Running head: Hospitals vs. ACOs
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Jeremy Egusquiza
Director of Business Development & Marketing
AR Systems, Inc.
Hospitals vs ACOs: The Financial Conflicts
The Affordable Care Act (ACA) promoted by President Obama was intended to bring
accountability and price controls to the health care industry. The ACA was tasked with changing
the culture of the health care industry by changing how people were treated within the system.
In addition to increasing health insurance coverage to millions of Americans, the ACA also put
initiatives in place to help bring some pricing accountability to the industry. To achieve that end
the ACA along with the Center for Medicare and Medicaid Services (CMS), instituted new
reimbursement requirements as well as the creation of new health care organizations known as
Accountable Care Organizations (ACOs). The ACOs are tasked with reducing the cost of health
care for patients by focusing on health outcomes. ACOs are very similar to other managed care
programs in that they are focused on reducing cost, however, they do it through improvements to
care quality and population health, as opposed to restricting utilization of health care services
(AAFP, 2014). Unlike attempts in the past the ACOs are making waves in the health care
industry pitting physicians against hospitals, and physicians against physicians. The end results
of these changes may indeed live up to the ambitious goals of the ACA, but the path getting there
may be a treacherous one. To understand the upcoming struggles, a background on how the
current situation is performing is necessary. Next, examination of ethical issues and resource
allocation problems for providers and hospitals will help shed light on the struggles existing in
the current environment. Finally, we will address some ways that ACOs can help move the
process forward through organizational and social changes.
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Background on Status Quo
The Affordable Care Act put the entire health care industry on notice that there needed to
be changes made to keep the health care industry viable for years to come. One change that is
currently being dealt with in the industry is a change from the pay-for-service reimbursement
structure to pay-for-value (Jha, 2013). Pay-for-value or pay-for-performance programs are built
around the idea that the payment that providers receive for their services should be based on the
health outcomes and quality of care provided to the patient. The current Medicare payment
structure used for ACOs is a version of a value based payment that have incentives for
organizations that can meet quality of care outcome goals while keeping costs at a minimum
(Burns, 2013). To achieve these goals ACOs are focusing on preventing diseases, managing
patient care, and trying to prevent return visits. This premise has put ACOs in direct conflict with
many hospitals because this limits the reimbursement potential of hospitals as we will see in the
next section.
Ethical and Resource Allocation Issues
The creation of ACOs and the implement of pay-for-value reimbursement structures have
created many ethical issues that often stem from resource allocation problems. As mentioned
earlier the goal of ACOs and the pay-for-value systems is to reduce the overall cost of health
care while at the same time improving quality of care. In its effort to fulfill these goals, ACOs
are causing conflicts between themselves and hospitals, and between primary care physicians
(PCP) and specialists.
ACOs vs. Hospitals
Hospitals are key components of the health care system as they provide centralized care
facilities, high tech equipment, and facilitate the exchange of clinical information through
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physician interaction. “However, a primary cause of our escalating Medicare costs is that
hospital financial viability depends upon their ability to fill their beds on a daily basis… No
general acute care hospital can exist and operate its required ER, inpatient, and ICU units based
on outpatient revenue alone. The capital equipment, high priced labor, ER related bad debt, and
regulatory costs are prohibitive” (Wedekind, 2012). The hospitals need to fill their inpatient beds
have led to many providers being incentivized to refer patients to the hospital who are not in
need of inpatient level of care. Hospitals have lost the focus on cost controls and often send
patients home prematurely, resulting in return visits to the emergency room (Jha, 2013). ACOs
recognize that sending patients to the hospital will drastically increase the cost of care and have a
cultural mentality to keep patients out of the hospitals. Many ACOs are formed by physician
practices who try to manage care within the organization and limit patient exposure to the
hospitals. The organizational structure of most ACOs allow for the patient’s care to be
administered within the ACOs network of providers without a referral to a hospital. This cultural
mindset to keep patients out of the hospital is having financial impacts on hospitals and could in
the long term reduce access to care for many.
PCP vs Specialist
“Accountable care organizations (ACOs), with their overriding goal of getting patients
the right care at the right time in an efficient way, might be the vehicle that finally elevates
primary care to a status equal to specialty care, because primary care is the key to ensuring ACO
revenue streams” (Hertz, 2013). ACOs are dependent on high quality primary care to patients as
an effort to identify risk areas and address problems in a progressive manner, instead of
reactionary. The role of PCPs in the new ACO environment has elevated them to a position of
strength and placed them at odds with specialists. “Specialists typically are seen as cost centers
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for accountable care organizations, not as partners in the organization… the highest growth (in
health care spending) has come from specialist procedures and hospitalizations” (Anderson,
2012). Managing patient care begins with the PCP. Empowering them however, limits the need
for referrals to outside specialists. The PCP is able to provide the quality of care necessary to
prevent illness and future return visits. The structure of the ACOs focuses on the care provided
by PCPs because they are the most cost effective option in providing high quality of patient care.
