Ed Berger on if it too soon to judge the effectiveness of Accountable Care Organizations?

November 6, 2012

The Accountable Care Organization experiment has barely begun. While ACOs share many of the characteristics of the staff-model HMOs (like Kaiser Permanente in California and Harvard Community Health Plan in Massachusetts) that emerged in the 1970s, the current model can be traced back to demonstration projects authorized in the 2003 Medicare Prescription Drug, Improvement and Modernization Act. Guidelines for ACO participation in the Patient Protection and Affordable Care Act’s (ObamaCare’s) Medicare Shared Savings Program were published in March of 2011, and the first formal three year Medicare ACO contracts were announced in April of this year. An additional 89 ACOs were announced in July.

Nonetheless, we are already seeing a rush to judgment, purportedly based upon research findings, as to whether ACOs will be successful in reducing health care costs. A case in point: on Oct. 8, 2012, the first story in the FierceHealthcare daily email newsletter was headlined “ACOs produce little healthcare savings”. Leading with the evaluative comment that “It’s disappointing news for the architects and participants of accountable care, hoping that the alternative payment model would curb healthcare spending,” the newsletter’s report was a gloss on a on medpagetoday of a narrow and highly technical simulation study published in Health Affairs.

What does the study in Health Affairs actually show? The simulation was limited to diabetes care only, and reports the results of running very large quantities of historical data on both cost of care and quality of care – data of necessity generated in organizations that are not ACOs – through a program that is designed to explore the links between the two critical variables of cost and quality. The authors conclude that quality improvement of 10% will yield cost savings of only 1%. They add that “To achieve greater savings, accountable care organizations will have to lower costs by other means, such as through improved use of information technology and care coordination.”

There is some legitimate academic and potentially operational value in this exercise, but it isn’t “disappointing news for …ACOs.” It is no news at all. No one who has thought about the problem for more than 10 minutes has ever believed that ACOs will “bend the cost curve” simply by improving quality of care.

The logic of the PPACA’s approach to health care cost control depends very much on implementation of three enabling innovations: the utilization of electronic medical records (EMRs); the development, refinement and broad dissemination of empirical information about the most effective clinical use of diagnostic and therapeutic options (comparative effectiveness research); and the replacement of the fee-for-service payment model with alternatives that simultaneously reward both efficient use of resources and improved quality outcomes. The ACO contracting model addresses provider incentives and is therefore critical, but it cannot achieve substantial cost savings without: EMRs that provide a comprehensive real-time picture of the patient’s individual characteristics, history and condition to all members of a coordinated team of caregivers; and an easily accessible and clinically sophisticated library of information about the appropriate utilization and relative effectiveness of diagnostic and therapeutic options for the individual patient.

We can’t yet judge the cost containment success of the ACO model, or even the quality improvement success, because all three essential innovations are in their infancy. EMRs are becoming widespread, but their potential for coordinating care, improving quality, avoiding duplication, and evaluating care protocols remains largely untapped. Providers need to learn to exploit the potential benefits of this still very new information resource. Comparative effectiveness research is only beginning in a systematic fashion, and the tools for extracting and applying CER findings to guide individual clinical decisions are still being developed. IBM’s Watson healthcare application is an example of an extraordinarily exciting initiative that remains almost purely potential. And providers within the new ACOs need to accept and act on a new culture of care giving – no quick and easy task, even for the willing. The task is made more difficult by the fact that most ACO caregivers will continue to see fee-for-service patients as well. They can’t, and won’t, apply different caregiving models to different subsets of patients. One model will predominate until it is replaced; where the tipping point will be – what percent of a practice must be within the ACO before that model’s incentives become controlling – is an unknown that will determine one important variable in the success equation for the early ACOs. To see this post and others by Ed Berger please visit http://www.massdevice.com/blogs/edward-berger.


Dr. Edward Berger, has more than 25 years of experience working in senior management or as a consultant with medical device, biotechnology and health services companies, dealing with problems at the intersection of U.S.and international health care policy, corporate strategy development, and strategically sensitive corporate communications with government, investors and the media. He is the founder and principal of Larchmont Strategic Advisors which helps life sciences companies create and implement integrated strategies to address the many policy and regulatory obstacles and opportunities they face in their efforts to secure public and private insurer coverage and optimal reimbursement for new or evolving technologies. To learn more about Larchmont Strategic Advisors please visit http://larchmontstrategic.com/.


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