by Tom Robertson
Executive Director, Vizient Research Institute

In 1989, the National Weather Service retired its coastal warning display system in favor of electronic communication and other technological advances. For more than 100 years prior, colored pennants, flags and lights were used to warn mariners of impending storms. In the 19th century, those warnings often came as the result of sailors having beaten a path to port ahead of storms they had seen with their own eyes.

Technological advances made the old pennant display system obsolete, and the iconic red hurricane flags with the black squares were relegated to ornamental display pieces. The improved warning system is unquestionably safer, but there was an element of certainty that came with sailors having seen the coming storms as they returned to port.

Imagine a hurricane warning forecasting 150 mph winds followed by a gentle 5 mph breeze that would make for pleasurable sailing. Coastal residences boarding up windows, businesses shutting down, and massive evacuations across low-lying causeways in anticipation of gale force winds, followed by sunny skies, chirping birds and a gentle sea breeze. Imagine a hurricane warning system that was routinely off by an order of magnitude. Before long, people would begin to ignore warnings and then when the real storm came, they would be completely unprepared.

In effect, that’s exactly what is happening with accountable care organizations (ACOs). Held out as a sea change in health care spending, after years of experience, ACOs have struggled to muster a 5 mph breeze. In the meantime, health systems have been boarding up windows, changing business models and scurrying across causeways in search of dry ground. The consumption of resources spent chasing the ACO ideal has been huge, but the opportunity costs caused by overreacting to a faulty storm warning may be even greater.

In a recent pair of point-counterpoint articles published in JAMA, Zirui Song, MD, PhD and Elliot Fisher, MD, argue that it’s too soon to conclude that ACOs have been a failure, while Kevin Schulman, MD and Barak Richman, JD, PhD from Duke University cite compelling evidence to the contrary. The data, like a storm wall viewed from the deck of a three-masted schooner in 1880, is hard to ignore.

The most liberal interpretation of the results of the ACO movement would attribute 0.4 percent savings before deducting the significant administrative expenses incurred by participants in the program. ACOs have however focused additional attention on early detection and prevention efforts, both of which have unquestioned social value. And they have increased awareness around the concept of patient-centered care, an improvement over processes organized more around the needs of providers.

But from a financial perspective, the anticipated savings touted at the program’s outset have simply not materialized. In large measure, this is because ACOs have themselves been distracted away from complex disease management by a philosophic emphasis on disease prevention. Whether the result of political maneuvering, misguided optimism or stubbornness, any effort to characterize the observed results from the ACO movement as something other than a financial failure seems hard to support. ACOs would have a much better chance of achieving measurable savings if they focused their attention on the subset of the population with chronic and complex illnesses.

By focusing on the debate over the existence of a 0.4 percent savings, however, we are missing the important point – we’re off by an order of magnitude. Fifty percent of health care spending is incurred by the sickest 5 percent of the population, much of that occurring in complex and chronic episodes of care. Well-documented variation in utilization indicates that 20 to 30 percent of that spending is avoidable. Staying on the low side of the range, 20 percent of 50 percent is 10 percent. While the country needs us to reduce spending by 10 percent, ACOs are hoping to be credited for 0.4 percent, less administrative costs. We’re 25 times wrong.

The cost of this distraction goes far beyond the administrative expenses that are piling up in the creation and operation of ACOs. Avoidable variation in complex and chronic episodes of care takes the form of excess radiation and chemotherapy, additional hospitalizations and ED visits, a five-fold difference in the rates of stage IV cancer surgeries, and sub-optimal end-of-life care. We can no longer afford to be distracted by financial models and operating approaches that have their foundations in 40 year-old managed care plans.

Imagine again a hurricane warning that calls for 150 mph winds. But now imagine the forecasters telling us after three days of 5 mph breezes that the storm actually passed directly over us…and asking us to wait for the winds. It’s time for us to acknowledge the financial limitations of disease prevention on near-term spending and to turn our attention to avoidable variation in chronic and complex episodes of care. Because those storm clouds really do pack hurricane winds.

About the author and the Vizient Research Institute™. As executive director of the Vizient Research Institute, Tom Robertson and his team have conducted strategic research on clinical enterprise challenges for 20 years. The groundbreaking work at the Vizient Research Institute drives exceptional member value using a systematic, integrated approach. The investigations quickly uncover practical, tested results that lead to measurable improvement in clinical and economic performance.

Published: September 14, 2016