Health Alert | Deconstructing ACOs

Written by John Goodman


Accountable care organizations (ACOs) are the latest fad. They were even included in the newly passed health reform bill, whose backers expect ACOs to raise the quality and lower the cost of patient care at the same time. Detractors, on the other hand, describe them as "HMOs on steroids." A point-counter-point on the topic is at the Health Affairs Blog.

As is so often true in health policy, the clearest way to think about this topic is to imagine applying the concept to some other good or service. Say automobiles. What would it be like to buy an automobile from an accountable CAR organization?



She'll have fun, fun, fun,
'Til her daddy takes the T-Bird away

For starters, you wouldn't buy the auto yourself. You would turn some of your money over to an entity (employer, insurance company, government, etc.) that would buy the car on your behalf. It would do so by agreeing to pay an auto ACO, say, $X per car and insisting in advance on certain minimum quality standards. For example, the ACO might be required to produce automobiles that:

Oops. Sorry. I was getting carried away there - just thinking about all the possibilities.

Additionally, the buying entity would offer financial rewards for exceeding the quality of standards and financial penalties for falling short. For example, the auto ACO might get $X + 5% if it exceeds the minimum fuel efficiency or exceeds expectations, say, for animal avoidance or child safety.

(Did I forget to mention? The standards, the rewards, the penalties, etc., are not going to be chosen by you.)

So what's not to like about all this?

One problem is that in the very act of listing minimum standards, there will always be a lot of features not on the list (Will the roof hold up if you flip over? What happens if you get hit by an 18 wheeler?), items that may be more important to you than, say, avoiding squirrels. And since $X is a fixed price, the auto ACO will have a strong incentive to skimp on anything that's not measured and not on the list. All the more so, because the ACO gets to keep any money it doesn't spend producing your car.

More importantly, you are not the real customer of the auto ACO. The third-party payer is. The ACO is not trying to meet your needs. It's trying to meet the third-party payer's needs. So if Blue Cross were your car buying intermediary, for example, the auto ACO would not view you as the buyer. It would see Blue Cross as the buyer. The car produced for you would not be a car that you want. It would be a car that Blue Cross wants.

(Oh, and did I forget to mention? Any repairs or maintenance can only be done by your auto ACO. You can't go to some other repair shop.)

Now in moving from autos to health care there is another issue. Although there are some differences in what people want in a car, those differences are narrow compared to the differences in what people need in medical care.

When you are healthy, how your ACO functions may not matter very much. But when you're sick, the fact that the ACO is the agent of Blue Cross instead of your agent may matter a great deal.

More on this in a future Alert.

 John_GoodmanJohn C. Goodman is president and CEO of the National Center for Policy Analysis. The Wall Street Journal and the National Journal, among other publications, have called him the "Father of Health Savings Accounts," and the Media Research Center credits him, along with former Sen. Phil Gramm and columnist Bill Kristol with playing the pivotal role in the defeat of the Clinton Administration's plan to overhaul the U.S. health care system. He is also the Kellye Wright Fellow in health care. The mission of the Wright Fellowship is to promote a more patient-centered, consumer-driven health care system.

Dr. Goodman's health policy blog is the only right-of-center health care blog on the Internet. It is the only place where pro-free enterprise, private sector solutions to health care problems are routinely examined and debated by top health policy experts throughout the country-conservative, moderate and liberal.  

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