Why Accountable Care Organizations Are Failing

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By Richard Amerling, M.D.

Accountable Care Organizations (ACOs), a key piece of the Affordable Care Act (“ObamaCare”) “reform” plan, are failing because they must fail. ACOs are based on faulty assumptions, poor economics, and junk science. They would not exist in a truly free market, and are best viewed as a product of government central planners and crony capitalism.

I first characterized ACOs about a year ago as little more than HMOs with lipstick in response to a report on the poor performance of the 32 pioneer ACOs. Now comes news that three more of the original groups will jump ship, leaving only 19 of the original 32 still on board. A nearly 50 percent attrition rate should be seen as a death knell for the concept, as these were likely the best of the best, and the inducements most generous. Reasonable people would head back to the drawing board. But we are dealing with government bureaucrats, health policy wonks, and administrators. They will damn the torpedoes and push on at flank speed.

What is wrong with the ACO model? Pretty much everything. The idea that an organization with control over health care dollars will be able to improve actual hard outcomes (as opposed to secondary endpoint numbers) is a collective fantasy. Keeping patients healthy and out of hospitals is already the goal of all physicians I know. The only problems we encounter in collaborating are those imposed by federal regulations (HIPAA). The real problem is that outpatient primary care physicians are not paid enough to devote adequate time to patients with complex problems. The ACO does not solve this problem. Rather, it creates financial disincentives to hospitalize patients or to refer for advanced care (similar to HMOs). This will lead to poor outcomes for the sickest patients, and ultimately, higher costs.

Money saved by rationing care (or by improving care; let’s be optimists), will be consumed largely by the considerable administrative infrastructure required of the ACO. This includes hiring even more administrators to track outcomes and costs, installing and maintaining expense electronic health record systems, and training of staff. EHRs have many problems, do not improve productivity, and impinge on the patient-physician relationship, impairing quality of care.

“Quality” benchmarks are numerical targets for blood pressure, blood sugar, cholesterol, etc., determined by various guideline panels, most of which are dominated by industry-supported physicians. This will lead to inappropriate over-treatment in many individuals, with greater expense and worse outcomes over time. For example, aggressive targeting of low blood sugar has been shown to cause weight gain and higher mortality in patients with type 2 diabetes. It’s not a coincidence that Big Pharma heavily supported ObamaCare.

ACOs are based on the assumption that fee-for-service medical practice is responsible for the high cost of medical care. This is demonstrably false. Direct third party payment, spearheaded by Medicare, is the culprit.

And of course, when Uncle Sam is your partner, there is always risk that rules and payment will be changed, sometimes arbitrarily and without warning. As reported in Modern Healthcare, “as ACOs grow more efficient and Medicare adjusts savings targets accordingly, it may also grow increasingly difficult for ACOs everywhere to earn savings.” Furthermore, “Medicare’s ACO programs so far have produced inconsistent results, some of which policy experts and ACO executives have blamed on how Medicare calculates how much ACOs potentially saved the program. Last week, the CMS announced that the initiatives saved Medicare $817 million through 2013. Dozens of participants shared $445 million of that amount, but three-quarters of ACOs saw nothing after failing to do sufficiently well against the financial benchmarks” [emphasis mine]. So, only a handful saw any real profit, and you can be sure Medicare will alter their formula to not allow whatever they consider to be excessive profit.

It is clear that for ACOs to be profitable, they will need to engage in the old HMO practice of cherry-picking healthy patients. Last week I saw a 65-year-old woman with kidney disease on top of severe lung, liver and heart disease. It took more than an hour just to sort through her records and medications. ACOs will go out of their way to avoid recruiting patients such as this. The only hope for such patients is within the traditional fee-for-service system.

Our hope is that this system is allowed to survive.

Richard Amerling, MD is an Associate Professor of Clinical Medicine and a renowned academic nephrologist at the Beth Israel Medical Center in New York City. Dr. Amerling studied medicine at the Catholic University of Louvain in Belgium, graduating cum laude in 1981. He completed a medical residency at the New York Hospital Queens and a nephrology fellowship at the Hospital of the University of Pennsylvania. He has written and lectured extensively on health care issues and is President of the Association of American Physicians and Surgeons. Dr. Amerling is the author of the Physicians’ Declaration of Independence and is a seasoned speaker and on-air contributor.

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