Accountable Care Organizations

Today I’m going to focus on Accountable Care Organizations (ACO’s).  This past week, CMS announced their initial rules and regs for ACOs.

Start with the basic:  what is an ACO?  It is an organization to be formed by hospitals, doctors and ancillary service providers to better manage the care of Medicare patients.  Think of the Mayo Clinic among a set of providers without common ownership.  The goal is to actually manage the care of a patient (boy does that sound familiar!!) in order to get the optimal outcome at the lowest cost.  The ACO then shares in a portion of that cost savings.

This is yet another experiment in trying to find out how to insure that patients get the care they need in a system that pays providers for every time they provide care.   The system we have gives every healthcare provider the incentive to provide services, whether needed or not.  The system also gives incentives to get MRIs, use drugs and do a large variety of things that adds profits to someone’s bottom line, but doesn’t necessarily improve and may in fact reduce the quality of health care.

CMS has been trying to figure out why healthcare might cost $10,000 in Minnesota and $25,000 in S. Florida (my made up numbers).  Or why one surgeon can treat 100 patients for $1,000 per patient and another will see the same 100 patients and rack up revenues of $5,000 per patient.

“Managed Care Organizations” were supposed to be the answer, but as we all know that didn’t work.  Capitation payment systems was then supposed to be the answer, and that didn’t work.   Now we will try ACOs.

What are the implications to public companies?  I’m thinking that this is a real opportunity for rural companies in that they are the hospital in town and can coordinate care, and secondly for urban companies with significant amount of capital.  The large hospitals will need to figure out how to participate and some will conclude that selling the hospital to an HCA or Tenet will make more sense than trying to bring capital into an ACO.

There are huge anti-trust problems with this model, and the Justice Dept issued guidelines the same day CMS came out with the regs.  The old adage “where there is the will there is a way” should, in a perfect world, work in this instance.  However, we are dealing with government and a huge amount of politics.  I actually hope this does work.  The savings potential is huge and arguably patients can be getting better care than they receive now.

Time will tell.