The ACO haircut

In NEJM, Bruce Landon puzzles over how ACOs will provide sufficient incentives for success. He makes two principal points:

  1. “[Primary care physicians] are responsible for care coordination and management, have perspective on the whole patient, and have the ability to manage the care of a patient population. Moreover, most quality incentives being incorporated into the payment systems for ACOs and other new global payment contracts also fall under the purview of primary care. To accomplish the care-management and quality goals, however, primary care physicians will need substantially more resources — for hiring care managers and other personnel to pursue population health management, for coordinating and managing care, and for implementing processes to ensure adherence with quality measures.” Where will the resources for such up-front investments come from?*
  2. If you think they’ll come out of the pockets of specialists, think again. “It may be difficult for organizations to unilaterally alter the flow of funds to accomplish these aims. Moreover, although organizations may face strong incentives to control costs, specialist physicians who continue to be paid through the fee-for-service system and hospitals, which continue to receive DRG-based payments, face no such inherent incentives — and in fact will continue to benefit from practicing in much the same way as they do now.”

The source of the problem is the maintenance of the fee-for-service (FFS) payment system. There are two ways for an organization to put some distance between physicians and the incentives of FFS. One is to put physicians on salary. The other is for FFS to go away. In fact, for Pioneer ACOs, it will, but only in the third year, as explained in a recent Health Affairs/Robert Wood Johnson Foundation health policy brief on ACOs.

In the third and final year of the Pioneer ACO experiment, groups that meet a specified level of savings will be eligible to move a substantial portion of their payments to a population-based model in which they could receive a dollar amount per beneficiary per month—true capitation— instead of continuing to layer ACO bonus payments on top of traditional fee-for-service reimbursement.

There are only 32 Pioneer ACOs, so this is not yet a wide-spread solution to Landon’s concerns. Broadly, if ACOs only succeed if specialists take a haircut, it’ll be a tough fight.

* Some, but not all, ACOs may be eligible for loans from CMS for these purposes.


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