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ACOs Fail to Save Medicare Money, Even With Do Overs

August 19, 2021

Promise vs. Practice: the Actual Financial Performance of Accountable Care Organizations
Journal of General Internal Medicine
August 13, 2021
By James G. Kahn and Kip Sullivan

We collect and compare financial performance data from all four CMS ACO programs from 2005 to 2018, examining net CMS cost.

We found that overall, ACO programs roughly broke even from the CMS perspective. That is, when bonuses CMS paid to ACOs are subtracted from gross savings, the programs lost money or saved no more than a few tenths of a percent.

[I]t is time to draw the ACO experiment to a close. We now have a decade of impressive empirical evidence demonstrating minimal if any benefit from ACOs of several designs. This model arose from laudable goals, drawing on theories of human and organizational behavior. However, reality as measured in formal evaluations failed to align with theory. ACOs have not worked for Medicare and will not work for the broader health care system. Indeed, CMS recently ended the Next Generation ACO program. However, CMS is launching another unproven program, direct contracting, to replace the open structure of traditional Medicare.

We propose instead turning to empirically proven tools used by other high-income nations to control health care costs. These include uniform benefits, simplified financing that dramatically reduces payer and provider overhead, removal of profit for primary insurance, regulation of pharmaceutical prices, and public control of capital investments.

Comment by: Jim Kahn

This article (full disclosure: I’m an author) settles once and for all the results of this CMS foray into financially incentivizing physician behavior. It didn’t work. This could have been predicted, and indeed was by HJM contributors Steffie Woolhandler and David Himmelstein in 2012, as cited in the article. But CMS wasn’t listening.

Now CMS is pursuing another unproven and misguided idea about how to manipulate health systems using managed care: direct contracting in traditional Medicare. I wrote about it in this space. It won’t save money, and it will shift health care dollars to managers and shareholders. Do we really need to wait another 15 years for the failure of another misguided experiment?

Let’s follow the advice of the authors: “uniform benefits, simplified financing…, removal of profit for primary insurance, regulation of pharmaceutical prices, and public control of capital investments”.

How do we get there? Single payer.

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