2. What is an ACO?
• A vision & proposal
• A collaboration of providers accountable for:
– Measured quality
– Reductions in the growth of spending
– ACO keeps some of “shared savings” relative to a
benchmark
H.E. Frech III, Sept. 12, 2011 2
3. Proposed ACO features
• Beneficiaries don’t join, or even know
• Beneficiaries attributed ex post
• ACO responsible for all costs of its members,
even if outside of ACO
• Must meet quality level for shared savings
H.E. Frech III, Sept. 12, 2011 3
4. ACO Benchmark Costs
• What the beneficiaries who would have been
assigned actually spent
• Adjusted for risk and overall cost increases
• Note: based on the ACO providers’ own
previous performance
• Rewards past inefficiency
H.E. Frech III, Sept. 12, 2011 4
5. ACO Shared Savings
• Complex
– Must exceed a min (2-3.9%)
– Based on savings over 2% (most ACOs)
– Extra amounts certain populations
• Small
• 50-60% of savings
• Capped at 7.5 or 10% of benchmark
H.E. Frech III, Sept. 12, 2011 5
6. ACOs Highly Regulated
• Quality
• Risk selection
• Communication with beneficiaries
• Distribution of shared savings
• Governance
• Management
• Evidence-Based Guidelines
H.E. Frech III, Sept. 12, 2011 6
7. Goals of ACOs
• Savings of managed care for fee-for-service
• (Medicare fee-for-service poorly designed)
• Hard decisions decentralized: less politics;
more economics
• Soft, indirect managed care for all
• Beneficiaries “join” without even knowing
H.E. Frech III, Sept. 12, 2011 7
8. ACO Design Constrained by U.S.
Politics
• Provider focus—not health plan managed care
• Health plans and managed care have been
demonized
• Still popular in actual market choices
• New name: ACOs
• Avoid mention of nonprice rationing
H.E. Frech III, Sept. 12, 2011 8
9. Manage Care Popular in Market
• In spite of demonization
– Late 1990s “backlash”
– Recent debates
• In 2006 group market 93% share
– 20% HMO
– 60% PPO
– 13% POS (Point of Service—a sort of PPO)
H.E. Frech III, Sept. 12, 2011 9
10. Prototypes of ACOs
• Large multispecialty group practices
• Independent practice associations
• Especially common in California
• Often accept capitation from health plans,
especially in California
H.E. Frech III, Sept. 12, 2011 10
11. ACO Risk: Harm to Competition
• Collaborations of otherwise competing
providers
• Harm competition, raise prices and costs
• Vertical v. horizontal integration
H.E. Frech III, Sept. 12, 2011 11
12. Vertical Integration and Competition
• Vertical integration useful for efficiency and
cost control
• E.g., decide level of specialization or
sophistication of care
• E.g., information flow among hospital,
specialists
• E.g., implement sensitive nonprice rationing
• Vertically integrated organizations compete
H.E. Frech III, Sept. 12, 2011 12
13. Horizontal Integration and
Competition
• Certain amount can be pro efficiency
• E.g., a degree of choice within organization
• But, much bigger threat to competition
• This can confer a great deal of monopoly
power—like a cartel
H.E. Frech III, Sept. 12, 2011 13
14. Fixed or Variable Prices
• Collusion against a fixed price system leads to
lower quality and more nonprice rationing
• Long run, pressure to raise prices
• Collusion against variable price system leads
immediate to higher prices and costs
• Possibly much more serious social cost
H.E. Frech III, Sept. 12, 2011 14
15. Experience with Prototypes in
California
• Obtained a great deal of market power
• Drives substantially higher prices
• Often outweighs the HMO advantages of
integration and incentives for less utilization
