same clinical outcome but a significantly different economic outcome for that patient, he says.

"That might sound insensitive in a way because, of course, the doctor should do the best possible thing for the patient no matter what," he explains. "But the doctor also has an incentive to make a living, and under a fee-for-service arrangement they likely will avoid some options if they can't be reimbursed for it. There are always judgments to be made."

A more optimistic assessment of ACOs comes from Joe Damore, vice president of population health management with the Premier healthcare alliance based in Charlotte, N.C., and a former hospital CEO. ACOs are entirely different from HMOs, he says, foremost because HMOs were driven by health plans and not providers.

"Utilization review was developed, implemented, and controlled by the insurance companies," Damore says. "In the accountable care model, it's driven by the providers. There are no preapproval processes. The providers are developing their own appropriateness criteria."

Almost all the ACOs currently in operation have only upside risk for the physician, he says, contrary to the HMO model that tried to shift much of the risk to the physician. The ACO model also includes 33 quality measures that determine pay rates, which Damore says is quite different than when HMOs talked a lot about quality but did little to measure it.

"In the HMO days they did not tie quality to our dollars," Damore says. "ACOs are built around that idea, and that is a fundamental difference."

Comparing HMOs and ACOs is difficult because there are different types of ACOs, notes Greg ­Chittim, director of analytics and performance improvement at Arcadia Solutions, a consulting company based in Burlington, Mass., that works with ACOs. Pioneer, shared savings, and commercial ACOs all vary in their structure, so comparing them to the historical experience with HMOs can be misleading, he says.

"Whereas one type of ACO might be very different from others and not at all like an ACO, you could say that some are more like an HMO," Chittim says. "It is still to be seen how accountable care will affect providers and patients alike."

But he points out that the designers of the ACOs are well aware of how the HMO experience ended and are intent on not repeating the same errors.

"They have put in very deliberate contractual measures to prohibit structurally the kind of rationing and denial of care that became apparent in the HMO years," Chittim says. "There are quality measures intended to make sure that while you're saving money you are not doing it at the expense of individual patients or any patient population."

Spending down but quality of care might not rise with ACOs

New research suggests that healthcare costs may decrease when hospitals and medical groups agree to an accountable care model with even one insurer, but the quality of care may stay the same.

One study indicates that progress on two primary aims of the 2010 health reform law has been uneven at best.1 The law's goals were to slow the runaway costs of healthcare and improve quality. The authors note that in a multi-payer system, new payment incentives implemented by one insurer for an accountable care organization (ACO) may also affect spending and quality of care for another insurer's enrollees served by the ACO. "Such spillover effects reflect the extent of organizational efforts to reform care delivery and can contribute to the net impact of ACOs," they write.

Specifically, the authors examined whether Blue Cross Blue Shield (BCBS) of Massachusetts' Alternative Quality Contract (AQC), an early commercial ACO initiative associated with reduced spending and improved quality for BCBS enrollees, was also associated with changes in spending and quality for Medicare beneficiaries, who were not covered by the AQC.

They also estimated changes in spending and quality for the intervention group in the first and second years of exposure to the AQC relative to concurrent changes for the control group. Regression and propensity score methods were used to adjust for differences in sociodemographic and clinical characteristics. The primary outcome was total quarterly medical spending per beneficiary. Secondary outcomes included spending by setting and type of service, five process measures of quality, potentially avoidable hospitalizations, and 30-day readmissions.

The researchers found that before entering the AQC, total quarterly spending per beneficiary for the intervention group was $150 higher than for the control group and increased at a similar rate. In year two of the intervention group's exposure to the AQC, this difference was reduced to $51, constituting a significant differential change of −$99 or a 3.4% savings relative to an expected quarterly mean of $2,895.

Savings in the first year were not significant, and second-year savings derived largely from lower spending on outpatient care, especially for beneficiaries with five or more conditions. The researchers concluded that the AQC was associated with lower spending for Medicare beneficiaries but not with consistently improved quality.

In another study, researchers found that in five markets around the country, ACOs were providing care to more than half the Medicare patients in the traditional FFS program.2 In addition, ACOs were more likely to be found in markets with greater consolidation by hospitals and doctors.

Researchers with Rand Corporation and Harvard University identified five markets where more than half the traditional Medicare beneficiaries were served by Medicare ACOs, either those participating in the Medicare Pioneer program or the Medicare Shared Savings program. In another 26 hospital markets, Medicare ACOs served up to half of seniors in traditional Medicare, the study found.


1. McWilliams, JM, Landon BE, Chernew ME. Changes in health care spending and quality for Medicare beneficiaries associated with a commercial ACO contract. JAMA 2013;310(8): 829-836.

2. Auerbach DI, Liu H, Hussey PS, et al. Accountable care organization formation is associated with integrated systems but not high medical spending. Health Aff 2013;32:1,781-1,788.


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