Trendspotter: ACOs - Wishful Thinking in Healthcare Collides With Reality

November 17, 2010

The AMA’s new policy on accountable care organizations (ACO) will undoubtedly please many physicians, but it doesn’t recognize the reality of the market or of healthcare reform. Once again, it shows how unprepared the leaders of medicine - and many of their followers - are for the massive changes that lie just ahead.

The AMA’s new policy on accountable care organizations (ACO) will undoubtedly please many physicians, but it doesn’t recognize the reality of the market or of healthcare reform. Once again, it shows how unprepared the leaders of medicine - and many of their followers - are for the massive changes that lie just ahead.

The AMA document says that neither doctors nor patients should be required to participate in the ACOs with which Medicare will contract, starting in 2012. But the reform law doesn’t require physicians to participate in an ACO and doesn’t condition their ability to participate in Medicare or Medicaid on belonging to one. And, even if a Medicare patient’s primary-care doctor participates in an ACO, that patient can still see any provider he or she wants to, according to a guidance document from CMS

Only doctors should run ACOs, according to the AMA. I agree that physicians will have to be in charge of care management and coordination. But with regard to who will operate the business side of these enterprises, the law states that ACOs may include group practices, physician networks, partnerships or joint ventures between doctors and hospitals, or hospitals that employ physicians. In the first two scenarios, doctors may run the show and contract with other entities, including hospitals and post-acute care facilities. But if a hospital sponsors an IPA or is a partner in a PHO, that hospital will have a major voice in ACO business operations. Physicians employed by a hospital, likewise, will follow their employer’s lead in an ACO.

As the AMA demands, the Affordable Care Act (ACA) requires that ACOs have a governance mechanism separate from that of healthcare systems that belong to these organizations. But an ACO formed by a hospital will naturally be designed to carry out that facility’s strategy, at least on the financial side.

Before the mid-year AMA meeting that produced the ACO document, the AMA (along with, curiously, America’s Health Insurance Plans) warned the Federal Trade Commission that the government approach to ACOs risks giving healthcare systems too much power. Noting that physician groups and IPAs have shown themselves capable of managing care effectively, the AMA urged the administration “to do everything possible to facilitate participation by all types of provider structures authorized under the ACA, and not inadvertently bias participation in favor of large health systems and hospital-dominated networks.”

The AMA makes a good point. But American medicine is so fragmented that physicians are unlikely to run more than a small fraction of ACOs, either now or a decade from now. About 90 percent of office-based doctors are in practices of ten or fewer physicians, and there are few clinically integrated IPAs or PHOs that have the financial resources or the infrastructure that an ACO requires.

So here’s the reality: Whatever the AMA says, healthcare systems will form most ACOs to take advantage of the Medicare shared savings program and whatever incentives local health plans might offer. At the outset, relatively few hospitals will be able to do so. Many healthcare systems don’t employ enough physicians or don’t have strong physician organizations in their area. And even those that do might not want to make the heavy investment in health IT that will be necessary to build a successful ACO.

Realistically, physicians have some leverage to gain an equal or at least a strong role in these new enterprises. Doctors need hospital capital and organizational ability to form ACOs; but the hospitals need doctors as well, and in most cases, can’t employ all of the clinicians who will be required to manage care across the continuum. So smart physicians will get together - perhaps through their hospital staff structure - and will negotiate with hospitals on the ground rules for building ACOs.

Of course, like physicians, hospitals will want to win as large a share of ACO bonuses and capitation surpluses as possible. But there’s no need to tackle such divisive topics at the start. More potentially fruitful areas of discussion include methods of care management, how clinical guidelines will be chosen, how the hospital will help doctors get EHRs, and how the ACO will be governed. Much later, after the groundwork has been laid for the ACOs and the participants have developed some mutual trust, they can discuss the division of spoils.

The AMA and other medical societies need to recognize that there’s no possibility that physicians are going to run most ACOs. Instead, doctors must cooperate with hospitals to save our healthcare system by being financially and clinically accountable for the care they provide.