Promised Savings from ACOs Look Increasingly Unlikely to Occur

Published October 9, 2014

For several years, the Obama administration has been touting accountable care organizations (ACOs) as a big part of its proposed solution to rising health care costs, particularly in Medicare. Early results suggest yet another disconnect between the promise and the reality.

The basic concept of an ACO is fairly simple: A group of doctors and medical facilities agree to coordinate their efforts in an attempt to improve care while cutting costs, and they share in any savings if costs decline or grow less than expected.

In theory, there’s nothing wrong with this, but in today’s bureaucratic, government-directed health system, as simple an idea as “doctors should work together” gets turned into a system rife with unintended consequences and poor outcomes.

As set up under Obamacare and implemented through Medicare, ACOs are in many ways indistinguishable from health maintenance organizations (HMOs). Doctors and facilities are given a limited amount of money to provide care to patients and are expected to manage treatment in order to come in under budget.

This model wasn’t very popular in the 1990s because it gave doctors and medical facilities a powerful incentive to withhold treatment or use lower-cost options than what the doctor believed was the most appropriate treatment.

Why the Obama administration and congressional Democrats jumped on the ACO bandwagon isn’t clear, but I do have two guesses.

First, it fits with their view that central planning is vital to any endeavor. Every time you hear politicians moan about “fragmented care,” what they mean is “bureaucrats aren’t in charge.”

ACOs supposedly reduce this fragmentation by bringing all decision-making regarding a patient under one roof, carefully supervised by people who may not know the patient but do know what the proposed treatments for that person will do to the bottom line and their bonuses.

Second, because ACOs supposedly save money, it allowed the planners of Obamacare to spin their abacuses and proclaim the president’s health care overhaul would save billions of dollars over the long run.

Reality now intrudes. Recently released information from the Centers for Medicare & Medicaid Services shows a wide range of results, with some ACOs showing savings of up to 7 percent while others had spending increase by 5.4 percent. Several of the ACOs that enrolled in Medicare’s Shared Savings Program have dropped out. It’s also important to note many of the ACOs enrolling in the program were among those most likely to perform best, because they had embraced the idea years ago and had experience operating under this model of care.

Another problem with the ACO concept is it is accelerating the trend of hospitals purchasing medical practices, driving up costs because insurers and government programs offer higher reimbursements for hospital-based care.

These outcomes don’t surprise most people who have closely followed ACOs. A November 2012 article in Health Affairs by researchers Lawton Burns and Mark Pauly, for example, observed, “accountable care organizations have limited and uncertain impact, especially on cost savings,” and they “provide little support” for the belief they will limit Medicare spending growth.

It may not be on the scale of “if you like your plan, you can keep your plan” or the pledge families would see their health premiums fall by $2,500 per year, but it’s starting to look like the cost savings from ACOs are just as illusionary as those other promises.