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Running head: ACA 1

The Accountable Care Act
Madalina Goia, Russell Furst, John Kraft, Alyse Exelby, Rebecca Nicholson
Siena Heights University


The Accountable Care Act
Rising healthcare costs threaten the financial security of individuals, organizations, and
governments. Spending on care is widely understood to be one of the great challenges facing the
country today. It is also widely held that Americans are not receiving enough value for their
healthcare dollar since measures of health lag other developed countries. Along with high
spending and questionable value, the United States has a disproportionately high number of
people without healthcare insurance coverage. To combat these challenges, in 2010 the United
States congress passed the Patient Protection and Accountable Care Act (ACA). The ACA
contains provisions that are intended to reduce cost, increase quality, and reduce the number of
uninsured. Key elements of the ACA include the creation of Accountable Care Organizations
(ACOs) and Patient-Centered-Medical-Homes (PCMHs). These new entities are designed to
reduce cost and improve quality primarily by providing better care coordination and disease
management. Additionally, financial incentives created through the use of a pay-for-
performance (P4P) reimbursement model are expected to increase quality. Predictions are that
the cost of health insurance will to decrease due to increased competition in the health insurance
market. Over- utilization of health services is expected to decline as individuals are forced to
take on more of the burden of paying for services. To reduce the number of uninsured the act
simply requires that virtually all individuals be covered through health plans provided by the
government, employers, or individually purchased on the open market. Unfortunately, most of
the provisions contained in the act to increase quality and reduce spending have been tried before
with little success. The claims that ACA proponents have made are not supported by research
and past experience. Consequently, healthcare quality and costs are likely to remain largely
unchanged as a result of the ACA.

Past is Prologue
Keen observers of healthcare trends over the last few decades will experience déjà vu
when evaluating the ACA. Care coordination, disease management, P4P, and using primary care
physicians as ―gatekeepers‖ or managers of an individual’s health-related services have all been
employed in previous attempts to improve healthcare. However, evidence from past managed
care efforts and CMS sponsored demonstration projects suggest that the ACA will have
difficulty achieving the desired results given that these same approaches failed in the past.
Over the last 20 years the CMS has tested various disease management and care
coordination strategies in an attempt to find ways to increase efficiency and improve quality
(CBO, 2012b; Peikes, Chen, Schore, & Brown, 2009). Much like the intent of ACOs and
PCMHs, these experiments relied on better care coordination as the primary mechanism for cost
reduction and improved quality. They also included alternatives to traditional fee-for-service
pay structures. Since the primary elements of the ACA mirror the tactics used in prior CMS
trials, reviewing previous results will help project future outcomes.
The CMS found that even though organizations had a financial incentive to do so, ―In
nearly every program involving disease management and care coordination spending was either
unchanged or increased‖ (CBO, 2012b, p. 1). Additionally, ―On average, the 34 care
coordination and disease management programs had little or no effect on hospital admissions‖
(CBO, 2012b, p. 2). In other experiments related to physician practices, 10 large practice groups
were allowed to keep a portion of cost reductions they were able to achieve. Again, the results
showed little or no cost savings. Burns and Pauly (2012) confirm these findings noting that in
2002 Medicare funded 15 demonstration projects for care coordination and saw very limited
success. In studying the results of the same trials Peikes, Chen, Schore, and Brown (2009) state

that care coordination, as practiced in the trials, ―holds little promise of reducing total Medicare
expenditures for beneficiaries with chronic illnesses‖ (p. 613). Bott and Knapp (2009) point out
that the CBO found lack of evidence that disease management programs for Medicare can pay
for themselves. It is instructive that two of the underpinning elements of the ACA, disease
management and enhanced care coordination, have previously been tested by the CMS for the
Medicare population and found to have little to no affect.
The failure of the CMS demonstration projects mirrors the previous national experience
with managed care in the 1980’s and 1990’s which are now generally considered failures having
not produced the cost savings and quality improvements they promised (Swartz, 1999; Burns &
Pauly, 2012). Curiously, the ACA’s relies heavily on the same concepts that have already been
tried but didn’t work. ACO’s and PCMH’s are simply reiterations of the health maintenance
organizations (HMOs) and integrated delivery networks (IDNs) that were created during the
1980’s and 1990’s to manage costs but failed to deliver. Both focused on creating a continuum
of care, disease management, care coordination, population health management focus, the
alignment of incentives for all providers, increased use of information technology, shared
savings programs and P4P (Burns & Pauly, 2012). This list could easily describe the current
efforts. Burns and Pauly (2012) remind us though that IDNs failed in part because start-up costs
were steep, predicted economies of scale were not realized, and there were mixed incentives
because some care was based on fee for service while others based on capitation or bundled
payments. Swartz, (1999) points out that care coordination and IT implementation was more
complicated and expensive than originally thought. Lack of sophistication needed to manage
risk and complex systems also contributed to failure. Competition between managed care
organizations was predicted to drive down costs but the market did not respond as predicted.

