The Questionable ROI Of ACOs

Despite the fact that Meaningful Use is both voluntary and a financial loser (you must spend far more than you receive) almost the entire industry has breathlessly pursued its attainment. But when you consistently spend more than you reap, when the ROI just isn’t there, margins shrink. For hospitals with razor thin ones – the average hospital’s operating margin was 4.4 percent in 2009 – that’s a real problem.

Even with such anemic margins, however, many organizations can take a licking and keep on ticking, just like ships absorbing the best a storm has to offer before limping afloat, albeit battered, into port. But just like ships that have been knocked around, it’s the next storm which can constitute a challenge from which there is no recovery.

I started wondering about the capacity of hospitals to withstand continued financial battering after reviewing the AHA’s study on ACO start-up costs. Perhaps not surprisingly – given the tendency of government to underestimate the costs associated with projects it champions, while at the same time overestimating savings – the AHA found ACOs will cost more than the Centers for Medicare and Medicaid Services has stipulated – and not just a little more, but a whole lot more. As such, the AHA is suggesting CMS beef up the carrot side of its ACO equation to spur participation.

For whatever reason, providers have viewed Meaningful Use in a mandatory light, but I don’t think the same dynamic will apply to ACO participation, even if the pot is significantly sweetened. For one, excepting some minor information exchange requirements, a hospital or physician practice can execute Meaningful Use on its own. But getting involved in an ACO is much more collaborative and, for that reason, many will shy away from the entanglements it necessarily creates. Add to this the AHA study which shows the endeavor awash with red ink, and many, for the time being at least, will pass.

But those who are drawn to the ACO paradigm, just as they were Meaningful Use, because it is “the right thing to do,” had better check both their account balances and monthly expenses before signing up – that is, have a nice chat with the CFO. Barring America’s credit card addiction, most of us understand the concept of operating margin when it comes to our households. If we want a new car but the price exceeds our means, we don’t get it, even if it seems “the right thing to do.”

Now, to be sure, there are some household expenses which truly are right, or necessary – think “keeping the lights on” stuff. When these cannot be afforded, the game is up.

When the government launches voluntary programs – which many believe will become compulsory at some point in the near future – they essentially morph from elective to “keeping the lights on.” The only problem is that revenue still has to exceed expenses – margin really does matter.

The bottom line is that you cannot jump into every voluntary government program with a blind eye to its economic impact. The AHA study shows, when it comes to these programs, the government’s grasp of their costs is less than clear. Don’t abdicate the responsibility to ensure your health system stays afloat because, though the religious feel confident God doesn’t give us more than we can handle, I’m not so sure the same goes for government.