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

January 2010

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 in December 2009, “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.”

The 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 returning to a network of payor-provider efficiencies in an Accountable Care Organization.

In other words – if a patient doesn’t know they will pay a lower 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 and guide its 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

Healthcare 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 participating in the network.

Accelerating Payments and Reducing Out-of-Pocket Payments for Members

New solutions that accelerate payments to partners in a network 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 employment 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 Arrigo, an expert witness, and healthcare executive, brings four decades of experience in the software, financial services, and healthcare industries. In 2000, Mr. Arrigo founded No World Borders, a healthcare data, regulations, and economics firm with clients in the pharmaceutical, medical device, hospital, surgical center, physician group, diagnostic imaging, genetic testing, health I.T., and health insurance markets. His expertise spans the federal health programs Medicare and Medicaid and private insurance. He advises Medicare Advantage Organizations that provide health insurance under Part C of the Medicare Act. Mr. Arrigo serves as an expert witness regarding medical coding and billing, fraud damages, and electronic health record software for the U.S. Department of Justice. He has valued well over $1 billion in medical billings in personal injury liens, malpractice, and insurance fraud cases. The U.S. Court of Appeals considered Mr. Arrigo's opinion regarding loss amounts, vacating, and remanding sentencing in a fraud case. Mr. Arrigo provides expertise in the Medicare Secondary Payer Act, Medicare LCDs, anti-trust litigation, medical intellectual property and trade secrets, HIPAA privacy, health care electronic claim data Standards, physician compensation, Anti-Kickback Statute, Stark law, the Affordable Care Act, False Claims Act, and the ARRA HITECH Act. Arrigo advises investors on merger and acquisition (M&A) diligence in the healthcare industry on transactions cumulatively valued at over $1 billion. Mr. Arrigo spent over ten years in Silicon Valley software firms in roles from Product Manager to CEO. He was product manager for a leading-edge database technology joint venture that became commercialized as Microsoft SQL Server, Vice President of Marketing for a software company when it grew from under $2 million in revenue to a $50 million acquisition by a company now merged into Cincom Systems, hired by private equity investors to serve as Vice President of Marketing for a secure email software company until its acquisition and multi $million investor exit by a company now merged into Axway Software S.A. (Euronext: AXW.PA), and CEO of one of the first cloud-based billing software companies, licensing its technology to Citrix Systems (NASDAQ: CTXS). Later, before entering the healthcare industry, he joined Fortune 500 company Fidelity National Financial (NYSE: FNF) as a Vice President, overseeing eCommerce solutions for the mortgage banking industry. While serving as a Vice President at Fortune 500 company First American Financial (NYSE: FAF), he oversaw eCommerce and regulatory compliance technology initiatives for the top ten mortgage banks and led the Sarbanes Oxley Act Section 302 internal controls I.T. audit for the company, supporting Section 404 of the Sarbanes Oxley Act. Mr. Arrigo earned his Bachelor of Science in Business Administration from the University of Southern California. Before that, he studied computer science, statistics, and economics at the University of California, Irvine. His post-graduate studies include biomedical ethics at Harvard Medical School, biomedical informatics at Stanford Medical School, blockchain and crypto-economics at the Massachusetts Institute of Technology, and training as a Certified Professional Medical Auditor (CPMA). Mr. Arrigo is qualified to serve as a director due to his experience in healthcare data, regulations, and economics, his leadership roles in software and financial services public companies, and his healthcare M&A diligence and public company regulatory experience. Mr. Arrigo is quoted in The Wall Street Journal, Fortune Magazine, Kaiser Health News, Consumer Affairs, National Public Radio (NPR), NBC News Houston, USA Today / Milwaukee Journal Sentinel, Medical Economics, Capitol ForumThe Daily Beast, the Lund Report, Inside Higher Ed, New England Psychologist, and other press and media outlets. He authored a peer-reviewed article regarding clinical documentation quality to support accurate medical coding, billing, and good patient care, published by Healthcare Financial Management Association (HFMA) and published in Healthcare I.T. News. Mr. Arrigo serves as a member of the board of directors of a publicly traded company in the healthcare and data analytics industry, where his duties include: member, audit committee; chair, compensation committee; member, special committee.

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