Why ACOs Still Won't Deliver Better Healthcare at Lower Cost
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In recent weeks, early reporting data from Advocate Health Care's accountable care organization (ACO) has reignited discussion about the sustainability and scalability of the ACO model. This is especially noteworthy since ACO advocates are touting the 2% savings Advocate's ACO has achieved. Unfortunately, most of the discussion so far has focused on the obvious issues, like upfront infrastructure investments and concerns about the fact that patients aren't required to stay within the ACO. But these concerns barely scratch the surface of the issues surrounding ACOs.

Let me put what I see as the real problem with ACOs in context. The goal of ACOs -- getting to better healthcare at lower cost -- is laudable. But the means are fundamentally flawed.

I've been an advocate for healthcare reform in this country for many years... moving to a market-based system that centers on the consumer and reflects transparency in cost and quality while connecting payment with outcomes. The means to do this are there. My firm has identified about $500 billion in unnecessary care, in cost due to medication errors, and in cost due to poor care coordination. Add to that the estimated $250 billion in fraud and abuse, and you have a substantial amount of money in our healthcare system that could be redeployed. That's more than enough to provide coverage for those that can't afford it.

With the Patient Protection and Affordable Care Act (PPACA), there were really 3 goals: insurance reform, delivery reform, and payment reform. So when I read the legislation and saw the 9 pages describing the ACO, I thought, "This is not going to work." It flies in the face of everything we know about organizational design and human behavior. And to make matters worse, it's an overlay on the existing fee-for-service model.

Theoretically, the idea of combining all providers across the continuum of care under one umbrella sounds good. But if you've ever worked at a large company, you know that having everyone nominally working for a single organization doesn't mean that everyone is aligned, and it doesn't mean that you won't have silos. And as designed, the ACO model is very complex, and it's very difficult to implement. It creates a bureaucratic overly on a broken system.

So that 2% that Advocate has saved? They've got a lot further to go to get to $750 billion.

Accountable care is needed. But as I've argued consistently, ACOs are not. So the obvious question becomes, what will get us to better health outcomes at lower cost?

Imagine an alternative where primary care physicians are able to take time to diagnose patients and help them make better choices for their own health. Insurers incent beneficiaries financially to make better health choices. Employers create financial incentives to make good decisions about health. Physicians make information about cost and outcomes available, like in any other industry. It's a fundamentally different approach -- one that is market-based and patient-centered, not organization-centered.

Consider the example of Lasik and cosmetic dermatology. When the technology was first developed, it was very expensive. But in the years since, the costs have gone down while quality has improved -- like in any other industry. Years later, many more people are able to take advantage of these services. And they pay for them differently -- it's a bundled price for a whole procedure, instead of paying separately for every minute detail.

The only way to get costs under control is by changing payment. Providers need to have incentives to keep patients out of the hospital. We're starting to see some signs of that already -- outside of the PPACA legislation -- in CMS's refusal to reimburse "never" events. Ironically, CMS already had the administrative authority to do this and didn't need PPACA.

In the end, it's all about payment for outcomes and putting the consumer at the center. The ACO model fails to do this.

One of the most disappointing things about the recent commentary is that while some questions have been raised about sustainability and scalability, what's largely been absent from the debate are questions about ACOs' viability. ACOs will fail to improve healthcare costs and quality because they take a fundamentally broken system and create a complex bureaucratic overlay, making an already complicated system even more complex. And each layer of complexity will only add cost, decrease efficiency, and reduce transparency.

The answer isn't a new, complex organizational model, but rather greater transparency and greater accountability for costs and outcomes. Creating incentives that focus on achieving quality outcomes, providing choice and allowing real competition will get us there -- ACOs won't.

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