The Accountable Care Fiasco

From: WSJ

The Obama Administration is handing out waivers far and wide for its health-care bill, but behind the scenes the bureaucracy is grinding ahead writing new regulations. The latest example is the rule for Accountable Care Organizations that are supposed to be the crown jewel of cost-saving reform. One problem: The draft rule is so awful that even the models for it say they won’t participate.


The theory for ACOs, as they’re known, is that hospitals, primary-care doctors and specialists will work more efficiently in teams, like at the Mayo Clinic and other top U.S. hospitals. ACOs are meant to fix health care’s too-many-cooks predicament. The average senior on Medicare sees two physicians and five specialists, 13 on average for those with chronic illnesses. Most likely, those doctors aren’t coordinating patient care.

This fragmentation is largely an artifact of Medicare’s price control regime: The classic case study is Duke University Hospital, which cut the costs of treating congestive heart failure by 40% but then dumped the integration program because it lost money under Medicare’s fee schedule.

A patient and doctor at Geisinger Medical Center, one of the physician groups that the ACO rule is based on.
Intelligent liberals now concede this reality but claim that the government merely needs to devise better price controls. By changing the way it pays, Medicare under the ACO rule is effectively mandating a new business model for practicing medicine. The vague cost-control hope is that ACOs will run pilot programs like Duke’s and the successful ones will become best practices. While the program is voluntary for now, the government’s intention is to make it mandatory in the coming years.

But what if they had an ACO revolution and no one showed up? The American Medical Group Association, a trade association of multispeciality practice groups and other integrated providers, calls the rule recently drafted by the Department of Health and Human Services “overly prescriptive, operationally burdensome, and the incentives are too difficult to achieve.” In a survey of its members, 93% said they won’t enroll.

The Administration wrote its rule based on an ACO pilot program that started in 2005 among 10 high-performing physician groups, including Geisinger Health System and Dartmouth-Hitchcock. All 10 say they have “serious reservations” about the new rule and that without major revisions “we will be unable to participate.” In other words, the providers that are already closest to being an ACO have rejected the Administration’s handiwork.

And no wonder, since the 429-page rule is a classic of top-down micromanagement. ACOs will need to comply with a kitchen sink of 65 clinical measures that are meant to produce efficiencies, like reducing infections or ensuring that patients take their medications after hospital discharge. If care at an ACO costs less than Medicare predicts it will cost under the status quo, then the ACO will receive a share of the savings as a bonus payment. The rule also includes financial penalties if an ACO misses its targets.

Incredibly, the ACO teams won’t know in advance which patients they’re supposed to manage. Seniors will be “retrospectively assigned” to an ACO at the end of every year, based on an arbitrary algorithm, for the purposes of calculating costs.

Think about that one: The Geisinger model works because Geisinger patients are treated by Geisinger physicians. Yet this rule is written to ensure that seniors can take “advantage of the full range of benefits to which they are entitled under the Medicare FFS program, including the right to choose between healthcare providers and care settings.” So ACOs are going to transform health care, but individual patients don’t need to be part of the transformation if they don’t feel like it.

Oh, and HHS reserves the right to conduct site visits and audits and “to inspect all books, contracts, records, documents, and other evidence” to ensure that health systems are complying with the ACO rule. The mystery is why even 7% say they’ll participate.

The irony, and maybe the tragedy, is that Paul Ryan’s Medicare reform plan is far more likely to drive more accountable care. Under his proposed premium support payments, seniors would be responsible for the marginal costs of their care, and we suspect most will choose more efficient providers. As these incentives start to change patient behavior and spread throughout the delivery system, the doctors and hospitals that offer a better value for the health dollar will succeed.

This market approach respects the complexity and uncertainty of modern medicine, allowing for local flexibility and gradual change. Government doesn’t know “what works and what doesn’t,” and it can’t. What works will be different for different people and places.


The Obama Administration’s attempt at omniscience delayed the ACO rule for months amid bitter interagency combat. The White House budget office favored more flexibility, but the HHS bureaucracy prevailed in its belief that it can run this brave new world via the Federal Register. ACOs are gaining traction among private health plans in concert with providers, but the regulatory uncertainty is inhibiting the investments and long-term practice decisions required to bring off an ACO—in effect, a Gresham’s regulatory law that is crowding out innovation.

The ACO concept is well-meaning, and we hope it works, but we suspect it will go the way of diagnostic-related groups, HMOs, the sustainable growth rate, and every other top-down government plan to cut health spending since the 1970s. We also hope ACOs work because if they don’t, the liberal fallback to cut costs are harsher price controls and the political rationing of care. Seniors will wish they had Paul Ryan’s choices.

Leave a Response