Are Accountable Care Organizations a Silver Lining to Obamacare?

For critics, Obamacare has no silver linings. Yet silver linings may indeed exist with the Affordable Care Act (aka Obamacare) and one development that merits watching is the Accountable Care Organization. Within the context of Obamacare, ACO’s are collaborations of healthcare providers who provide high quality care to Medicare populations. The goal of the ACO is ensuring that patients, especially the chronically ill, get the right care at the right time, while preventing medical errors and avoiding unnecessary duplication of service. For decades now, health experts have recognized that the traditional healthcare system can foster uncoordinated care that, at a minimum, leads to costly unnecessary medical care and, at its worst, can lead to medical errors that adversely affect outcomes for patients.

The idea of coordinating care that underlies ACO’s is hardly new. Kaiser Permanente, Group Health Cooperative (Seattle), and Kelsey-Seybold Clinic (Houston) and dozens of other organizations around the country have been successfully operating coordinated health delivery models for decades, some as far back as the 1940s. By design, Obamacare is attempting to expand the presence of coordinated delivery care models in the marketplace through financial incentives. For ACOs who succeed in both delivering high-quality care and spending health care dollars more wisely, the Federal government will allow them to share in the savings they achieve for the Medicare program. There are 3 incentive programs available to interested ACO’s: (1) the Medicare Shared Savings Program - a program that helps a Medicare fee-for-service program providers become an ACO; (2) the Advance Payment ACO Model - a supplementary incentive program for selected participants in the Shared Savings Program; and (3) the Pioneer ACO Model - a program (which is no longer accepting applications) designed for early adopters of coordinated care.

Provider interest in these incentive programs is self-evident. Since becoming operational in 2012, enrollment in these programs has grown to more than 360 Accountable Care Organizations serving almost 5.3 million Medicare beneficiaries. Moreover, in January the Centers for Medicare & Medicaid Services (CMS) released findings on a number of its initiatives and the interim results for its ACO initiatives were encouraging. Savings from both the Medicare ACOs and Pioneer ACOs topped $380 million. To be sure, it is still too early to judge if these programs will continue to yield positive results much less improve upon them. Savings of $380 million is better than nothing, but it amounts to a tiny drop in the $600 billion per year spending bucket that is Medicare. And that spending bucket is on a trajectory to grow to $1.1 trillion in 2023 with continued growth in the Medicare population and sustained health cost inflation.

The advancement of ACO’s is a good thing for patients in our estimation. Research on integrated healthcare delivery systems does indicate that coordinating care has a positive effect on the quality of care provided to patients. That same research does not, however, show solid evidence that costs are materially reduced through better coordination of care. Nevertheless, we expect that as time goes by cost advantages from coordinating care will become more apparent and broader trends in the healthcare marketplace will increasingly benefit the coordinated care principles of ACO’s. Even before the passage of Obamacare, there has been a discernible trend toward shifting more of the healthcare cost burden to individuals. Obamacare has only accelerated this trend. As this cost shifting trend continues to evolve, we expect healthcare consumers to become increasingly price sensitive. In this very possible future healthcare marketplace, market forces will likely favor more efficient providers who are better positioned for price competition. Accountable Care Organizations, most of whom are investing heavily in the information systems infrastructure needed to support coordinating care, could win big in the future healthcare marketplace. That same information systems infrastructure will give ACOs a leg up on the efficiency front and put them in a strong position from which to compete on price in the future healthcare marketplace.

So are ACO’s a silver lining to Obamacare? We are not inclined to jump to that conclusion just yet. However, we do think that certain market trends being accelerated by Obamacare could mean that Obamacare has a silver lining in it for ACO’s.