For those of you who work in healthcare, you’re probably well aware of the term Accountable Care Organizations (ACOs). For those of you outside the industry, ACOs are a new mechanism that is included in Obamacare, the sweeping U.S. healthcare reform that was recently upheld by the Supreme Court. Without getting into all the technical details, the ACO mechanism rewards doctors and hospital for working together to improve quality and reduce costs of care for Medicare. Traditionally, the U.S. healthcare system has been highly fragmented with conflicting incentives. This has, in part, contributed to the overall healthcare spending level of the US, which is projected to reach approximately 18% of GDP in 2012.
In a recent Forbes story (Obamacare’s Accountable Medicare Effort Surpasses Goals, Critics; Forbes July 9, 2012), the author notes that the adoption of ACO’s are ahead of the administration’s projects. While many believe the current law has issues and, there will be kinks to work out in the implementation over time, ACOs are unlikely to go away. For medical technology companies and healthcare suppliers, ACO’s can be either a blessing or a curse.
By better aligning the interests and becoming savvy buyers of goods and services, hospitals should be able to drive much better control of purchases and greater supply savings. Payment demonstration projects in the U.S. show that aligning physician and hospital financial interests around the use of expensive medical supplies reduces both utilization and price. Better aligning physicians, hospitals, and others through ACOs are likely to have a big impact over time. Additionally, cross industry studies of procurement show that hospitals and healthcare lag behind most other industries in sophistication, and the use of modern procurement strategies and tools. This is likely to change as cost-containment grows, and hospitals become more sophisticated and tougher buyers of goods and services.
Med Tech companies that are proactive, and approach the new market strategically will be winners. Those companies that lack vision and leadership to face the evolving marketplace will struggle. Being a winner will likely mean the company takes a deep and honest look at selling strategies, the sales organization skills, the innovation strategy, approaches to value and evidence, and new pricing and contracting models. While ACOs won’t spread like wildfire initially, they are a signal that cost-containment, and tougher value-assessment for medical technologies will likely accelerate. Get prepared!