Consumers at the time recognized that in a managed care environment physicians had a financial
incentive to deliver less care which resulted in consumers loosing trust in their physician’s
decisions about what care was necessary or appropriate (Swartz, 1999). All of these challenges
that doomed the HMO and IDN models of the past also exist for the ACA moving forward and
suggests that current attempts at reducing cost and improving quality are not likely to succeed.
Healthcare Costs
Individuals, employers, health insurance companies, and the government are all impacted
by rising healthcare costs and most agree that costs are increasing at an unsustainable rate.
Unfortunately, provisions in the ACA are unlikely to offer much help to any of them. A look at
how the ACA is likely to impact costs across the stakeholder spectrum demonstrates how
dubious the claims are promising decreased spending.
Healthcare costs impact the federal government in several ways. The federal government
provides health insurance to a large portion of the population through Medicare and Medicaid
and the cost of doing this is a major portion of the federal budget. Costs to provide care to
Medicare and Medicaid beneficiaries has major budget implications. The ACA expands
Medicaid coverage to more of the population which will increase the governments cost.
Similarly, the ACA authorizes financial subsidies for low income individuals so they can afford
to buy insurance on the open market. Again, this adds to the government’s health services
related costs. These subsidies constitute a cost increase paid for by the public primarily through
increased taxes and penalties imposed by the ACA for non-compliance. The gross cost to do this
is estimated to be $1,496 billion through 2021 (Congressional Budget Office, 2012a). Tanner
(2012) points out that even these cost are under estimated since the ACA allows for additional
discretionary spending which could add an additional 115 billion over 10 years (Tanner, 2012).

It is possible that this outlay may result in some downstream cost reductions for care but it is
disingenuous not to recognize that these subsidies are part of the cost of care to begin with.
Rather than reducing costs, the ACA adds to the federal debt burden and represents an enormous
increase in healthcare spending. It is axiomatic that providing care to more people will result in
more money being spent on care and it is inconsistent to argue that costs will decrease at the
same time millions of more people will be receiving care.
Beyond the ACA funded health insurance subsidies, the CMS projects widespread
spending increases for its Medicare and Medicaid programs which will also add to the country’s
debt burden (U. S. Department of Health and Human Services, 2014). To help illustrate the
fallacious claims that costs will decrease over the next decade it is instructive to note that the
CMS provides the following projections of National Health Expenditures (NHE).
 NHE is projected to grow an average of 5.8 percent per year over the projection period (2012-
 The health share of GDP is projected to grow to 19.9 percent by 2022.
 Medicare spending is projected to grow an average of 6.6% per year with the highest growth
projected in 2022 as provisions from the 2011 Budget Control Act expire and the oldest Baby-
Boomers are expected to use relatively more expensive long-term care services
 Medicaid spending is projected to grow an average of 6.8% per year, including a projected
increase of 12.2% in 2014 as millions enroll in the program as a result of the Affordable Care
 Private spending is projected to grow an average of 5.3% per year for 2012-2022 reflecting
slower expected growth in 2013 (3.5 percent) related to the modest economic recovery

followed by faster growth in 2014 (5.2 percent) due in part to the implementation of the major
coverage provisions of the Affordable Care Act.
 Spending on hospital services is projected to grow an average of 5.8% per year over the
projection period and reach $1.6 trillion by 2022.
 Spending on physician and clinical services is projected to grow slightly faster than hospital
spending at an average of 5.9% per year over the projection period and reach $1.0 trillion by
 Spending on prescription drugs is projected to grow an average of 5.1% per year over the
projection period with expected average growth of less than 1% through 2013 reflecting
several drugs’ patent expirations, followed by growth of between six and seven percent for the
last half of the period. Spending is projected to reach $0.5 trillion by 2022.
 By 2022, federal, state, and local government health care spending is projected to be nearly 50
percent of national health expenditures, up from 45 percent in 2012, with federal spending
accounting for about three-fifths of the total government share (U. S. Department of Health
and Human Services, 2014).
The projected increases in NHE along with subsidies the ACA provides for low income
individuals make predictions of cost reductions at the federal untenable.
Several factors are likely to drive up healthcare costs for individuals. Individuals that
were previously uninsured or ―under-insured‖ will have their costs increase due to the mandate
to purchase minimum healthcare coverage. To combat new coverage requirements employers
will simply shift the additional costs onto employees. Out-of-pocket expenses will likely
increase as employers increasingly shift costs to employees through plans with higher
deductibles and co-insurance (Wharam, Ross-Degnan, & Rosenthal, 2013). High deductible

