AHA Says ACO Costs Far Exceed CMS Estimates

Study Shows High ACO Costs

The start-up investment required to establish and sustain an Accountable Care Organization (ACO) is considerably higher — $11.6 to $26.1 million — than the $1.8 million estimated by CMS in its proposed rule for launch and one year of ongoing operations, according to a study by the American Hospital Association.

Caroline Steinberg, VP of Health Trends Analysis at the AHA, said CMS estimates missed the mark because they were based on the experience of physician group practices which already had many ACO elements in place, such as hospital/doctor relationships. Also, most had EHRs implemented which they leveraged to participate in pay for performance programs. “That is very different from what CMS is trying to accomplish here — to move organizations that are currently operating on a fragmented and episodic basis.”

The study identifies a total of 23 different capabilities that must be developed across four categories to achieve the desired transformation in care delivery:

  • clinical information systems
  • data analytics
  • network development and management
  • care coordination, quality improvement and utilization management

Of these categories, Steinberg said clinical information systems or EHRs constituted the largest cost factor. “Upfront IT investment was the big-ticket item.”

She added that not having an EHR isn’t the only technology challenge. “Probably 80 percent don’t have an EHR, and those that do could be on any number of platforms,” Steinberg said. “There is a lot of investment needed for doctors to get EHRs, then much time and effort is required to get them to talk to each other.”

The information gathered from four case studies was used to create two hypothetical examples to estimate the start-up and ongoing costs of establishing an ACO. The first represents a single free-standing hospital, 80 primary care physicians and 250 specialists. The second example includes a five-hospital (1,200 bed) system, 250 primary care physicians and 500 specialists. The AHA sent a letter to Donald Berwick, CMS administrator, to highlight the findings.

Steinberg said the study was conducted to help the AMA craft an informed comment letter on CMS’s Accountable Care Organization notice of proposed rulemaking (NRPM).

The study was prepared for the AHA by McManis Consulting of Greenwood Village, Colo., and is based on studies of organizations that have already taken steps to manage the care of a defined population in a manner similar to that of an ACO. This work was completed prior to the release of the proposed rule; therefore it does not include estimates of the costs of meeting requirements specific to the Medicare Shared Savings Program. A second white paper addresses the management and strategic issues involved in establishing ACOs.


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  1. Two things about ACOs:

    1) It is not a new idea, it’s a PHO-physician hospital organization, first tried in the 1970s. Or it’s an HMO (without the insurance piece) first tried in the 1980s and early 90s. So now the government calls it an ACO and says IT can help.
    2) Yes, IT can help. But not where it needs the most help. The big barriers to the ACO are not technical, they are political and monetary. Ask yourself, why would a doc (or group of) who is an independent entity work for a hospital?

    The irony here is that it was the Feds, AHA and AMA that created the original wall between doctors and hospitals when they set up Medicare Part A and Part B back in 1966. They even put in financial incentives to have them function separately. Now 50 years later the Feds finally figure out it was not a good financial set-up for the government or payers.

    Unfortunately not even throwing $100 million at the monster they created is not going to entice the independent doctors to jump on board the institution. If you look at what happened in the 1990s when hospitals were buying up physician practices left and right here’s what you see:
    1) Most docs that sold their practices were ready to retire,
    2) When a doc went to work as a hospital-based physician, his/her productivity went down by 50% and the hospital lost its shirt!
    3) And therefore, hospitals sold or dismembered most of the practices they acquired.

    Yet I am a fan of the ACO concept having been a patient not so long ago, and having had relatives suffer thru the incessant lack of care coordination. I just do not think it will get solved without a serious overhaul of the current system, probably requiring some butt-kicking legislation along the way, not at all likely.

    Given that, I surely do not think IT people should venture into this fray, let alone suggest it can be ‘solved’ via more IT.

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