Deconstructing the Latest Health Care Fad: Accountable Care Organizations

Published May 31, 2016

The President’s health care reform bill includes numerous pilot projects and demonstration programs designed to test ways of lowering health care spending and improving quality. One such pilot program is Accountable Care Organizations (ACOs), the latest fad among health policy wonks.

Backers expect ACOs to raise the quality and lower the cost of patient care simultaneously. Detractors, on the other hand, describe them as “HMOs on steroids.” What’s the truth?

Would You Buy This Car?

As is so often the case in health policy, the clearest way to think about this topic is to imagine applying the concept to some other good or service. Consider automobiles. What would it be like to buy an automobile from an Accountable Car Organization (ACO)?

For starters, you wouldn’t buy the car yourself. You would turn some of your money over to an entity (employer, insurance company, government, etc.) that would buy the car on your behalf. It would do so by agreeing to pay an auto ACO a fixed price per car and requiring certain minimum quality standards.

For example, the auto ACO might be required to produce automobiles that meet a minimum fuel economy standard and use a certain fuel. Cars would come equipped with a toddler protection system that disengages the ignition if your kid is not safely buckled and strapped in the backseat, and a costly device emitting a loud siren if you try to leave him in the car unattended.

The car could feature an I-brake-for-animals sensor that spots them before you even know it’s there and brings your vehicle to a screeching halt. An airbag would catch you before your head went smashing into the dashboard in response to the sudden stop. An OnStar system would alert the EMTs if you fail to regain consciousness within a certain number of minutes after being knocked out by the airbag. The possibilities are endless.

Patient Isn’t the Customer

Additionally, the buying entity would offer financial rewards for exceeding specific quality standards and financial penalties for falling short. For example, the auto ACO might get a 5 percent bonus if it exceeds the minimum fuel efficiency or expectations for animal avoidance or child safety. Of course, you won’t be the one choosing the standards, rewards, and penalties.

One problem is that in the very act of listing minimum standards, there will always be a lot of features not on the list—such as whether the roof will hold up if the car flips over? What happens if you get hit by an 18-wheeler? Such items may be more important to you than, say, avoiding squirrels, but you’ll have no choice in the matter.

And since the price is fixed, the auto ACO will have a strong incentive to skimp on anything that’s not on the list, especially because the ACO gets to keep any money it doesn’t spend producing your car.

More importantly, you are not the real customer of the auto ACO. The third-party payer is. The ACO is not trying to meet your needs. It’s trying to meet the third-party payer’s needs. So if Blue Cross were your car-buying intermediary, the auto ACO would not view you as the buyer. It would see Blue Cross as the buyer. The car produced for you would not be a car that you want; it would be a car that Blue Cross wants.

Finally, any repairs or maintenance could only be done by your auto ACO—you couldn’t go to some other repair shop.

Individual Variables Greater

Moving from autos to health care brings up another problem. Although there are some differences in what people want in a car, those differences are narrow compared to the differences in what people need in medical care.

When you are healthy, how your ACO functions may not matter very much. But when you’re sick, the fact that the ACO is the agent of Blue Cross instead of your agent may matter a great deal.

John C. Goodman ([email protected]), is president, CEO and Kellye Wright Fellow of the National Center for Policy Analysis.