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Why the Next Big Step Toward Reining in Healthcare Costs May Fizzle

Accountable care organizations (ACOs) are groups of doctors and hospitals that agree to take responsibility for the cost and quality of care. Under the Affordable Care Act, Medicare is supposed to launch a shared savings program for ACOs starting in 2012. Although the Centers for Medicare and Medicaid Services (CMS) is expected to issue regulations for the ACO program in December, staff members are reportedly fighting over how exactly to pay ACOs for producing cost savings without sacrificing their quality of care.

Yet there's a bigger problem, which is that relatively few healthcare organizations are even capable of forming ACOs at this point.

To achieve the goals of ACOs, hospitals, doctors, and other providers must collaborate to coordinate care and reduce waste. That's a tall order in most markets, because healthcare providers are fragmented and have had little experience with managing care. Beyond including primary-care physicians and serving at least 5,000 Medicare patients, as the reform law requires, ACOs must also be "clinically integrated," meaning that doctors and hospitals have learned how to work together. In addition, ACO members must have "interoperable" electronic health records so that they can keep track of patient care and exchange data with one another.

If you've seen recent reports that a third to a half of doctors have comprehensive EHRs, forget them. My own personal estimate, based on government reports and discussions with people in the field, is that no more than 10 percent of practices have comprehensive systems, and perhaps 20-25 percent have basic ones. Similarly, hospitals have a long way to go in computerizing their records. And the EHRs that are being used are still largely incommunicado with one another.

How about clinical integration? There has been a lot of fanfare about the few healthcare systems and IPAs that have gained Federal Trade Commission recognition as clinically integrated networks that can negotiate with health plans. But one consultant tells me that no more than 50 to 75 healthcare systems across the country are well on their way to being clinically integrated. And informed observers say that no hospital without a well-established physician organization -- consisting of employed and/or independent doctors -- can hope to become an ACO.

Some hospital executives don't expect Medicare to launch a full-blown shared-savings program in 2012. Instead, they say, it may start with bundled payments for a few high-cost procedures. The reason may have less to do with the argument over prepayment than with the underwhelming results of CMS' Physician Group Practice demonstration. In that pilot, which involved large physician practices, only about half of the participants received any shared savings. If the other well-capitalized and technologically advanced groups couldn't pull it off, how many ACOs will be able to?

The hospital systems and big physician groups that are moving to become ACOs are doing the right thing. Their leaders correctly perceive that this is the way that both public and private healthcare reimbursement will be going in the years to come. But at the same time, CMS planners should recognize the differences among healthcare markets and the readiness of healthcare providers to become ACOs and take financial risk. This is going to be a 10-year process that will ultimately turn the healthcare ship around completely. In a $2.5 trillion dollar industry, you don't do that overnight.

CMS will eventually settle its internal dispute and issue draft regulations. In the wake of the thousands of comments that the agency will undoubtedly receive, perhaps it will devise an approach that's flexible enough to fit everyone in our vast and diverse healthcare industry.

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