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Will Accountable Care Organizations Really Reduce Health Care Costs?

(photo: ernstl)

To a decent amount of fanfare, the Department of Heath and Human Services released its draft regulations for the establishment of accountable care organizations (ACOs).

The idea is that they will save money by having individuals on Medicare get treatment from a highly integrated team of health care providers. The hope being to reduce waste from redundancy and reward a focus on preventive care.

Some of the ACOs biggest supporters see them as a fairly painless (i.e. not upsetting the very wealthy health care industry stakeholders) way to nudge the country toward lower health care costs. It has been labeled one of health care reform’s big potential cost saving ideas.

While I can see how they might help to eliminate some waste and improve care for people with certain conditions, I’m very pessimistic that they will do much to reduce overall health care spending. I think even the CBO is possibly too optimistic when it projects this push for ACOs will only save the government $4.9 billion (PDF) over the next decade.

I’m concerned that the incentives to create ACOs could even make our cost problem significantly worse.

The biggest health care cost problem isn’t that that we use substantially more health care services compared to other first-world countries. The issue is mainly that as a country we pay dramatically more for the same health care purchases. We pay our doctors dramatically moree, we pay higher prices for hospital stays, we pay more for the exact same brand name drugs, we pay our insurance CEOs way more, we pay more for MRIs and other high-tech diagnostics.

A critical part of why we pay so much is the imbalance of market power between healthcare providers and the multiple health care payers, thanks to our broken private health insurance system. Much of the health care sector is either government-created monopolies, like patented drug makers, or de facto monopolies, like being the only rural hospitals for miles, which allow them to set very high prices. Officials from large insurance companies will admit this imbalance of market power forces them to let these providers charge more.

The relaxing of anti-trust laws to promote the growth of more ACOs could just end up making this fundamental problem far worse across the entire health care system. The ACOs will reduce competition and further increase the power of providers relative to payers.

While I understand the argument for how ACOs could reduce cost through better integration of care, those possible savings need to be balanced against the very serious issue that, more monopoly-like market power over a necessity, absent systemic price control, is normally a recipe for higher cost. For the country’s sake, though, I hope I’m wrong.

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Jon Walker

Jon Walker

Jonathan Walker grew up in New Jersey. He graduated from Wesleyan University in 2006. He is an expert on politics, health care and drug policy. He is also the author of After Legalization and Cobalt Slave, and a Futurist writer at