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Accountable Care Organizations: A Health Experiment in Progress Accountable Care Organizations: A Health Experiment in Progress

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Accountable Care Organizations: A Health Experiment in Progress


(Joe Raedle/Getty Images)

A patient goes to the doctor's office with vague back pain. He gets the most expensive scan on the market, which suggests surgery might be needed. Better be safe than sorry; he has the surgery. But a closer look would have revealed that cheaper physical therapy would have been just as effective.

The dollars wasted on that patient contribute to a key problem with the health care system: soaring costs that haven't been accompanied by a commensurate increase in quality. Obamacare is trying to fix the problem of expensive, unnecessary care in several ways, the most well-known of which are accountable care organizations.


ACOs are groups of providers that have been assigned a projected budget per patient. If the cost of caring for the patient comes in below that level, the group shares the savings. The idea is that doctors will better coordinate care to prevent wasteful or ineffective treatment. Pilot programs suggest the jury is still out on ACOs' ability to drive this kind of behavior.

A recent working paper by M. Marit Rahavi, an economist at the University of British Columbia, illustrates the problem with current behavior. Rahavi examines births by Californian and Texan first-time mothers who are physicians and compares them to first-time college-educated mothers. Due to their medical education, physicians would presumably be better equipped to avoid unnecessary medical procedures. And, indeed, physician-mothers have lower rates of cesarean sections and higher rates of vaginal deliveries than their college-educated counterparts. The physician-mothers and their babies tended to be healthier, too.

Because they're more expensive, C-sections are more profitable for doctors and hospitals. Nearly 3 percent less was spent on physician-mothers than other mothers in the same hospital. A Los Angeles hospital executive quoted in the paper admits that incentives to reduce C-sections are low, despite their probable overuse.


Reducing the number of unnecessary medical procedures means changing payment incentives, reformers argue. With accountable care organizations, the theory is that if the provider does a good job taking care of the patient, something the insurer can track with quality metrics, the patient's health will be better, they will use fewer and less expensive services, and, therefore, they will cost less to insure.

Medicare is running two pilot versions of the program. In one, providers may sustain losses if they're over budget but can be handsomely rewarded if they're under. The other rewards providers for coming in under budget but has no downside risk. If they work, the programs will be expanded.

Early results are mixed. Of the 32 initial providers in the higher-risk, higher-reward Medicare ACO program, 18 delivered savings. Of the 14 that didn't, two dropped out of the program entirely, and several opted to move into the less-risky ACO pilot program, according to an analysis by investment bank Triple Tree. Their departure from the program was presaged by provider complaints over the extensive quality measurements required by Medicare; the government is monitoring quality to make sure providers aren't skipping necessary treatment to come in under budget.

While Medicare is testing ACOs, private enterprise is building them aggressively. Even one of the government-program dropouts, the New Mexico hospital system called Presbyterian Healthcare Services, has partnered with tech giant Intel to run an ACO-like organization for the firm's local employees, suggesting its problem with the Medicare pilot was the practice, not the theory. Private insurers, including Cigna and Aetna, are also jumping on board, and Triple Tree's analysis shows well over 100 payer-backed ACOs.


Some initial results have arrived from these private programs. A study published in the Journal of the American Medical Association looked at 11 provider organizations that entered Blue Cross Blue Shield's ACO-like organization for Medicare beneficiaries in Massachusetts between 2007 and 2010. Some of the news was good: Even the Medicare patients who weren't in an ACO cost 3 percent less than a control group during this time, suggesting institutional changes that spread savings to all patients. Some wasn't as good: Just one of the four quality measures tested by the authors improved for the non-ACO Medicare population.

Making ACOs work will require many organizational changes on the part of providers. They'll have to orient their systems more around quality than quantity. They'll have to track patients closely, using new analytics, to make sure their status is improving. And they may focus on high-risk, high-cost patients, using analytics and tailored interventions to help them. The payoff for improving the health of that population could be substantial.

Critics worry these changes could encourage excessive provider concentration in the private sector. Hospital mergers and vertical integration may accelerate if ACOs are widely adopted because they encourage closer coordination among health-system players. The shift could counter the effect of the ACOs and actually drive up prices. Austin Frakt, a Boston University health economist, writes, "I understand why Medicare is promoting ACOs. But, because they encourage provider integration, which could lead to higher prices and premiums, I do not understand why private insurers would be." The Federal Trade Commission shared that concern when Medicare first began its pilots, and tighter rules to discourage this behavior were put in place. But private insurers, which generally control smaller portions of the market than Medicare, remain vulnerable to the negative effects of consolidation.

The ACO experiment is in motion, and we'll have to see what happens when it stops. Early results suggest success is not assured.

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