The HMO in Your Future

I have not been able to determine how you pronounce the acronym for Accountable Care Organization (ACO). Is it ā´ ko? Or ā´ so? Or ăh so´, as in Charlie Chan movies? What about ĕ´ ko, as in a canyon? Or simply ick, with a silent o?

Anyway, this is not a trivial matter because you are likely to be in an ACO at some point in the future and it’s probably going to happen sooner than you think.

In Massachusetts, stakeholders are already meeting to develop a plan to push everyone with commercial insurance into an ACO. [Can you guess who doesn’t count as a “stakeholder?” If you live in Massachusetts and you weren’t invited to the meeting, that’s a clue.] Nationwide, Medicare will start paying fees to ACOs, beginning next year. Eventually, the Obama administration would like to see everyone in an ACO.

But if no one had any previous interest in forming ACOs, let alone joining them, what is going to cause us all to change our minds? Money. Insurers won’t be able to get premium increases unless they adopt ACO plans. Doctors and hospitals will be paid less if they don’t join. Eventually doctors will find they are ineligible to treat Medicare patients or patients insured in the newly-created health insurance exchanges if they are not practicing in ACOs. As for the patients, there won’t be any plans to join other than ACO plans.

Oh, and did I forget to mention it? Eventually ACOs will almost certainly have global budgets — a fixed sum of money, used to meet enrollees’ medical needs. If all needs can’t be met with that sum, they will have to be prioritized. At this blog we don’t shy away from the “R” word (rationing). We do tend to avoid the “D_____ P_____” term, however. We call it “end-of-life counseling.”

I don’t know any advocates of ACOs who are not also advocates of global budgets. See if your experience is the same as mine. Why is that important to know? Because that is the most important thing ACOs are about.

ACOs are sometimes said to be the brain child of Elliott Fisher, who heads the Dartmouth Atlas Project. But as Uwe Reinhardt pointed out the other day, the idea is actually an old idea. It’s called Kaiser Permanente.

ACOs have been called “HMOs on steroids.” They will have capitated payments and, like the traditional HMO, the ACO will get to keep any money it doesn’t spend. But the organization will also incorporate all the latest fads in health policy: electronic medical records (EMRs), pay-for-performance (P4P) incentives, quality report cards, etc.

The results from the few demonstration projects with ACOs are lackluster and mixed. But that doesn’t seem to matter to the Obama administration. Medicare will start contracting with ACOs beginning next year.

If that doesn’t strike you as strange, you need to know that “evidence-based medicine” is one of the buzz words among policy wonks these days and is supposed to be the foundation for ACO management. But if that’s a good idea for doctors, isn’t it equally good for policymakers? If we abided by evidence-based policy, would we put all of our marbles in the ACO basket? Basically no.

The latest comprehensive review of all the studies of report cards and other quality-measuring-and-reporting techniques finds they don’t work and may do more harm than good. Just as teachers will “teach to the test” if test results are how they are graded and rewarded, doctors will tend to “practice medicine to the test” if that is how they are paid. If you’re the patient, that may not be good for you. The latest comprehensive review of all the studies of electronic medical records finds they do not live up to their promises. And the most recent study of pay-for-performance from Britain finds that it doesn’t work either.

What about Kaiser? Its integrated medical records system is impressive and Kaiser is also promoting e-mail and telephone consultations. On the other hand, Harvard Business School professor Regina Herzlinger has taken the organization to task for letting people die.

But let’s give Kaiser the benefit of the doubt for the moment. The real question is not: how well does Kaiser perform? There are lots of centers of excellence around the country: Cleveland Clinic, Mayo Clinic, Intermountain Healthcare. The real question is: can the performance be replicated?

There is no law against ACOs (other than Stark restrictions that limit flexibility). So if ACOs can reduce costs and raise quality, why don’t we see them everywhere?

As it turns out, when Kaiser tried to replicate in Dallas what it does in Palo Alto, it failed. This isn’t surprising. If high-quality, low-cost medicine were easy to replicate we wouldn’t be having all the problems we are having.

When health policy experts associated with the Brookings Institution studied the “best” hospital regions around the country, they found few objective (replicable) characteristics. Some had doctors on staff. Some paid fee-for-service. Some had electronic medical records. Some did not. A separate study of high-performing doctor groups found much the same thing.

Evidence-based policy would admit ignorance about what works and why, and would let a thousand flowers bloom. It would pay more for low-cost, high-quality care, regardless of how it is achieved. We have previously suggested ways of doing that.

By contrast, the non-evidence based approach of the Obama administration will force everybody into the same model. As Scott Gottlieb has pointed out, this approach not only will stifle innovation and entrepreneurship, it is already causing venture capital to leave the health care market completely.

