Accountable Care Organizations and the Affordable Care Act

In an effort to get out from under a “fee-for-service” model in health care delivery, the Affordable Care Act (ACA) calls for programs with different payment methods. The goal is to decrease the growth in health care spending and improve the quality of care being delivered. Physicians, hospitals, and other health care providers are being offered incentives to form networks to coordinate health care and deliver the care in a more efficient and less costly manner. An Accountable Care Organization (ACO) is an example of one of these programs.

An Accountable Care Organization is paid a set amount of money per patient enrolled. Medicare is not billed per procedure. Bonuses will be paid to the ACO if it stays under a predetermined budget; but it will have to pay penalties if it goes over budget.

Accountable Care Organizations are designed to have health care providers and hospitals coordinate care to keep patients from getting so sick as to require hospitalization. It is the hospitalizations that lead to higher costs. The government and other third party payers would pay bonuses to those systems that would keep costs below what would have been spent under the traditional Medicare model.

Unfortunately, in crafting the ACO section of the ACA, the government made requirements which have led to increasing costs and a reduction in patient choices as to health care. These requirements include the need to institute an Electronic Health Record (EHR), track and submit quality measures data, and the ACOs must be at least 75% under the control of providers.

The new overhead costs mandated under the ACA are forcing many private practitioners to give up their practices and become employees of the hospitals. This loss of private practitioners reduces the patient’s choices for providers. In fact, if the provider has to join a hospital or group that is not covered under the patient’s new insurance, they lose the doctor of their choice. So much for being able to keep their provider. With more overhead costs and less choice, it is not surprising that health care costs continue to rise.

By requiring the ACOs to be at least 75% provider controlled, the law assumes that providers would actually be interested in doing this extra administrative work. Unfortunately, most physicians are not subject matter experts in starting complex health care organizations such as ACOs. Also, the needed data acquisition and analysis is beyond the expertise (and interest) of those whose real love is taking care of patients. The data acquisition and analysis is needed to be able to justify care and apply for the bonuses available for those providing high quality and cheaper care. The payers are unlikely to send the checks without the data.

Even if the payers do send bonus checks to the ACOs, how will the bonus money be divided amongst the providers? Hospitals and health care systems are using Relative Value Units (RVU) to measure productivity of the providers. The providers who do more clinical work (generate more income for the system) get more RVUs. This looks like a fee-for-service model with RVUs being substituted for dollars. Is this a “Catch 22” of the ACA whereby those doing the most tests and procedures are, once again, the ones who will generate the most income?

Currently, the physicians who are generating the most RVUs are the ones being rewarded; but those doing the necessary non-clinical work will not be generating the RVUs needed to be eligible for the bonuses. This model is inherently unfair. Unless there will be RVUs associated with administrative work, it is unlikely that physicians will be willing to do the work required in the ACO model; this will lead to a violation of the 75% requirement.

What will happen to the ACO which is not provider controlled under the law’s requirement? There is no case on point yet, but I would not be surprised if this rule is ignored; not an unusual circumstance under this law.

Under ACOs, providers are given financial incentives if they save money. They are to do this by avoiding unnecessary tests and procedures. They are also encouraged to keep a close eye on their patients with syndromes that could be optimally managed as outpatients. Diabetes and congestive heart failure are examples of clinical care models already being studied to improve care and reduce costs. How best to measure cost savings and quality is still being figured out.

Unfortunately, this model only rewards cost cutting. There are no bonuses for providing good care. It is conceivable that ACOs which provide good care but do not reduce costs will be penalized. This has actually happened; Maine’s Beacon Health Network had a high score for patient health but was still fined $2.9 million for going over budget. Another ACO, Banner Health Network, scored lower on quality than Beacon in 2014, but they were paid a bonus of $18 million because they were able to cut costs.

As health care costs continue to rise, and the patient mix continues to be predominately those who need to use health care, the ACOs are struggling. If ACOs are to survive, they will need to “cherry-pick” the healthy patients. Unfortunately, it is the healthy patient population which is holding off from buying health insurance as the premiums and deductibles continue to rise. The individual mandate and community rating makes the delay in purchasing health care insurance a reasonable choice for the patient but a potentially devastating situation for the ACOs.

Many ACOs have withdrawn from the health care market and others are trying to consolidate to minimize costs. In an effort to get economy of scale, some ACOs are trying to merge. In a strange twist, the move to minimize costs by consolidation is now being blocked by government lawyers who are afraid that further consolidation will lead to monopolistic practices.

A proposed merger of Aetna Inc. and Humana Inc. is being blocked by the Justice Department. A federal judge has set December 5th as the date to start trial proceedings. Under the current contractual agreement between the two insurers, if a merger does not occur by December 31st, Humana has an option of walking away and collecting a $1billion fee. This is another rather novel way for insurers to make money. In this case, however, Humana’s gain is Aetna’s loss.

In a similar case, Anthem is trying to acquire Cigna Corp. This case is scheduled to begin on November 21st. If this deal does not close by April 30, 2017, Cigna will be owed a $1.85 billion breakup fee.

ACOs payment policies are evolving. It will take time for health care providers to adjust their mind-set from individual care—doing what’s best for an individual patient—to a population model where the cost of care must be reduced.

As time goes on, it is foreseeable that the government will adjust savings targets which will make it even more difficult for the surviving ACOs to show they are saving on health care spending. Everyone cannot continue to be “above average.”

If the ultimate goal is to have a single party payer, then punishing the surviving ACOs makes sense. When ACOs and other health care delivery models (Co-ops) disappear as is happening, then the government as the main provider of health care funding will be all that’s left. It is no surprise that both President Obama and Hillary Clinton have both planted the seeds for the single government payer.

