The Economics of Medicare Accountable Care Organizations

Accountable care organizations (ACOs) have been created to improve patient care, enhance population health, and reduce costs. Medicare in particular has focused on ACOs as a primary device to improve quality and reduce costs.

To examine whether the current Medicare ACOs are likely to be successful.

Patients receiving care in ACOs have little incentive to use low-cost quality providers. Furthermore, the start-up costs of ACOs for providers are high, contributing to the minimal financial success of ACOs. We review issues such as reducing readmissions, palliative care, and the difficulty in coordinating care, which are major cost drivers. There are mixed incentives facing hospital-controlled ACOs, whereas physician-controlled ACOs could play hospitals against each other to obtain high quality and cost reductions. This discussion also considers whether the current structure of ACOs is likely to be successful.

The question remains whether Medicare ACOs can achieve the Triple Aim of "improving the experience of care, improving the health of populations, and reducing per capita costs of health care." Care coordination in ACOs and information technology are proving more complicated and expensive to implement than anticipated. Even if ACOs can decrease healthcare costs and increase quality, it is unclear if the current incentives system can achieve these objectives. A better public policy may be to implement a system that encompasses the best practices of successful private integrated systems rather than promoting ACOs.