NCPA - National Center for Policy Analysis

Deconstructing the Latest Health Care Fad: Accountable Care Organizations

October 1, 2010

Backers expect Accountable Care Organizations (ACOs) to raise the quality and lower the cost of patient care simultaneously.  Detractors, on the other hand, describe them as "HMOs on steroids."  What's the truth? asks John C. Goodman, president, CEO and Kellye Wright Fellow with the National Center for Policy Analysis.

As is so often the case, the clearest way to think about this topic is to imagine applying the concept to some other good or service.  Consider automobiles:  What would it be like to buy an automobile from an ACO?

  • For starters, you wouldn't buy the car yourself -- you would turn some of your money over to an entity (employer, insurance company, government, etc.) that would buy the car on your behalf.
  • It would do so by agreeing to pay an auto ACO a fixed price per car and requiring certain minimum quality standards.
  • Additionally, the buying entity would offer financial rewards for exceeding specific quality standards and financial penalties for falling short.
  • For example, the auto ACO might get a 5 percent bonus if it exceeds the minimum fuel efficiency or expectations for child safety.

One problem is that in the very act of listing minimum standards, there will always be a lot of features not on the list, says Goodman.  Such items may be more important to you than others, but you'll have no choice.  And since the price is fixed, the auto ACO will have a strong incentive to skimp on anything that's not on the list, especially because the ACO gets to keep any money it doesn't spend producing your car.

More importantly, you are not the real customer of the auto ACO.  The third-party payer is.

Finally, any repairs or maintenance could only be done by your auto ACO -- you couldn't go to some other repair shop.

Moving from autos to health care, when you are healthy, how your ACO functions may not matter very much.  But when you're sick, the fact that the ACO is the agent of Blue Cross instead of your agent may matter a great deal, says Goodman.

Source: John C. Goodman, "Deconstructing the Latest Health Care Fad: Accountable Care Organizations," Heartland Institute, September 30, 2010.


Browse more articles on Health Issues