The President’s Assessment Of The Affordable Care Act

This article originally was posted July 29, 2016 on Huffington Post.

I was recently reading a July issue of the Journal of the American Medical Association (JAMA) when a special communication written by Barack Obama, J.D., caught my eye (JAMA; Published online July 11, 2016). It was the first article I had ever read in a medical journal that was written by a president of the United States. JAMA is a much respected medical journal which usually presents peer-reviewed articles relating to medical research. However, the journal will publish special commentaries written by experts relating to timely medical issues.

At first, I was taken aback by the President writing in a medical journal whose readership was pretty much limited to physicians. It seemed like he was using his “bully pulpit” to try and convince us that the Affordable Care Act (ACA) was well on the way to meeting its goal of increasing the number of people with health insurance, decreasing the costs of health care, and increasing the quality of the care provided. Seeing as there are about 850 thousand practicing physicians in the United States (based on a 2010 analysis of the Federation of State Medical Boards data base), I wondered why he was limiting his audience to such a select few. I then saw several related articles in newspapers and magazines commenting on the President writing an article in a medical journal. It is clear that the claims of the article did reach the general public which was probably the plan to begin with.

The conclusions of the President’s article are that the ACA has lowered the number of people who do not have health insurance, access to health care has improved, financial security for those on Medicaid has improved, and health itself, based on a survey of nonelderly adults, has also improved.

There is no argument that the ACA has lowered the number of people who do not have health insurance. Allowing young adults to stay on their parents insurance policy until they are 26, increasing the number of people eligible for Medicaid, and the individual mandate requiring health insurance or paying a tax (penalty), have all contributed to lowering the number of uninsured from 49 million people in 2010 to 29 million in 2015. Some argue that the improving economy has also had a role in allowing more to afford health insurance, but, clearly, the ACA is helping in this regard.

The claims that access to care and the financial security for those on Medicaid has improved are based on another article in JAMA which presents data on self-reporting telephone surveys in adults aged 18-64 years (JAMA 2015; 314(4):366-74). There is a subjective bias in these types of surveys whereby those in favor of the ACA are more likely to respond. Objective measures such as claims data and health care outcomes would have been more convincing but were not done in this article. All of the authors in the cited article were employees of Health and Human Services (HHS) and HHS reviewed and approved the article before submission. Bias seemed obvious.

Despite the claimed progress that has occurred under the ACA, the President would like to see policy makers (Congress?) take steps to improve the Health Insurance marketplace, increase financial assistance for Marketplace enrollees, reduce prescription drug costs, and institute a public plan option for areas devoid of individual market competition for health insurance plans.

The article reads like a political speech. The President claimed that shortcomings of the law were due to lack of funding, excessive oversight, and relentless litigation by the Republicans. He also took special interests to the woodshed especially the pharmaceutical industry which opposes any change to drug pricing “no matter how justifiable and modest, because they believe it threatens their profits.” Talk about a “straw man”.

In the article, the President asks Congress to give the federal government the authority to negotiate prices for certain high-priced drugs. There is no law that I am aware of that would prevent this negotiation from happening right now. I think what the President really wants is to regulate what pharmaceutical companies can charge. He also wants the Congress to keep the Independent Payment Advisory Board (IPAB) from any type of legislative review. The role of the IPAB is to determine what and how much Medicare and Medicaid will pay for. The last I checked, we have a free market economy where suppliers of a product are allowed to charge what the market will bear. Competition in the market place, not the government, is the best way control costs.

As an academic surgeon, I was also bothered by the fact that this opinion piece failed to properly acknowledge those who were involved in the research upon which the article relied. Usually, these people are named as co-authors. Instead, they are named in a small paragraph just before the reference section. All were employees of the Executive Office of the President and there were no physicians in the group. Again, bias was obvious.

The Affordable Care Act is failing. Some insurance companies are bailing out as they are experiencing financial losses. Some larger companies are trying to merge but are being blocked by the government who are afraid of monopolistic practices. Healthy people are not participating in the numbers expected since the tax penalties of abiding by the individual mandate are less than the insurance premiums and copays and there is no penalty for waiting until the need for insurance arises (community rating). Two thirds of the Obamacare Co-ops have withdrawn and two more are threatening to leave. They could not continue to sustain financial losses while still meeting their obligations to their policy holders.

The Public Plan option raised in the President’s article is really just a single payer system. The plan was mentioned deep in the article and stated that Congress should consider it for those facing limited insurance market competition. As insurance companies bail out of this market, more people could become eligible for this option. Maybe that’s what the President wanted all along. Socialized medicine has been tried in other countries; it usually results in a two tiered system. Those who can afford to pay will be able to get timely and high quality care. Those who cannot afford to pay will be put on a waiting list and the care provided will be regulated by the government. I cannot be convinced that the government will be better at taking care of my patients than I am.

As with most medical journals, the authors and contributors have to disclose any conflicts of interest so the readers will have this information as they read the article. For this article, the conflict of interest disclosure sends the reader to a website:

This brings you to President Obama’s financial disclosure report; nothing is said about the other contributors.

Lawyers are trained to present the evidence that is most favorable for their client’s position. President Obama is a graduate of Harvard Law School. The jury is still out.



by Darryl S. Weiman, M.D., J.D.

Professor, Cardiothoracic Surgery, University of Tennessee Health Science Center and Chief of Surgery, VAMC Memphis, TN

MORE ABOUT THE AUTHOR: Darryl Weiman is a featured expert in on February 17, 2016.