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Can ACOs Work for Providers?

By April 6, 2011Commentary

As we have become fond of pointing out, the evidence supporting many of the new concepts for improving health care in the United States is limited, and the introduction of these concepts is not without risks for providers, patients and payers.  A recent article in the New England Journal of Medicine examines the likelihood that providers will do okay financially under the planned Medicare accountable care organization demonstration, which is known as the Shared Savings demonstration, scheduled to begin a few months from now on January 1, 2012.   (NEJM Article)

The authors looked at the results of the just completed Physician Group Practice demonstration, which involved ten large, sophisticated group practices and had a construction similar to the ACO one.  To meet the conditions for participating in the demonstration, the group practices on average invested $1.7 million.  Only two participants got any shared savings payments in the first year, only four in the second and five in the third.  None of them even recovered their initial investment.

Given that these were sophisticated provider groups with substantial resources, the authors express concern that smaller practices could do even as well.  They calculate that under the Shared Savings demonstration, providers would need a 20% margin over three years to break even, assuming a similar initial investment to that in the Physician Group Practice demo.  This is extremely unlikely.  The authors suggest that perhaps looking at results cumulatively as opposed to year by year might help improve returns.  The ACO concept might have value, but a poorly designed demonstration could undermine it, just as happened with disease management and Medicare.

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