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ACOs: Danger lurks in health-care reform

Not many people outside of the health care world know what an Accountable Care Organization (ACO) is, or what it is supposed to do.  Frankly, most health care insiders don’t know what an ACO is.  The fact is that ACOs are an amorphous attempt to change the way health care is delivered and paid for and its implications are massive.

At its core the ACO law seeks to drive down Medicare Part A (Hospitals) costs by sharing the savings achieved with doctors.  How those savings are to be achieved and how the money flows was left largely undefined.  The definition of an ACO was left fairly vague, leaving that work of clarifying what an ACO actually is to the Secretary of Health and Human Services.  

As a result of the passage of health reform, there has been a stampede to create ACOs primarily on the part of hospitals.  There is some logic to the stampede.  At least if you are a hospital administrator.

It has to be a frightening thought to many hospitals to have the doctors in their communities aligned and incentivized to drive down hospital costs.  That could be very bad for the hospitals’ bottom line.  This fear and the desire to be at the head of the ACO parade, has led many hospitals to begin trying to form an ACO, or at least form what they think will end up being defined as an ACO.  This could have severe consequences in the California marketplace and is something that should draw the scrutiny of lawmakers.  

Many hospitals that are trying to develop ACOs are using a small piece of California law in an attempt to consolidate the hospital-physician marketplace.  Health and Safety Code Section 1206(l) was originally written in 1980 to exempt two clinics, in Santa Barbara and Palo Alto, from California’s licensure laws in return for those clinics providing a direct benefit to the communities that they serve through medical research and health education.  These entities are commonly referred to as medical foundations.

The law has certainly traveled far from its origins, with many new enterprising medical foundations popping up around the state.  Some hospitals are now using this section of law as a way to consolidate physician practices under tax-exempt umbrella organizations, that often deliver little in terms of research and education to the communities in which they operate.  In practice many medical foundations, particularly those that are being hastily created, are not being developed for the benefit of communities, but rather for the benefit of the hospitals’ bottom line.  In fact, by moving entities into tax exempt status, there is a real question about whether taxpayers are getting an adequate return on their investment.

Does all of this mean that medical foundations and ACOs are inherently bad?  Not at all, but they must be done right and for the right reasons.  ACOs and medical foundations should adhere to some basic core principals if they are to be successful, viable and to the ultimate benefit of the patients they should serve. The California Medical Association is currently developing a set of criteria that we believe is necessary to ensure that patients accrue real benefit from ACOs and medical foundations.  

At minimum, ACOs should be community-based and patient-centric.  The physicians, the hospital, and the governing board should be based in the community that they serve and strive to meet the demands of the patients that are also their neighbors.  ACOs should reflect the communities they serve and be attentive to their needs.  The savings and revenues of an ACO should be retained for patient services and reinvested in the ACO and in the community.  ACOs should not be profit-centric or result in monopolistic control over the delivery of services, but rather they should foster an environment that allows doctors to collaborate in order to deliver high-quality, cost-effective care.

The issue facing policy makers and health care leaders in California is whether these changes will benefit patients and communities or not.  There is a very real danger that by the time policy makers get around to reading and understanding this section of law that the health care marketplace will have irreversibly changed.  It may very well be a highly consolidated market with health care decisions being made far from the communities in which services are being delivered.  If that comes to pass, health care costs will rise and quality will fall.  That would certainly be a disservice to California.


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