The gamble of the ACO monopoly game

There has never been a more hectic time to be in the business of healthcare. Healthcare reform has brought many players to the table. And the “game” is bound to have winners and losers. This game is analogous to the board game Monopoly — a number of health care companies are buying up property (i.e., hospital and smaller providers) to position themselves as winners in the new shared savings payment structure proposed in the health care reform law. All this activity hangs in the backdrop of the Supreme Court hearing on the constitutionality of the health care reform law.

In order to tease out the market dynamics, we need to discuss Accountable Care Occupations (ACOs). ACOs are defined as a network of health care providers that collaboratively manage care and prospective budgets for a population of patients. The keyword here is population — at least 5,000 patients at minimum to qualify to be an ACO. Patients are assigned to a specific ACO based on the patient interaction with primary care services associated with a certain healthcare organization.

Despite this “assignment,” the patient is free to choose whatever provider they desire. Due to the new shared savings payment structure, ACOs that provides care to more patients, have a greater potential for savings if (and that is a big if for some) they beat the national average in terms of cost and quality of care provided. Therefore, the key for ACOs is to retain their current patient population and to draw in as many new patients for which they can assume risk. In order words, they are attempting to increase their market share. The result: ACOs approaching employers and smaller organizations with the promise a share of cost savings in order to take over the management of their employees/patients.

While this sounds like private market forces as usual, the truth is public policy is driving the private market. Specifically, the government has made it very enticing for healthcare organizations to pursue ACO status by only requiring them to beat the national trends in health care spending and quality. For positive deviants, well-run healthcare organizations who already are trendsetters in cost and quality of care, this is “free money” for the taking. In addition, potential ACOs can chose between two tracks:

1. One-sided track. ACOs share only savings and not losses the first 2 years, followed by sharing in savings and losses their third year.

2. Two-sided track. Share in savings and losses all 3 years, with the opportunity of higher rewards.

These stipulations make it appealing for positive deviant organizations to become ACOs and importantly, they provide an incentive for such organizations to stay below national trends. Consequently, innovation in the management of patients is spurred. One potential game changer is data mining of patient population to track and intervene in the most costly aspects of patient care. Of course, the government is banking on the positive externalities of such actions that will change the environment of healthcare in the U.S. to make it less costly with improved patient care. Aptly put, to whom much is given, much is eventually expected. However, what remains to be seen is whether the practices of these positive deviants can be implemented elsewhere and lead to national cost savings.

The big caveat is that ACOs that cannot retain these savings over time or effectively pool risk will eventually become market losers with the possible result of insolvency. And the path to success in this market is razor thin. It is this huge risk that has kept the tempered health care organizations out of the ACO market. Indeed, if the healthcare reform law is ruled unconstitutional, all this will be a moot point. But amid all this uncertainty lies the simple truth that healthcare is a major reason the U.S is in debt and will continue to crowd out other worthy investments such as education an infrastructure. What hangs in the balance is not just healthcare or even politics, it American way of life. That is quite a big gamble to roll the dice.

Kunmi Sobowale is a medical student.

Submit a guest post and be heard on social media’s leading physician voice.

Comments are moderated before they are published. Please read the comment policy.

  • Anonymous

    I wonder how they will handle weeding out poor performers from the ACO practices. i.e. the poorly controlled diabetic or patients with multiple comorbid conditions who are difficult to care for in 15 min visits. I wonder if we will see an increase in “discharging” of patients from these practices if they don’t meet their benchmarks. How terrible will that be. How will this be handled?

  • Christopher Langston

    I’m a bit concerned that confusing “occupations” for “organizations” in the first line of the second paragraph is indicative of some problems with this post.

    It also seems to me that there is some confusion between the upcoming Medicare ACO demo programs that indeed require 5,000 beneficiaries and have variants with different risk phase ins and commercial (non-Medicare fee-for-service) versions of  ACO “alternative contracts.”  No amount of working with “employers” as suggested in the piece will be of much help to reach the scale of 5,000 attributable fee-for-service Medicare beneficiaries.

  • Anonymous

    Sorry for the egregious typo. Mr. Langston, you are correct that the regulations I mentioned apply to Medicare-funded ACOs. However, the market dynamics of private ACOs is akin to the pioneer ACO model. The motivations are the same. Recently, I talked to one of the senior executives of one of the pioneer ACOs, who relayed to me this very fact.

  • Anonymous

    The author fails to mention that after 3 years, the insurers get to “re-set” the baseline, meaning payments can decrease to providers, allowing less room to find “savings.”  It’s the old HMO failure over again–great savings the first few years, with increased costs occurring later.

    • Anonymous

      I agree that providers will be negatively impacted. Payment cuts to providers is the inevitable truth. However, I don’t think that there will be the same amount of backlash that occurred with HMOs. Partially because many physicians will be incorporated into ACOs. Perhaps, multi-specialty/specialty groups will be able to retain some market power, but whether they can retain patients is another story.

      • Anonymous

        As a primary care doc, I’ll say right now that unless more is done to help out primary care, any proposed “savings”, as things are set up currently, will nearly wipe out primary care and costs in the future will skyrocket even higher.

  • Anonymous

     What are the criteria for selecting a population of patients?  Are they similar for all ACOs?  When was the last time that HMOs were financially in the red?

Most Popular