As the debate heats up over how best to control runaway Medicare spending, one provision of Obamacare has received growing attention.  The new law creates accountable care organizations (ACOs) primarily to address fragmentation and rising costs in the health care system, but supporters tout ACOs as a key solution to Medicare’s looming insolvency.  As more details come to light, however, government establishment of ACOs appears to be more difficult than purported.

Writing for The Heritage Foundation, Rita Numerof, Ph.D., explains:

ACOs are merely the latest in a long history of health policy ‘silver bullets.’ Since the 1970s, Congress and successive Administrations have promoted a number of mechanisms to control rising health care costs, including the introduction of Medicare hospital payment formulas based on fixed payments for hospital services (payments for diagnostic related groups of services, or DRGs), as well as health maintenance organizations (HMOs) and preferred provider organizations (PPOs). Costs have continued to rise despite these efforts. At the same time, concerns about fragmentation of care and diminished quality have increased significantly.”

ACOs may be the “silver bullet” du jour, but providers’ responses to the details behind the idea have not been receptive.  A survey the American Medical Group Association conducted of its members showed that more than 90 percent would not participate in the program as proposed.  Furthermore, in a letter to Centers for Medicare and Medicaid Services (CMS) administrator Donald Berwick, ten highly respected provider organizations wrote, “As presently proposed, we ALL have serious reservations about the economics and the complexity of the Medicare Shared Savings Programs/ACO NPRM.”

The concerns are justified.  The program will require participating providers to meet certain quality benchmarks to create savings.  If they provide quality care for less than traditional fee-for-service, ACOs will be eligible for bonus payments.  If not, organizations could find themselves paying penalties instead.  Considering the investment cost to form an ACO in the first place, the cost of participation would pose serious financial risks for providers.

Moreover, that ACOs will bring significant savings to patients or taxpayers is unlikely.  Health policy and budget expert James Capretta writes,

The only way ACOs can work to reduce costs is to become a more integrated and closed network of providers who follow data-driven protocols for care. That means they can’t let their beneficiaries go to see just any specialist. The ACO needs patients to see only the ACO’s preferred list of specialists. But that will be nearly impossible to enforce if beneficiaries never agreed to become part of the managed care environment of an ACO in the first place.”

Under the proposed rules, ACOs won’t be able to take these steps.  Additionally, encouraging providers to band together will give them greater clout over insurance companies, which could actually increase medical costs.  As American Enterprise Institute Scholar Scott Gottlieb, MD, pointed out last Fall,

The Obama team may also release the ACOs from key anti-trust provisions. Medicare recently discussed such exemptions with the Federal Trade Commission, so that an ACO can control all the doctors and health-care facilities in its local marketplace. But these antitrust provisions exist precisely because of fear that a consolidated medical provider could drive up regional health-care costs and/or lower the quality of medical care.”

Finally, any savings in Medicare would be miniscule.  According to CMS, the program would save between $170 and $960 million over the next three years.  Compared to the $1.8 trillion that will be spent on Medicare during that timeframe, this hardly counts as a serious strategy to reduce the program’s cost.

The lukewarm response to the ACO proposal has caused the Obama Administration to consider changesBut Numerof stresses, “past health care initiatives that have relied on organizational structure to address the complex challenge of delivering higher quality at lower costs have not succeeded in improving either efficiency or performance. In fact, they have largely exacerbated the problems they were intended to address.”  To achieve the goals of the ACO program, a different direction must be taken.