Why ACOs are Failing

"Overall, our Pioneer ACO received a quality score rating of 83.7 percent," said Jennifer Westfall, regional vice president for Franciscan Alliance Accountable Care Organization, which received no payment for the second year as a Pioneer ACO. "While this is indicative of strong performance, we did not do as well in meeting our benchmark for reducing the costs of patient care."

Genesys president and CEO Michael James blamed the program's financial model for being hit with a $2.5 million penalty in the first year and $1.9 million in its second year. 

Two large, well regarded organizations; two more failures. Hundreds of physicians who did not receive anticipated incentives.

The Pioneer programs are far from alone. Only about one in four, or 64 of the 243 Medicare accountable care organizations that launched in 2012, earned bonuses on reduced spending averaging about 3 percent, according to financial performance results released by CMS in September. Commercial ACOs have similar track records.

There are almost as many excuses as there are failures. The success stories, on the other hand, particularly the most successful, may share one striking similarity.

Their hospital and hospital system owners were not paying attention.

Successful ACOs of any kind do three things well by reducing waste and improving health status: eliminate unnecessary inpatient admissions, eliminate unnecessary outpatient procedures and diagnostics, and divert many of the necessary ones to lower cost providers offering the same or better quality and service.

That makes investing millions in practice transformation, information technology, interoperability, and other necessary changes to reduce inpatient and outpatient revenues while splitting the savings with payers (if quality measures are met) and distributing most of the rest of the savings to physicians who are causing these losses not only a bad business model, but an unsustainably damaging one so illogically ill-conceived it defies common sense.

In a September 2014 HealthLeaders article, "Hospitals Seeking Physician Alignment," author Michael Zeis concludes: "Previous concepts about physician autonomy are being examined. New approaches to physician alignment must acknowledge the role of physicians as partners in care transition, as supportive participants in efficiency measures, and as leaders."

Having spent a lot of years in the healthcare CEO seat including hospitals, I read this as, "We had better fix this autonomy thing, and fast, before it bankrupts us."

To paraphrase Albert Einstein, the definition of insanity is doing the same thing over and over and expecting a different result.

It would be a shame to let this opportunity to equally align incentives and benefits between hospitals, physicians, and payers pass because smart people are busy trying to show how smart they are and common sense people are marginalized. Smart people are good at making things more complex. But, common sense simplicity is what we need.