AHA Says ACO Costs Far Exceed CMS Estimates

The American Hospital Association says the feds used figures based on physician group practices that already have many ACO elements in place.
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The start-up investment required to establish and sustain an Accountable Care Organization (ACO) is considerably higher--$11.6 million to $26.1 million--than the $1.8 million estimated by CMS in its proposed rule for launch and one year of ongoing operations, according to a study by the American Hospital Association.

Caroline Steinberg, VP of health trends analysis at the AHA, said CMS estimates missed the mark because they were based on the experience of physician group practices that already had many ACO elements in place, such as hospital/doctor relationships. Also, most had electronic health records (EHRs) implemented, which they leveraged to participate in pay-for-performance programs. "That is very different from what CMS is trying to accomplish here--to move organizations that are currently operating on a fragmented and episodic basis."

The study identifies 23 different capabilities that must be developed across four categories to achieve the desired transformation in care delivery: clinical information systems, data analytics, network development and management, and care coordination, quality improvement, and utilization management.

Of these categories, Steinberg said clinical information systems, or EHRs, constituted the largest cost factor. "Upfront IT investment was the big-ticket item," she said.

Not having an EHR isn't the only technology challenge, she noted. "Probably 80% don't have an EHR, and those that do could be on any number of platforms," Steinberg said. "There is a lot of investment needed for doctors to get EHRs, then much time and effort is required to get them to talk to each other."

The information gathered from four case studies was used to create two hypothetical examples to estimate the start-up and ongoing costs of establishing an ACO. The first represents a single free-standing hospital, 80 primary care physicians, and 250 specialists. The second example includes a five-hospital (1,200 bed) system, 250 primary care physicians and 500 specialists. The AHA sent a letter to Donald Berwick, CMS administrator, to highlight the findings.

Steinberg said the study was conducted to help the AMA craft an informed comment letter on CMS's Accountable Care Organization notice of proposed rulemaking.

The study was prepared for the AHA by McManis Consulting of Greenwood Village, Colo., and is based on studies of organizations that have already taken steps to manage the care of a defined population in a manner similar to that of an ACO. This work was completed prior to the release of the proposed rule, so it does not include estimates of the costs of meeting requirements specific to the Medicare Shared Savings Program. A second white paper addresses the management and strategic issues involved in establishing ACOs.

Anthony Guerra is the founder and editor of, a site dedicated to serving the strategic information needs of healthcare CIOs. He can be reached at [email protected].

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