ACOs and the Nationalization of Healthcare

Accountable Care Organizations are the portal through which we will all march toward a truly nationalized healthcare system. I don’t know any advocates of ACOs who are not also advocates of global budgets, under which providers are given a fixed amount of money to spend and forced to ration care if the funds prove to be inadequate—as they do in Britain and Canada.

ACOs have been described as “HMOs on steroids.” On paper, it sounds as though doctors will be rewarded for providing higher quality services. In practice, ACOs may reward doctors for underproviding care, as traditional HMOs were accused of doing.[1]

Moreover, the business model of the ACO requires that patients see only the doctors that the ACO employs. If you are getting care from an ACO, therefore, your insurance may not pay for you to see doctors outside the ACO. Also, part of the ACO vision is that all doctors and nurses will practice medicine in the same way. This means that when you visit an ACO clinic, you will not necessarily see the same doctor you saw on your last visit. ACOs will probably be given a lot of freedom to limit the terms and circumstances under which you can see doctors.

Nationwide, Medicare started paying fees to ACOs in 2012. Eventually, the Obama administration would like to see everyone in an ACO.

But if no one had any previous interest in forming ACOs, let alone joining them, what is going to cause them all to change our minds? Money. Insurers won’t be able to get premium increases unless they adopt ACO plans. Doctors and hospitals will be paid less if they don’t join. Eventually, doctors will find they are ineligible to treat Medicare patients or patients insured in the newly created health insurance exchanges if they are not practicing in ACOs. As for the patients, there won’t be any plans to join other than ACO plans.

ACOs will have capitated payments—the organization gets a fixed annual fee per patient, regardless of the costs that patient actually incurs—and, like the traditional HMO, the ACO will get to keep any money it doesn’t spend. The organization will also incorporate all the latest fads in health policy: electronic medical records, pay-for-performance incentives, quality report cards, and so on.

The results from the early demonstration projects with ACOs have been lackluster and mixed.[2] A comprehensive review of all the studies of report cards and other quality-measuring-and-reporting techniques finds they don’t work and may do more harm than good.[3] Just as teachers will “teach to the test” if test results are how they are graded and rewarded, doctors will tend to “practice medicine to the test” if that is how they are paid. If you’re the patient, that may not be good for you. A comprehensive review of all the studies of electronic medical records finds they do not live up to their promises.[4] And a recent study of pay-for-performance from Britain finds that it doesn’t work either.[5]  As Scott Gottlieb, a former US Food & Drug Administration deputy commissioner and writer on health policy, has pointed out, the ACA approach will stifle innovation and entrepreneurship and is already causing venture capital to leave the healthcare market.[6]

So how do we explain the administration’s commitment to ACOs? Whether they raise or lower costs, whether they raise or lower quality, there is one thing that ACOs will indisputably accomplish. They will drive doctors into organizations where their behavior can be controlled.[7] For the first time in our history, both the practice of medicine and the way money is spent on medical care will fall under federal control.


  1. For a discussion, see Anna Wilde Mathews, “Can Accountable-Care Organizations Improve Health Care While Reducing Costs?” Wall Street Journal, January 23, 2012.
  2. Jeff Goldsmith, “The Accountable Care Organization: Not Ready for Prime Time.” Amy Goldstein, “Experiment to Lower Medicare Costs did not Save Much Money,” Washington Post, June 1, 2011.
  3. David Dranove, “Quality Disclosure and Certification: Theory and Practice,” Journal of Economic Literature, 48 (2010): 935–963, doi: 10.1257/jel.48.4.935.
  4. Ashley D. Black et al., “The Impact of eHealth on the Quality and Safety of Health- care: A Systematic Overview,” PloS­Medicine (2011),
  5. Brian Serumaga et al., “Effect of Pay for Performance on the Management and Outcomes of Hypertension in the United Kingdom: Interrupted Time Series Study,” British Journal of Medicine (2011), doi: 10.1136/bmj.d108.
  6. Scott Gottlieb, “Accountable Care Organizations: The End of Innovation in Medicine?” American Enterprise Institute for Public Policy Research, No. 3, February 2011,
  7. Gottlieb, “Accountable Care Organizations: The End of Innovation in Medicine?”

[Cross-posted at Psychology Today]

John C. Goodman is a Research Fellow at the Independent Institute, President of the Goodman Institute for Public Policy Research, and author of the Independent books, Priceless: Curing the Healthcare Crisis and A Better Choice: Healthcare Solutions for America.
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