Tag Archives: Pay-for-Performance

A steady state to avoid while adopting Accountable Care Organizations (ACOs) in healthcare

Healthcare is undergoing a major overhaul. The costs are ballooning and we are resorting to Electronic Health Records (EHRs) and Electronic Medical Records (EMRs), remote monitoring and care, quantified-self enabled by smartphones, wearable devices, etc. to gain better understanding of cost control and sources of wasted resources. This post refers specifically to changes happening in the USA.


With the implementation of the Affordable Care Act (ACA), another major change that will likely be the norm in the near future are ACOs – Accountable Care Organizations , also called pay-for-performance (P4P) in broader contexts. I will use ACO and P4P interchangeably for this post. In this concept the care providers (hospitals, doctors etc.) are reimbursed mainly by metrics signifying quality, appropriateness and efficiency of the health care provided. This contrasts from the current standard where the providers are predominantly paid for each service provided including the number of tests they order during the course of their treatment.

The healthcare industry, while built on compassion and care, still has to control and recover costs and have an operating margin. One major (and welcome) change that is expected with adoption of ACOs is that practitioners of various sub-specialties interact more freely.

Of all the good things that can happen with this change to ACOs, one possible outcome worries me. In this worrisome scenario, the hospitals and care organizations train their staff to achieve the above goal with as much margin as possible and over time reach a steady state that is optimized primarily for the margin, while patient care gets adversely affected. Let us consider the scenario where the patient falls in a socio-economic or other stratification category, or has disease that is not easy to visualize and diagnose – then a couple of physicians independently doubting the patient in their notes can lead to the system claiming that they have provided adequate care and meet the payment criteria, while optimizing the care cost. This patient is unlikely to receive optimal care.

Another example (probably also related to the above) is the 30 day readmission rate as a criterion for evaluation of performance: in this context there will be a strong tendency to compromise patient care if the patient returns for care on day 27, for instance. With all due respect for compassion and care of medical professionals, the need to optimize margin might force them to make decisions that are not optimal care for that day. One evolving trend is highlighted in this article.

To avoid such a scenario, the system: patients, physicians (and other care providers), payers and regulators have to simultaneously achieve their goals of patient care and cost control while balancing everyone’s financial incentives – without burden on one of the players in the equation.

Let us avoid a steady state that compromises patient care while adopting an honorable goal that could forever transform our healthcare system and costs.

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Picture based on a reflection captured from subway window in Zurich. It is modified and used to show four major facets in healthcare: Patients, Providers (of healthcare), Payers and Regulators.