NEJM: ACOs don't show quick return on investment

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Although the accountable care organization (ACO) model could generate savings and lead to more coordinated care, many organizations that embrace  the model could lose money in the first three years, according to a perspective published March 23 in the New England Journal of Medicine.

The ACO has been touted as a possible model for restructuring traditional Medicare coverage from volume-based to value-based rewards, wrote Trent T. Haywood, MD, JD, and Keith C. Kosel, PhD, MBA, from the VHA network of healthcare organizations, based in Irving, Texas.

Section 3022 of the Patient Protection & Affordable Care Act requires the Secretary of Health and Human Services (HHS) to establish the Medicare Shared Savings Program by Jan. 1, 2012. “With this rapid movement toward ACOs, one would expect that the previous government demonstration of the model would have produced promising results that warranted its rapid expansion. Our analysis of the results from the demonstration suggests otherwise,” the authors stated.

“The overarching operational framework for the Medicare Shared Savings Program is consistent with design elements found in the Physician Group Practice (PGP) Demonstration of the Centers for Medicare & Medicaid Services (CMS),” they wrote. “Thus, that demonstration should provide insights that can help us anticipate the results of pursuing an ACO model under Medicare.”

CMS conducted the PGP Demonstration from 2005 to 2010, using a hybrid payment model of routine Medicare fee-for-service payments plus the opportunity to earn bonus payments known as shared savings. Eligibility was restricted to a select group of large physician group practices with the requisite experience, infrastructure and financial strength—participants invested $1.7 million, on average, in the first year alone, according to Haywood and Kosel. “Thus, the structure of the demonstration should have resulted in a high likelihood of positive results. Yet, most PGP participants did not break even on their initial investment.”

Using the data from the PGP Demonstration, information contained in the 2008 report of the Government Accountability Office (GAO) and the 2009 HHS Report to Congress, the authors examined the financial characteristics of the 10 participating organizations to evaluate what their experiences might mean for physicians and providers contemplating a transition to ACO. They created a financial model to clarify whether participants in the PGP Demonstration could recover their initial investments.

With a five-year time horizon and a mean investment of $737 per PGP provider, the required margin to break even is 13 percent. However, according to the authors’ analysis, an ACO making the mean initial investment of $1.7 million will require the unlikely margin of 20 percent for the three-year period envisioned by CMS.

Haywood and Kosel cited limitations to their analysis: First, it was limited to the available data, which consisted of the first three years of the demonstration. Second, the participants did not receive provider-feedback reports and bonus payments in a timely manner, which could have negatively affected their ability to perform more effectively and receive greater shared savings.

“These limitations, however, do not significantly alter our overall findings,” they claimed. “In fact, we were very conservative in our analysis, since we did not incorporate the operating costs for the second and third years of the demonstration. If we had included such costs, the projections would have been even worse.”

The authors questioned whether the current ACO model can overcome the fundamental challenges that may limit it to a targeted group of physician practices. “The conceptual underpinnings of the ACO model are laudable. By addressing the payment defect in the current model, policymakers would reward organizations for making the long-term financial commitment necessary to establish and maintain a value-based delivery system,” they concluded.