Fwd: qotd: ACO incentives exceed efficiency gains

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-------- Original Message --------
Subject: qotd: ACO incentives exceed efficiency gains
Date: Tue, 15 Apr 2014 05:46:01 -0700
From: Don McCanne <don@mccanne.org>
To: Quote-of-the-Day <quote-of-the-day@mccanne.org>



NBER
April 2014
Structuring Incentives Within Organizations: The Case of Accountable
Care Organizations
By Brigham Frandsen, James B. Rebitzer

Accountable Care Organizations (ACOs) are new organizations created by
the Affordable Care Act to encourage more efficient, integrated care
delivery. To promote efficiency, ACOs sign contracts under which they
keep a fraction of the savings from keeping costs below target provided
they also maintain quality levels. To promote integration and facilitate
measurement, ACOs are required to have at least 5,000 enrollees and so
must coordinate across many providers. We calibrate a model of optimal
ACO incentives using proprietary performance measures from a large
insurer. Our key finding is that free-riding is a severe problem and
causes optimal incentive payments to exceed cost savings unless ACOs
simultaneously achieve extremely large efficiency gains. This implies
that successful ACOs will likely rely on motivational strategies that
amplify the effects of under-powered incentives. These motivational
strategies raise important questions about the limits of ACOs as a
policy for promoting more efficient, integrated care.

http://www.nber.org/papers/w20034

****

Comment by Don McCanne

The growth in the number of accountable care organizations (ACOs) has
been phenomenal considering that they are primarily only a wish on the
part of the policy community and bureaucrats that such organizations
would increase efficiencies to reduce health care spending, especially
when earlier results have been very disappointing. This study has added
to the doubts about ACOs by showing that incentive payments that they
receive will exceed cost savings unless the ACOs "achieve extremely
large efficiency gains" - an extremely unlikely outcome.

The policy literature is saturated with these "wish they would work"
reports and recommendations to further expand the use of ACOs. The
experiment has already failed, and we are meandering back into the
disdained managed care organization model disguised as ACOs. The tragedy
is that this has distracted our politicians and bureaucrats from moving
forward with a model that actually would increase efficiencies, not to
mention meeting other goals such as universality and removing financial
barriers to care - a single payer national health program.