The Economics Of Accountable Care: not a pretty sight

Not many industries spend time thinking about how to shrink their business but that’s exactly what is required if we adopt accountable care. It appears that the consensus of those folks that have started down the path to clinical care reform feel that reductions of 10% to 15% in volume is a reasonable target. This means significant drops in imaging volume, ED visits, and bed days. It also means less revenue and less need for staff.


While primary care physicians would see their business grow dramatically nearly everyone else should begin to think about life in a leaner world.

Of course this decline in utilization will happen gradually over a few years but planners at least need to be aware that this delivery model will have a significant negative impact on some attractive revenue streams. We are, essentially, asking hospitals to invest a substantial amount of money to help develop a delivery model that will hurt them financially. Makes absolute sense!

But what of all the shared savings? ACOs promise to convert lower utilization into revenue. Money that would have been spent will be distributed as incentives. Great concept. Reality? Maybe not.

The first assumption is that utilization will actually be lowered. The financial projections of expected cost will be based on the actuarial projects on the ACO patient population. We question the ability to reliably project those costs on a population as small as 5,000 with folks, especially in the commercial market, enrolling and dis-enrolling from health plans as premiums and plan designs change. We will only have snapshots of historical utilization data on which to predict the future. Medicare data will be much better since individuals are covered for life once enrolled. This means the projected cost assumptions may not be a viable measure of program success but will be used nonetheless.

If we are really able to reduce the cost of care for our ACO population (assumption number two) how long will we receive bonuses based on those historic costs? The ACO is intended to reduce costs so, at some point, our bonus pool may well shrink. We’ll be paid based on the new reality, lower utilization. This means lower revenue.

While the ACO concept may be entirely necessary to sustain our healthcare system it will not be an economic windfall for providers. The ACO model will lower revenue if we are successful and raise costs if we are not. Plan for it.