Brian and Garrett Fahy

Implausible Capital Requirements - For ACOs to work, they must bear risk. To bear risk, ACOs must be adequately capitalized, which requires sufficient fees from patient services. This is especially problematic in programs like Medicaid, where the hospital reimbursement rate averages 62 percent compared to private payers. The result is a devil’s bargain: either the states (many of which are broke) pay more or the patients (who are not the 1%) pay more to ensure the ACOs’ risk-capitalization. The American Health Association recently released a report which noted that actual ACO start-up costs will be ten times those projected by the Administration. A federal government with a $15 trillion dollar debt simply has no credibility (or constitutional) authority to tell states – many of which face crippling debts of their own – to shoulder additional financial burdens.

Illusory Savings - Proponents claim that ACOs are vital to health care savings. The non-partisan Congressional Budget Office (“CBO”) disagrees. CBO estimates that ACOs will garner savings of $4.9 billion out of the more than $31 trillion that our country will spend on health care over the next ten (10) years. Such savings appear large, but amount to a paltry 0.00016 percent of total health care expenditures over that time. This is less than half of what Americans spent on bottled water in 2010. Further, for five years CMS has run a test model of ACOs, Physician Group Practice Demonstration, and the majority of the tested providers have achieved no cost savings employing the ACO model. If these same illusory “savings” are realized on the state level, the consequences for patients will be devastating.

Serious concerns about the ACO model have been raised by the Billings Clinic (MT), Mayo Clinic (MN), Sutter Health (CA), the Marshfield Clinic (WI) and other respected healthcare providers. Unfortunately, enthusiasm for health care central planning of this kind has spread to states across the country and politicians across the political aisle.

One state courting a fiscal embolism is Utah. In April of 2011, Governor Herbert signed Senate Bill 180, which implements ACOs for a portion of Utah’s Medicaid recipients. SB 180, which was pushed by GOP state senator Dan Liljenquist and based on rosy cost savings predictions, contains a “failsafe” trigger that activates an Oregon-style rationing program when the savings fail to materialize. Such rationing will permit state bureaucrats to target certain health care services for elimination. Those in favor of free markets, quality health care, and smaller government should be cautious about ACOs and see them for what they are: a veiled attempt to impose greater government control over the health care sector, which comprises approximately 18 percent of the economy.

Yet it is important to not only be against something, but to be for something better. Indeed, there are far better – and less costly – ways to improve health care, and they don’t require 696 pages of explanation: decoupling insurance from employment, block-granting Medicaid funds to states, creating and promoting health savings accounts, removing barriers to interstate plan competition, and disincentivizing medical malpractice suits. Politicians who pursue these and other meaningful reforms risk alienating the AARP, but they will be doing their citizens a great service by promoting health care reforms that will produce better services at cheaper cost.

The late Apple visionary Steve Jobs, who was not a health care expert, was famous for his belief that consumers did not know what they wanted until they were shown it. Such belief rings true in health care, where health care consumers (patients) will not understand and demand the benefits of true reforms until they are given them. Now is the time to start.

Brian and Garrett Fahy

Brian and Garrett Fahy are attorneys from Los Angeles who previously worked in the White House and Senate Republican Conference, respectively. They write on national legal and political affairs. They can be reached at