Accountable Care Organizations in California: Market Forces at Work?

Accountable care organizations (ACOs), one of the most recent and promising health care delivery innovations, encourage care coordination among providers. While ACOs hold promise for decreasing costs by reducing unnecessary procedures, improving resource use as a result of economies of scale and scope, ACOs also raise concerns about provider market power. This study examines the market-level competition factors that are associated with ACO participation and the number of ACOs. Using data from California, we find that higher levels of preexisting managed care leads to higher ACO entry and enrollment growth, while hospital concentration leads to fewer ACOs and lower enrollment. We find interesting results for physician market power - markets with concentrated physician markets have a smaller share of individuals in commercial ACOs but a larger number of commercial ACO organizations. This finding implies smaller ACOs in these markets.