Accountable Care Organizations (ACO) – Hospitals Buying Up Practices

Posted on April 5, 2011 I Written By

John Lynn is the Founder of the blog network which currently consists of 10 blogs containing over 8000 articles with John having written over 4000 of the articles himself. These EMR and Healthcare IT related articles have been viewed over 16 million times. John also manages Healthcare IT Central and Healthcare IT Today, the leading career Health IT job board and blog. John is co-founder of and John is highly involved in social media, and in addition to his blogs can also be found on Twitter: @techguy and @ehrandhit and LinkedIn.

Everyone in healthcare is currently talking about the recently released proposed rule on Accountable Care Organization (ACO). In fact, I posted on EMR and HIPAA a guest post about the ACO Legislation and its ties with healthcare IT, meaningful use and EMR. It’s definitely worth a read.

This move to ACO’s (and to some extent healthcare IT) were described nicely by Maria Todd on Twitter:

As many have said, the ACO train has left the station. In an October article, HIStalk posted about the movement of hospital organizations acquiring physician practices and offered some lessons learned from similar movement back in the 1990’s.

An interesting analysis: hospitals are buying up primary care practices to prepare themselves to become Accountable Care Organizations, which could be the end of the line for small, independent practices. Hospitals are looking at increasing PCP salaries like a Wall Street analyst looks at price-to-earnings ratios, knowing that internists and family practitioners generate hospital revenues at nine times their average salaries, while expensive specialists generate a multiple of only five times their salary. For industry noobs, it’s time for hospitals to get taken to those 1990s cleaners all over again, because:

  1. Docs sell out precisely because they don’t want to work  as hard for their new hospital employer as they did for themselves (duh).
  2. Hospitals are notoriously bureaucratic and inefficient managers, making them particularly unsuited for running a low-overhead medical practice in every way from EMRs to personnel policies to regulatory compliance.
  3. Private practice docs hate and distrust everything about hospitals except the money they have and don’t usually change their opinions or behaviors just because they sell them their practices.
  4. Doctors resent taking orders and being told how to practice medicine, especially from suit-wearing hospital MBA-types who fancy themselves business experts despite always having worked for a paycheck instead of themselves, making it likely all these deals will fall apart in 4-5 years like they did last time around, with the docs scrambling to start up new practices without the benefit of a location, an EMR, or patients that they sold away to the local hospital in a frenzy of co-opetition.
  5. Patients aren’t much more enthused about hospitals than doctors are, so they aren’t exactly thrilled to see the big sign go up over their friendly little doctor’s office knowing it’s the same folks with ED waits, bad cafeteria food, and terrible parking.

I’ll be really interested to see how these ACO organizations play out and if it is indeed the end of the small physician practice. Although, my gut feeling say that this is cyclical.

While hospitals buying physician practices is one method for creating an ACO, I’d love to hear other models that might be used to create an ACO. Feel free to sound off in the comments with your thoughts and ideas.