NCPA - National Center for Policy Analysis

Accountable Care Organizations Stifle Innovation

February 25, 2011

The Obama administration is pinning its hopes for controlling Medicare costs on accountable care organizations (ACOs) -- a system in which groups of doctors are given responsibility for a large population of patients, with a share of the doctors' reimbursement dependent on their ability to reduce spending and improve clinical outcomes.  ACOs are supposed to offer incentives for doctors to improve the coordination of care.  While this idea is not inherently wrong, the Obama team relies heavily on hospitals to develop these new organizations.  Yet historically, most of the significant innovation in health care delivery has developed in for-profit companies, often started by entrepreneurs,  says Scott Gottlieb, a practicing physician and resident fellow at the American Enterprise Institute.

But entrepreneurs are now exiting the health care services space because the Obama plan tilts the marketplace so heavily against their endeavors.  The Obama team is forced to rely on hospitals as much by default as by design, but many hospitals are unlikely to succeed at running ACOs.

ACOs repeat many of our past mistakes. 

  • For one thing, regulators will likely bar them from competing for more patients in an open marketplace.
  • Yet this is the only incentive that would spur an ACO to innovate and improve its delivery of medical care.
  • In addition, they rely too heavily on existing hospitals rather than attracting private capital to form new, entrepreneurial ventures.

Source: Scott Gottlieb, "Accountable Care Organizations: The End of Innovation in Medicine?" American Enterprise Institute, February 2011.

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