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Don McCormick
Very cooperative organizer of cooperatives.
Very cooperative organizer of cooperatives.

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The ACO as a Business
An Abstract

Flat wages, weak money, rapidly-developing communication technology, and restrictive access to medical education converged to create an environment in which the “Accountable Care Organization” (ACO) evolved.  This evolution began in 1972 with Public Law 93222, the HMO Act.  
The HMO Act was an attempt by Congress to keep health care and insurance in the private sector and to avoid price controls.  Many congressional advisors thought such price controls were needed because of the increasing number of people in Medicare and Medicaid programs.   The HMO Act caused people to move into contracts with companies that would accept the full financial risk for their care.  After forty-five years, enough patients were drained into the HMO pools to prove that the HMO option could contain costs, make profits for the corporate owners, and produce medical results equal to the open access contracts of indemnity insurance plans.  The HMO competition created hybrid health plans (PPOs) that used access-to-care controls and panels of providers in order to compete with HMO pricing.  At the same time, these hybrids did not transfer financial risk to the health care providers.
In spite of the gradual transfer of patients to HMOs, the cost of health care has risen to 17% of the GNP—about $8,000 per person per year.  At the same time, the quality of health care in the United States has fallen to rank last among the industrialized countries.  Current per capita cost for health care in the U.S. is twice as much as should be needed while the ratio of physicians to patients is one-half of what is needed.  This situation creates a larger-than-normal population of patients who cannot pay for health care while the physician shortage creates a false demand for services. Combined, these conditions lead to higher morbidity and mortality rates; these, in turn, result in the United States’ low ranking in health care in the international community.
The financial and medical crisis is such that the Government could not wait for the one-by-one conversion approach of the HMO model.  It was faced with two choices:  (1) pushing out the private sector and putting in price controls in order to establish a universal health care system, or (2) eliminating the enrollment barriers and transferring the financial risk to the providers within private corporate structures.  They chose the latter and had the full support of the major players in the medical industry.
As a consequence, the business of the  ACO is taking premiums from the government and private corporations and then distributing those premiums to medical providers who are contracted to perform their services within the limits of those premiums.   The providers within an ACO gain or lose money depending on whether or not their services are needed—a judgment made by the owners of the ACO.  It is a zero-sum game:  the entities that are most likely to lose are those hospitals that now have a greater share of the premiums but declining technology, while the winners will be medical providers other than hospitals.  Premiums will remain high for many years, enabling the transfer of the losses suffered by hospitals to other types of medical providers as gains.
Creating an ACO by non-facility providers in this zero-sum game will ultimately produce windfall profits for at least a decade.  If the model is successful in a large population, the game will become a technological competition in which those companies that can deliver health care in the safest environments with the best communication systems will get the premiums and the profits.
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