Does a Flaw in the ACO Business Model Leave out the Patient? Yes. Here’s Why.

While federal legislation focuses on payor / provider synergies, there is nothing in the mandated programs beyond pilot projects or experiments according to the legislative texts.

According to ATUL GAWANDE writing for the New Yorker, “Turn to page 621 of the Senate version, section entitled “Transforming the Health Care Delivery System.”  Does the bill end medicine’s piecemeal payment system? Does it replace paying for quantity with paying for quality? Does it institute structural changes that curb costs and raise quality? It does not. Instead, what it offers is . . . pilot programs.”

Flaw in the ACO Business Model – Will Rational Consumers Seek ACO Networks?

The Patient Protection and Affordable Care Act fails to consider what will keep patients coming back to a network of payor – provider efficiencies in an Accountable Care Organization.

In other words – if a patient doesn’t know that they will pay less out of pocket expense or realize improved health via the ACO, why would they stay in the network?  PPACA ignores some Tenets of Classical Economics including :

Self-interest and self-control. Smithian economics endorses the idea that individuals can manage their own lives, with minimal government intervention and a free market that self-regulates, guide it’s own distribution and exchange through market forces. The most debated policy is the belief that the self-interests produce the best social outcomes – ideas such as the Tragedy of the Commons (depletion of a shared resource by individuals) and game theory Prisoners Dilemma (two individuals might not cooperate, even if it appears that it is in their best interests to do so) suggest that the sum of individual interests is not always the social interest, however, the cost of implementing policy may be more expensive than leaving the unoptimized scenario – as described in the Theory of Second Best (if one optimality condition in an economic model cannot be satisfied, it is possible that the next-best solution involves changing other variables away from the ones that are usually assumed to be optimal).

Liquidity, Velocity Cash Flow in Payor Provider ACO Networks

Health care providers are being required to undergo staff re-training, massive disruptive changes to their workflows, and IT infrastructure changes while private health insurance reimbursements take  from approximately 60 days to 120 days for claims, particularly those claims that are out of network.  It makes it hard to see how they can run their businesses unless they have some other upside, such as more patients in the population that participate in the network.

Accelerating Payments and Reducing Out of Pocket Payments for Members

New solutions that accelerate payments to partners in a network that can also reduce the out of pocket payments that members / patients must pay.  This helps create efficiencies that the Affordable Care Act does not address, and accelerates payments to out of network providers in continuous discount agreement networks.  (See Out of Network Claims Strategy – Don’t Damage MLR)

Employer Led ACO vs. Payor and Provider Led ACOs

Large self-insured employers have an advantage in that they have a population of members with a common thread of being employed by the same company.  Population health management and ACOs will require scale.   Our estimates are that unless an ACO has 1 million members it won’t have the compelling economics to succeed.

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Michael F. Arrigo

Michael is Managing Partner & CEO of No World Borders, a leading healthcare management and IT consulting firm. He serves as an expert witness in Federal and State Court and was recently ruled as an expert by a 9th Circuit Federal Judge. He serves as a patent expert witness on intellectual property disputes, both as a Technical Expert and a Damages expert. His vision for the firm is to continue acquisition of skills and technology that support the intersection of clinical data and administrative health data where the eligibility for medically necessary care is determined. He leads a team that provides litigation consulting as well as advisory regarding medical coding, medical billing, medical bill review and HIPAA Privacy and Security best practices for healthcare clients, Meaningful Use of Electronic Health Records. He advises legal teams as an expert witness in HIPAA Privacy and Security, medical coding and billing and usual and customary cost of care, the Affordable Care Act and benefits enrollment, white collar crime, False Claims Act, Anti-Kickback, Stark Law, physician compensation, Insurance bad faith, payor-provider disputes, ERISA plan-third-party administrator disputes, third-party liability, and the Medicare Secondary Payer Act (MSPA) MMSEA Section 111 reporting. He uses these skills in disputes regarding the valuation of pharmaceuticals and drug costs and in the review and audit of pain management and opioid prescribers under state Standards and the Controlled Substances Act. He consults to venture capital and private equity firms on mHealth, Cloud Computing in Healthcare, and Software as a Service. He advises ERISA self-insured employers on cost of care and regulations. Arrigo was recently retained by the U.S. Department of Justice (DOJ) regarding a significant false claims act investigation. He has provided opinions on over $1 billion in health care claims and due diligence on over $8 billion in healthcare mergers and acquisitions. Education: UC Irvine - Economics and Computer Science, University of Southern California - Business, studies at Stanford Medical School - Biomedical Informatics, studies at Harvard Medical School - Bioethics. Trained in over 10 medical specialties in medical billing and coding. Trained by U.S. Patent and Trademark Office (USPTO) and PTAB Judges on patent statutes, rules and case law (as a non-attorney to better advise clients on Technical and Damages aspects of patent construction and claims). Mr. Arrigo has been interviewed quoted in the Wall Street Journal, New York Times, and National Public Radio, Fortune, KNX 1070 Radio, Kaiser Health News, NBC Television News, The Capitol Forum and other media outlets. See and for more about the company.

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