The ACOs, by promoting primary care, are threatening specialist practices and potentially
limiting patient access to care.
Recommendations for the Future
ACOs are important in the process of fixing an over bloated health care system in
desperate need of reform. “Our current delivery system works in silos, and ACOs break down
those barriers so that care management, coordination, and transitions from one provider to
another are seamless. This has a very positive effect for all providers by promoting continuity of
care and reducing duplicative tests or procedures” (Hertz, 2013). ACOs can have a positive
effect on the health care industry but also pose a risk to patient access to care. To help bridge
this gap ACOs and the health system will need to work together on a number of steps. First,
ACOs must focus on a level of separation from hospitals and continue to focus on empowering
PCPs. “If the ACO model is working well, primary care should be the central focus that sends
patients to the right place at the right time” (Hertz, 2013). ACOs and PCPs need to work to
develop quality specialists that can be integrated into the ACO model. These specialists will
need to be focused on patient outcomes and limiting unnecessary procedures. “Eventually,
effective ACOs will hand-pick specialists to become integrated into their provider networks—
clinically, technologically, operationally, and financially—and those specialists will participate
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fully in the care model… the specialist will need to make certain that his or her outcomes data
paints a rosy, cost-effective picture” (Anderson, 2012). Hospitals will need to focus on
providing higher quality of care while cutting cost to survive in the new pay-for-value system.
Government regulations and oversight are critical in this step by creating strong incentives for
hospitals by aligning incentives with cost reductions. It is through these incentives that hospitals
will be able to stay viable and provide the high tech equipment the industry needs. Hospitals
must focus their efforts on leveraging their strengths and work in harmony with physician led
ACOs instead of fighting the system. “In summary, hospitals must be taken out of the control
and management of ACOs and physicians must remain independent and free of hospital control
in order to appropriately participate in patient centered care coordination” (Wedekind, 2012).
Conclusion
“The physician is the only one truly positioned (through clinical knowledge, experience,
and relationship with the patient) to improve the health of patients” (Wedekind, 2012). Physician
led ACOs, separate from hospitals, are the organizational structure best suited to reduce health
care costs while improving health outcomes. These same ACOs also pose a significant risk to
the current health system comprised of hospitals and specialists, which could sacrifice access to
care for all Americans. It is through coordination of care between these organizations and the
focus on primary care providers that ACOs can begin the reformation of the American health
system. Pay-for-value and incentive programs can help facilitate this transition by allowing cost
controls on all fronts and still allowing for hospitals to stay financially feasible in the new
environment. The Affordable Care Act set out with ambitious goals to change the culture of the
health care industry, and with the assistance of ACOs, it could achieve its aspirations.
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References
AAFP. (2014). FAQ on Accountable Care Organizations. Retrieved from
http://www.aafp.org/practice-management/payment/acos/faq.html
Anderson, J. (2012). Specialists: ACO Cost Center or Potential Partner in Efficiency?. Retrieved
from http://aishealth.com/archive/nabn1212-07
Burns, J. (2013). Managing the shift from volume to value. Retrieved from
http://www.healthcarefinancenews.com/news/managing-shift-volume-value
Callahan, M. (2013). From Volume to Value: Are ACOs and Bundled Payment Programs the
Answer?. Retrieved from http://www.nychbl.com/from-volume-to-value-are-acos-andbundled-payment-programs-the-answer/
CHRT. (2013). Payment Strategies: A Comparison of Episodic and Population-based Payment
Reform. Retrieved from http://www.chrt.org/public-policy/policy-papers/paymentstrategies-a-comparison-of-episodic-and-population-based-payment-reform/
Hertz, B. (2013). ACOs redefine relationships with specialists. Retrieved from
http://medicaleconomics.modernmedicine.com/medical-economics/news/user-definedtags/acos/acos-redefine-relationships-specialists
Jha, A. (2013). Finding the Value in Value-Based Purchasing. Retrieved from
http://thehealthcareblog.com/blog/2013/11/20/finding-the-value-in-value-basedpurchasing/#more-67643
Jha, A. (2013). Getting Pay-For-Performance Right. Retrieved from
http://thehealthcareblog.com/blog/2013/02/04/getting-pay-for-performance-right/#more57592
Wedekind, L. (2012). Power to the Physicians, Not the Hospitals. Retrieved from
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http://healthblog.ncpa.org/power-to-the-physicians-not-the-hospitals/
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