• Plans trying to shift members from HMOs to
PPOs to avoid group bargaining of IPAs
• (Berenson, Ginsburg and Kemper, 2010)
H.E. Frech III, Sept. 12, 2011 15
16. Antitrust Policy Response to ACOs
• Focused primarily on risk of collusion against
private payers
• Legal safe harbors, market share < 30%
• Mandatory review, market share > 50%
• Hospital must not be exclusive
• Preference for physicians to not be exclusive
H.E. Frech III, Sept. 12, 2011 16
17. Actual Managed Care
• Dominant in market
• Important in Medicare (Advantage)
• Started 1985, unstable policy
• Growing again, 21 % of Medicare, 2010
– 16% HMO
– 5% PPO
• (McGuire, Newhouse, Sinaiko, 2011)
H.E. Frech III, Sept. 12, 2011 17
18. Managed Care Features
• Takes full risk
• Consumers must choose to join
• Mostly organized by contract, not employees
• Strong incentive to constrain use by utilization
controls (i.e. nonprice rationing)
• Some nonprofit, some profit-seeking
H.E. Frech III, Sept. 12, 2011 18
19. Summary: Prospects for ACOs
• As proposed, may not work
– Weak incentives—small shared savings
– Complex and burdensome regulation
• May have to be more like regular managed
care to attract actual much partcipation
• Competition needs to be protected by both
antitrust and regulation
H.E. Frech III, Sept. 12, 2011 19
20. Selected ACO References, Frech, Sept. 12, 2011:
Robert A. Berenson, Paul B. Ginsburg and Nicole Kemper, ―Unchecked Provider Clout In California Foreshadows Challenges To
Health Reform,‖ Health Affairs, 29, no.4 (2010):699-705 (published online February 25, 2010; 10.1377/hlthaff.2009.0715),
http://content.healthaffairs.org/content/29/4/699.full.html
Federal Trade Commission, Department of Justice Antitrust Division, ―Proposed Statement of Antitrust Enforcement Policy
Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program,‖ Federal Register / Vol. 76, No.
75 / Tuesday, April 19, 2011 / Notices, http://www.ftc.gov/os/fedreg/2011/03/110331acofrn.pdf
Elliott S. Fisher, Douglas O. Staiger, Julie P.W. Bynum and Daniel J. Gottlieb, ―Creating Accountable Care Organizations: The
Extended Hospital Medical Staff,‖ Health Affairs, 26, no.1 (2007):w44-w57, (published online December 5, 2006;
10.1377/hlthaff.26.1.w44), http://content.healthaffairs.org/content/26/1/w44.full.html
John K. Iglehart, ―Assessing an ACO Prototype — Medicare’s Physician Group Practice Demonstration,‖ New England Journal of
Medicine, 364;#, January 20, 2011, pp. 198-200, http://www.nejm.org/doi/pdf/10.1056/NEJMp1013896
Robert F. Leibenluft, J.D, ―ACOs and the Enforcement of Fraud, Abuse, and Antitrust Laws,‖ New England Journal of Medicine,
364;2 (January 13, 2011), pp. 99-101. http://www.nejm.org/doi/full/10.1056/NEJMp1011464
Thomas G. McGuire, Joseph P. Newhouse, and Anna D. Sinakiro, ―An Economic History of Medicare Part C,‖ The Milbank
Quarterly, Vol. 89, No. 2, 2011 (pp. 289–332), http://onlinelibrary.wiley.com/doi/10.1111/j.1468-0009.2011.00629.x/full
Barak Richman, H.E. Frech, and Thomas Greaney, ―Resisting Another Threat to Competition in Health Care,‖ FTC: Watch, No. 783
(April 15, 2011), Posted on American Antitrust Institute. Website (April 18, 2011), http://www.antitrustinstitute.org/content/three-aai-
advisory-board-members-comment-favorablyproposed-rules-establishment-accountable
Stephen M. Shortell, PhD, MBA, MPH, Lawrence P. Casalino, MD, PhD, ―Health Care Reform Requires Accountable Care Systems,‖
JAMA, July 2, 2008—Vol 300, No. 1, pp. 95-97, http://jama.ama-assn.org/content/300/1/95.full.pdf+html
H.E. Frech III, Sept. 12, 2011 20
