Tuesday, March 4, 2014

Can Anybody Win the ACO Game?

Suppose you invented a game that ultimately, nobody could win. Do you think it would be popular? I don't. Game players get frustrated at losing. Either they give up or they try to get better, but eventually, if their improvement doesn't lead to some more wins, they stop playing the game.

I know that accountable care organizations (ACOs) are not a game. For the uninitiated, they are healthcare organizations that choose to operate under a model in which they are rewarded for meeting metrics related to quality of care and total cost of care (TCC). Under the Affordable Care Act (ACA), those reimbursements are tied significantly to an ACO's trend in TCC being meaningfully less than the norm.

That sounds like a really good idea, in theory. The system is providing an incentive (no, I will not say it is incentivizing) to ACOs to reduce medical inflation. For an ACO to do that, however, costs money. The ACO will likely have to add to its infrastructure both from the standpoints of technology and people. Each has a cost.

Simply put then, the game is won when reimbursements (incentive payments) exceed the essentially required investment in the business. The game is lost when the converse is true.

I think we can establish that each of these points is almost necessarily true:

  1. Each ACO will try to reduce its own contribution to medical inflation.
  2. There are practical limits to how much that medical inflation can be reduced.
  3. When many organizations are simultaneously working to control TCC, the average increase in TCC will come down.
  4. If 2. and 3. above are true, then it will become virtually impossible to achieve the financial goals necessary to have reimbursements large enough that an ACO gets a positive return on their investment (ROI).
You don't agree with the fourth point:? Think about it. If the target TCC increase gets low enough (because the average does) and a particular ACO has already gotten to the asymptotic point of its efficiency, then they have likely reached the point where they cannot win anymore. Because the competition had enough room to improve and that one ACO had reached the point where it didn't have enough room for improvement, it will have lost its chance to win (at least for a while).

There are presumably good things that will happen out of this model. Notice that the game breaks down because each organization is striving to reduce TCC. That's a good thing. But, at some point, ACOs that can no longer win may just stop playing the game. When they do that, what will happen to their TCC?

Can anybody win the game?

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