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ACOs: Wolves in sheep's clothing

December 15th, 2010

by Thomas Dahlborg

I'd like to continue the discussion Dr. Jesse Cole sparked with his recent article, "ACOs are based on flawed assumptions."

To add to the discussion, accountable care organizations remind me of the definition of insanity--doing the same thing over and over again and expecting different results.

Raise your hand if you are familiar with the Harvard Pilgrim Health Care receivership of the late 1990's (a step akin to bankruptcy protection, and one that put the insurer under state control).

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For extra credit, who is also familiar with the financial risk-sharing/revenue sharing model Harvard Pilgrim Health Care had in place around this time period in its agreements with the Physician Hospital Organizations (PHOs) in its network?

Now let's look at a key component of the ACO financial risk-sharing/revenue sharing model.

The ACOs are slated to use risk-adjusted historical Medicare costs in setting medical cost benchmarks. A percentage of savings below the benchmark will be set as a cost-savings target. A percentage of the cost savings below the target will then be shared with the ACOs. And according to CMS: "An ACO will share in savings if program criteria are met but will not incur a payment penalty if savings targets are not achieved."

Now raise your hand if this rings a bell.

For those who still have their hand up...Correct!

The Harvard Pilgrim Health Care joint venture arrangements with its contracted PHOs during the time period leading up to Harvard Pilgrim's receivership included a similar methodology: Shared savings opportunities with the PHOs with no downside risk to the PHO.

So what happened?

The provider organizations quickly realized that the financial incentives were not optimally aligned with working diligently to reduce medical costs with the provider organization's hopes of sharing a percentage of some potential savings.

Rather, the financial incentives were better aligned with the provider organizations continuing to leverage existing and new services, "centers of excellence," expensive procedures, technology, efficiency improvements focused on boosting productivity, and other revenue generating activities aimed at generating productivity-based revenues, as opposed to working diligently to reduce medical costs while improving efficiency.

Again, you see no downside risk and no requirement or true incentive to significantly change existing PHO business practices.

This approach was tried, did not work in the past, and is now being repackaged and tried again as part of the ACO model.

This is a technical fix (based on a flawed model) when what we truly need is an adaptive solution.

It is time for visionary and creative leaders to come together, eliminate ego, have those challenging conversations, break down barriers and focus solely and truly on improving the health of individuals and communities.

Any fix is not better than no fix. The "any" fix can waste time, energy, money and other resources, and can be dangerous. Our communities deserve better.

Thomas H. Dahlborg, M.S.M., is executive director of the physician practice True North Health Center, where he focuses on improving growth while ensuring access for the uninsured and the elderly. He has 21 years of experience creating competitive advantages, analyzing customer expectations, and developing and implementing focused and aligned strategic deployment plans. Formerly he served as the chief business strategy officer at Network Health, a comprehensive Medicaid health plan based in Cambridge, Mass.; and was COO of the U.S. Family Health Plan at Martin's Point Health Care in Portland, Maine.

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