Are Accountable Care Organizations Realistic Models for Lowering Health Care Costs?

There’s no denying that the country is deeply divided over the benefits of the Affordable Care Act. It is, however, the law of the land and is being implemented gradually into the health care system as hospitals, providers and insurers are all looking for creative ways to deal with the complicated and voluminous provisions of the new law. The Affordable Care Act is changing the landscape of health care in the United States. It is changing the way hospitals, physicians and payors, both private and governmental, structure the delivery of health care and manage costs.

One of the Affordable Care Act’s most intriguing initiatives is promotion of accountable care organizations or ACOs. An ACO is a contractual arrangement among groups of physicians and hospitals or other providers to coordinate health care for a specified population of patients with the goal of improving the quality of care to those patients assigned to the ACO and to lower costs associated with those services. In theory, cost savings and associated financial benefits or risks from hospital/physician coordinated health care are shared among all of the participants: providers, hospitals, private insurance plans and governmental plans like Medicare and Medicaid.

As soon as the Affordable Care Act passed, hospitals and physician group executives immediately began formulating plans or pilot programs to create and join ACOs. A recent Wall Street Journal article by Melinda Beck described the first year results for the Pioneer Accountable Care Organization Program, a shared savings and risk pilot program, as “Mixed.” The Pioneer ACO Program was limited to 32 systems already experienced with ACO-style principles. According to the article, the Pioneer ACOs improved patient care on quality measures such as cancer screening and controlling blood pressure, but only 18 of the 32 Pioneer participants managed to lower costs in the first year. To quote the Wall Street Journal article, “Two hospitals lost money on the program in the first year. Seven have notified CMS (Centers for Medicare & Medicaid Services) that they intend to move to another program where they will face less financial risk. (Assumedly these seven services will move to the Medicare Shared Savings Plan, which is another ACO program, but one in which participants are not immediately required to share in losses.) Two others have indicated they intend to leave the [Pioneer] program” altogether.

One of the two Pioneer participants that lost money in the first year indicated that its losses were attributable to the fact that its historical cost per patient target was unusually low because it had already lowered costs before entering into the Pioneer ACO Program. This raises the question: to what extent, if any, will providers that have historically tried to manage and lower their health care costs benefit from participating in a large multi-organization risk-sharing ACO? It is too early to evaluate the long term benefits of risk-sharing ACOs versus shared savings only or to determine to what extent risk-sharing ACOs or Medicare Shared Savings Program ACOs will be the driving force in lowering health care costs. The fact that the Pioneer ACOs results are mixed in the first year is not surprising, nor indefensible. Let’s see what the second year will bring.

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About Bob Lombardi

Bob is currently of counsel in Mirick O'Connell's Business Group. He is a former partner of the firm and a past chairman of the Business Group. He currently represents both established entities and entrepreneurs in the health services, health care, and life sciences industries. He has extensive experience in mergers and acquisitions work for public and closely-held corporations, as well as experience in domestic and international industry roll-ups. He works with family or closely-held businesses in planning and structuring the transition of ownership and control to the next generation. He has served as corporate counsel in resolving high-profile disputes among members of closely held corporations in the beverage business. Bob also has significant experience as counsel to banks, other institutional lenders and corporate borrowers in commercial, asset-based, secured and quasi-governmental lending transactions for both for-profit and not-for-profit entities.
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One Response to Are Accountable Care Organizations Realistic Models for Lowering Health Care Costs?

  1. Thanks for sharing your perspective on this issue. We recently looked into what Pioneer ACO program participants dropping out means for accountable care: http://bit.ly/13jChOg. What do you think?

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