Report: ACOs Lose Money First 3 Years

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Most health systems adopting an accountable care organization model will lose money during the first three years, according to an report published March 24 on the New England Journal of Medicine Web site.

Authors of the report, from provider alliance VHA Inc., caution that their conclusions rest on analysis on a limited set of data from the Centers for Medicare and Medicaid Services' Physician Group Practice Demonstration Project, which was a primary model for the new Shared Savings program that Medicare will launch.

"To be honest, we were very conservative in the article, as we did not include the operating costs for year two and year three of the program," says co-author Trent Haywood, M.D., chief medical officer at VHA. "If we had done so, the financial risks would be even higher. We published the article to make certain that executives fully weigh the risk before becoming swept up in the moment."

Analysis of the demonstration program found that high upfront investments make the ACO model a poor fit for most physician practices as the time frame to make a reasonable return is more than five years, according to the report. Even most large, experienced and integrated practices could not recover their initial investment within three years.

"Our analysis suggests that there are options for addressing the design weaknesses of the ACO models," the authors advise. "One is for CMS to limit participation in the Medicare Shared Savings Program to a narrow group of provider organizations that can absorb the likely financial losses in the early years of participation."

The report, "The ACO Model--A Three-Year Financial Loss?" is available at

--Joseph Goedert


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