health plans (HDHPs) are an increasingly popular way to accomplish this. Massachusetts
provides a preview of what will happen nationally. Since the inception of health insurance
exchanges in 2006, 84% of Massachusetts consumers purchased the bronze and silver level plans
which include the highest deductibles and co-pays (Wharam, Ross-Degnan, & Rosenthal, 2013).
Walker, (2014) notes that there is already a 34% out of pocket increase in drug cost due to
increases in co-pays and coinsurance since before the ACA. Demko (2014) indicates that many
insurance companies are proposing rate increases for 2015 although there is still a lot of
uncertainty in the market. Compounding the problem for individuals is the simple fact that the
additional financial strain on the federal government will ultimately trickle down to taxpayers.
Insurance companies will see their costs increase as they will have to pay more for
services from providers in many markets (Vistnes, & Sarafidis, 2013). Consolidation in the
provider market as ACO’s form will decrease competition and raise costs to health insurance
companies. Markets with little competition tend to see prices rise, not lower. Payers enter into
contracts with providers for care delivery and with fewer choices payers lose their bargaining
power and will pay higher prices (Vistnes, & Sarafidis, 2013). Insurance companies will also see
their costs increase as a result of the ACA since they are now required to cover high risk
individuals which they could previously exclude.
Employers are caught in the web of increasing costs as well and the ACA is the primary
culprit. Mandates contained in the ACA force large employers to provide insurance to
employees and minimum insurance coverage requirements will require some employers to offer
higher levels of coverage. Rising healthcare costs are already one of the greatest obstacles for
profitability and the ACA will make it worse. In response, many organizations are employing
wellness plans based on the assumption that as health risk factors decline so will care costs.

Unfortunately this hypothesis has not been validated through research (Horwitz, Kelly, &
DiNardo, 2013) and employers are likely to be disappointed.
Finally, there are many factors that will continue to drive up healthcare costs that the
ACA does not address. The ACA does not even attempt to curtail rising drug costs which will
continue to plague cost-reduction plans. Organizations are required to invest enormous amounts
for IT to support care coordination and quality reporting requirements. Organizations will need
to add staff to provide all of the care coordination and disease management activities that are a
focus of ACOs. New expensive technology will continue to be implemented (Burns and Pauly,
2012). Large capital investments will be required to form ACO’s and most organizations do not
have the capacity for change, organizational structure, and leadership competencies required to
form and managed these new highly complex entities. For all of these reasons the ACA will not
be able to fulfill its promise to reduce healthcare expenditures.
A primary goal of the ACA is to improve care quality. The way in which the act hopes to
do this is by creating financial incentives for providers to achieve better outcomes. These
incentives come in the form of the CMS’s pay-for-performance (P4P) Value-Based Purchasing
Program and other payers are likely to follow. However, P4P models have been tested before
and have not produced the quality improvements hoped for. Starting in 2003 and refined in
2006, CMS partnered with 266 hospitals as part of the Premier Hospital Quality Incentive
Demonstration of a pay-for-performance model. In evaluating the results, Ryan, Blustein, and
Casalino (2012) stated that, ―For those hoping to preview the likely impact of Medicare’s
Hospital Value-based Purchasing Program in 2013, the experience of phase 2 of the
demonstration is not encouraging‖ (p. 803). Jha, Joynt, Orav and Epstein (2012) responded to the
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same project by stating that, ―We found no evidence that the largest hospital-based pay-for-
performance program led to a decrease in 30-day mortality. Expectations of improved outcomes
for programs modeled after Premier HQID should therefore remain modest‖ (p. 1606). Emmert,
Eijkenaar, Kemter, Esslinger, and Schoffski (2012) took a broader look at P4P data across
various countries and concluded that ―The results show that evidence on the efficiency of P4P is
scarce and inconclusive. P4P efficiency could not be demonstrated‖ (p. 755). Massachusetts
experienced the same disappointing results when it used incentives to improve quality in its
Medicaid program (Ryan & Blustein, 2012). Pay for performance studies have shown no
conclusive evidence that P4P works (Burns and Pauly, 2012). There is simply no model at this
point that demonstrates the contention that the ACA will improve quality based on financial
As discussed, the ACA will result in a significant shift to HDHPs as payers and
employers cost-shift to consumers. When faced with high deductibles and high annual out-of-
pocket expenses, consumers inevitably but arbitrarily seek less care. While this has the effect of
lowering the cost of delivering care for providers in a capitated reimbursement model, the
―effects on quality and essential care are uncertain (Wharam, Ross-Degnan, & Rosenthal, 2013,
p. 1482). Saloner, Sabik, and Sommers (2014) concur suggesting that while cost-sharing
decreases usage it does so indiscriminately and people are likely to skip care that would be
beneficial. HDHPs provide personal incentives to avoid care even in situations where care is
needed. Saloner, Sabik, and Sommers also note that this will reduce medication compliance
increasing the likelihood of poor health outcomes.
Most agree that healthcare is one of the most important issues the country faces.
Unfortunately the ACA does not provide the necessary provisions to improve quality and reduce
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spending the way it was intended to do. The cost reduction strategies embedded in the ACA
have been tried before but have failed to deliver. Tax increases, insurance premium increases,
and cost-shifting will all result in greater cost burden on consumers. Health insurance subsidies
to low income individuals will create an additional financial burden on the government. The
CMS, the largest payer in the market, predicts their costs will significantly increase in the next
decade. Consolidation in the provider market will reduce competition driving up costs.
Research has shown that increased care coordination and disease management strategies that are
central to the ACA encouraged ACOs and PCMHs have not improved quality or admission rates.
There is simply no care model that currently exists that validates the claims that the ACA will
reduce costs and improve quality.

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