So how do we explain the administration’s commitment to ACOs? Whether they raise or lower costs, whether they raise or lower quality, there is one thing that ACOs will indisputably accomplish. They will drive doctors into organizations where their behavior can be controlled. For the first time in our history, both the practice of medicine and the way money is spent on medical care will fall under federal control.

ACOs are the portal through which we will all march toward a truly nationalized health care system.

This post first appeared at Health Policy Blog.

John C. Goodman, PhD, is president and CEO of the National Center for Policy Analysis. He is also the Kellye Wright Fellow in health care. His Health Policy Blog is considered among the top conservative health care blogs where health care problems are discussed by top health policy experts from all sides of the political spectrum.

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large new green japaneseBob DeVitaAl LewisCan Obama Fix the Affordable Care Act? - American Community HealthThe HMO in Your Future | LifeStyleEasy Recent comment authors
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Your web site offered us with valuable info to work on. You have done an impressive process and our entire neighborhood might be thankful to you.

Bob DeVita
Bob DeVita

Mr. Goodman cites “fads” such as the Electronic Medical Record. As one of the executive sponsors of the first fully scaled up E.MR in the nation [at Marshfield Clinic in Wisconsin], I can assure you…this is no fad. Oh, and my son is a PG1 IM resident who has used an E.MR since his first year of med school. Decades of use by hundreds of Clinic physicians, and years of use by med students and residents is producing a sea change in medical practice that takes us forward. Imagine,….the paper record ??? No way.

Al Lewis

Nice exposition! The vexing thing about healthcare policy is the innate assumption that there is an 80-20 rule — make one major stab and a major issue and you’ll solve the problem and dramatically reduce the growth of healthcare spending while improving quality. In healthcare policy, however, the 80-20 rule is that 80% of the time there is no 80-20 rule. ACOs are a perfect example. They may indeed have a minor positive impact especially on EOL care, but little else should be expected of them. Seems like a lot of administrative burden for a very small return.


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Margalit Gur-Arie

ACO is pronounced Aitch….Em…..Oh….., a.k.a. Managed Care. If you liked them in the nineties, you will love them now.

Will they save us money? I don’t know. Does Kaiser have cheaper premiums?
Better care? Maybe. Kaiser says that they do provide better care.
Better than nothing? Sure.

Nate Ogden
Nate Ogden

“So how do we explain the administration’s commitment to ACOs?” Its the same commitment the left has been showing since 1973 and the HMO act, even before then. Congress always loved the idea of HMOs because they solved all their problems. 1. Regualting thousands of insurance companis and tens of thousands of self funded plans is impossible. Regualting a few hundred federally licenses HMOs/ACOs is pretty easy. Let them consolidate to a few dozen even better. 2. No one wants to ration care, don’t take that to mean they don’t want care rationed Congress just doesn’t want their name on… Read more »


Mr. Goodman is good at pervert incentives investigation, so I am disappointed his article did not investigate same in ACOs.

ACO’s are good concept but we need to know incentive structure and upper limits and controls to determine how it will behave.


Well, Matthew, it’s rather easy to take issue with some of it, e.g., his neat-o SCOTUS-reminiscent “definition-of-obscenity” take on clinical “quality” – “Evidence-based policy would admit ignorance about what works and why” “what works” = “quality.” Hel-LO? “let a thousand flowers bloom. It would pay more for low-cost, high-quality care” Oh, OK, I guess we’ll “know it when we see it.” But, ONLY if it comes out of the free-market for-profit sector. Now, of course, part of the problem has been the proprietary silo’ing of outcomes data. How do we change that? We are rather running out of time. We’re… Read more »

Matthew Holt

Hard to disagree with John on this. The only issue is that his vision of the ACO/HMO nightmare will be a massive improvement on what we have now–not to mention better for most patients and the economy than his HSA fantasy alternate.

But that’s because what we have now sucks! Or as Paul Grundy said at a recent IOM meeting I was at “the system has been selling us shit”


None of this is exactly news… EINER ELHAUGE’S 1994 ARTICLE A few pertinent snips from the lengthy “Allocating Health Care Morally” – Health Law policy suffers from an identifiable pathology. The pathology is not that it employs four different paradigms for how decisions to allocate resources should be made: the market paradigm, the professional paradigm, the moral paradigm, and the political paradigm. The pathology is that, rather than coordinate these decision-making paradigms, health law policy and employs them inconsistently, such that the combination operates at cross purposes. This inconsistency results in part because, intellectually, healthcare law borrows haphazardly from other… Read more »


“If we abided by evidence-based policy, would we put all of our marbles in the ACO basket? Basically no.”

Straw Man 101.