Accountable Care Organizations: Straying Further from A Free Market System

Accountable care organizations (ACOs) are federal programs under the Patient Protection and Affordable Care Act (ACA) that incentivize health care providers to reduce costs and improve quality of care.  Theoretically, under the ACO model, physicians coordinate with hospitals to create a large organization that provides streamlined, coordinated care to patients.  The ACO model hopes to provide better quality care while simultaneously lowering costs by providing feedback to the health care providers. By focusing on the needs of patients and linking payments to outcomes, these delivery system reforms hope to help improve the health of individuals and communities while slowing cost growth.

Supporters of the ACO model produce a utopian vision of physicians and other health care providers collaborating with hospitals to provide more coordinated care.  Hospitals, with a large infrastructure and leading technologies like electronic medical records, allow doctors and hospitals to work together to provide high quality care at a lower cost through the elimination of excessive and/or redundant testing and procedures.  In such ACOs, doctors are able to work with one another and alongside each other to see that their patients receive the best care throughout their illness. ACOs will create an environment in which professionals will be able to share opinions and consult one another about the best options for a patients care.

Here’s where the music stops.

These large organizations, carrying clear infrastructural and technological advantages, will likely create monopolies rather than a competitive market.  In a free-market system, suppliers are held accountable for their products and services.  With these large organizations, however, risk, responsibility, and accountability of individual physicians are reduced. In a competitive market, consumers hold the health care providers accountable for the quality of care that they receive.  Accountability is what drives the competition to lower the costs while simultaneously trying to improve quality of care. ACOs will stray further from the free-market system and create monopolies due to a more advanced infrastructure and the reduction of risk and accountability for individual physicians.

A key aspect of an ACO is its performance measurement, which informs consumers and providers of the quality of care being provided.  This aspect was created to make doctors more aware of the quality of their care and about other doctors’ practices that are improving quality.  These performance measurements are also used to inform consumers seeking affordable, high quality care. In theory, these performance measures create a free-market-like system by informing the consumers of the high quality ACOs and allowing them to make their own decision on which provider to choose.  Although performance measurements inform consumers, they are not market-based because they do not allow consumers to make fully informed choices about their coverage and care. The proposed impact of these performance measurements overestimates consumer ability to drive competition.  The arrangements made between employee insurance and providers, which restricts consumers to certain providers actually limits competition.

The performance measurements are also used to incentivize ACOs to improve care while reducing costs.  ACOs receive a portion of their savings if they successfully reduce costs while sustaining or improving its quality measurement.  Creating this incentive hypothetically makes an ACO more aware of the relationship between cost and quality in their practices and can create change if the incentive is great enough. Markets that are truly consumer driven do not need to create artificial incentives to improve quality and performance.

In the free market, competition among a large number of small groups drives quality up and costs down.  Competitors are constantly working to improve their products, attract consumers, and increase market share. Under an ACO the consumer holds little power to make informed decisions on the care they receive, and competition may only diminish as ACOs transform into larger organizations. We have to return to a true market system based with true incentives and consumer choice to provide better quality at lower costs.