How the ACO concept can fail

In a recent American Journal of Managed Care commentary, Shared Savings Program for Accountable Care Organizations: A Bridge to Nowhere?, Bob Berenson described how the ACO concept can fail to achieve the savings and quality goals it ostensibly would promote. Sections 3022 and 10307 of the ACA permits the HHS Secretary to implement shared savings programs that would pay ACOs bonuses if they spend less than a target amount while meeting quality standards.

Berenson identifies two problems. The first is that

there are no downside penalties for missing the spending targets. Given the reliance on fee-for-service, it is hard to see how a speculative bonus attained in the future would counter the direct fee-for-service rewards for providing more reimbursable services, especially for hospital-sponsored ACOs.

And the second is that the spending targets are based on the ACOs’ historical spending. Thus,

previous practice inefficiency is baked into the calculations. Indeed, prospective ACOs even have an incentive to spend more before onset of the program to build up their […] historical spending base. It is no wonder that some have described the anticipated ACO program as the “lottery.”

See how badly things could go?

Theoretically, a program that offers shared savings without any financial downside provides weak incentives for providers to change behavior.

So, it’s not looking good. But the program need not be structured as Berenson described. That’s just one very bad way to do it. He goes on to suggest better ways, which include some sharing of the downside risk and ways of reducing the spending targets. (See the paper for details.) Berenson concludes that ACOs have “great potential to transform the healthcare system.” But, he says, the apt cliché is that “you can’t make an omelet without breaking eggs.”

We can certainly have a large ACO program that providers support. It just may not do anybody else much good. Or, we can attempt to create a program that actually saves money and improves quality. Is that a political nonstarter?

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