The problem with ACOs – High Performance Health Care
Health Policy

The problem with ACOs

20047749“I have never seen one, but I think I like them.”  Is this a statement about unicorns or ACOs?  The Accountable Care Organization (ACO) is one of the hottest topics (and acronyms) to come into the healthcare delivery environment since the DRG. 

As part of the Affordable Care Act (§3022) it was modeled on the Physician Group Practice Demonstration which showed some very positive results for some clinics.   For example, the Marshfield Clinic was one of the most successful participants in the PGP demonstration and by year 3 had met greater than 98% of the 32 quality measures (diabetes, heart failure, coronary artery disease, hypertension, preventive services) and received a performance payment of $13.8 million.  Savings to Medicare in that year was $23.49 million.

The reason ACOs are similar to unicorns is that their definition is quite varied at present and the final structure and payment policies for Medicare sponsored ACO are yet to be determined.  The ACA gives CMS wide latitude to construct regulations for ACOs and they are currently in the midst of this process.  ACOs are slated to become active in 2012. 

One broad policy goal of the ACA is to promote “systems based care” and the ACO is one of the tools to this end.  However, as this discussion has become more intense, policy observers have begun to urge caution and have suggested less comprehensive models that might achieve the same goals.

Kocher and Sahni put the issues starkly in a recent article in the New England Journal of Medicine entitled: “Physicians vs. Hospitals as Leaders of Accountable Care Organizations.”  It describes the age old power struggle between physicians and hospitals for control.  They suggest that the first movers will control ACOs in a local market for many years into the future.  Here is how:

“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.” (pg 2582)

Jeff Goldsmith sees this same hospital-doctor power struggle, particularly in the West and South.  He also suggests that if ACOs foster more market concentration among providers, they have the potential to shift costs onto private insurers which is the exact opposite of the goal of the ACA to bend the health care cost curve downward.

Instead, he proposes a more flexible payment model for providers and private insurers that would divide health care services into three categories: long-term, low-intensity primary care; unscheduled care, including unscheduled emergency services; and major clinical interventions that usually involve hospitalization or organized outpatient care.

Each category of care would be paid for differently, with each containing different elements of financial risk for the providers. Health plans would then be encouraged to provide logistical and analytic support to providers in managing health costs in these categories

Goldsmith may have outlined the correct initial steps to move the whole country slowly toward the extensive use of “systems based care.”  Let’s hope CMS gives these strategies some considerations as part of the ACO regulations that will be issued this year.


Goldsmith, J. 2011. “Accountable Care Organizations: The Case for Flexible Partnerships between Health Plans and Providers.” Health Affairs 30(1): 32.

Kocher, Robert and Sahni, Nikhil, “Physicians vs. Hospitals as Leaders of Accountable Care Organizations”. NEJM  363:27: 2579

Presentation by Theodore A. Praxel, MD, MMM, FACP: Quality Improvement in the Marshfield Clinic, 10/26/2009, Institute for Clinical Systems Improvement annual meeting.

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