The Problem with ACOs: No Incentive for Patients

August 12, 2014

Though more and more accountable care organizations are cropping up across the country, I don't believe they will be effective. Here's why.

By now, you've likely heard and read about accountable care organizations (ACOs). Though the concept of ACOs has certainly gained momentum over the past year, and more and more healthcare systems are forming ACO arrangements, I don't believe they are the best way to improve care quality and reduce care costs.

According to the Medicare website, ACOs "are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds both in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.”

The biggest push now is for accountable care organization contracting by Medicare and insurance companies.  The carrot being offered to participants is a percentage of the “shared savings.” 

While at first look this appears to be a win-win, a simple business example shows why this is not a sustainable approach.

Let’s pretend we have a widget-making factory with 100 employees.  The factory is contracted to produce 100 widgets a month for “X” amount of dollars.  If the factory can do it for less, it keeps the extra profit.  It can design the manufacturing line, it can coordinate supplies, and it can make sure it doesn't duplicate processes. 

The factory does not have the means to provide higher salaries to employees, but it can can suggest they work as hard as possible.  

Ultimately, the factory finds that 34.9 percent of its employees do not assemble the widget correctly, 18.1 percent don’t package it correctly, and 7.1 percent don’t even show up to work. 

As you would expect, this factory would not be very efficient and would not be in business long.

If those percentages look familiar, they should. National data shows these trends for the United States:  obesity is 34.9 percent of the population, smoking is 18.1 percent, and alcoholism is 7.1 percent. 

It is these difficult to change behaviors that lead to these health problems. 

This is not even considering the impact of medication non-compliance, financial challenges, other drug abuse, etc. 

Until patients have an incentive cost wise to adjust these behaviors, we are very limited in changing the outcomes in healthcare.  Healthcare is not a widget factory; it is a business at the end of the day.  ACOs are not the cure to what ails our healthcare system.