NATIONAL BUREAU OF ECONOMIC RESEARCH
NATIONAL BUREAU OF ECONOMIC RESEARCH

Structuring Incentives Within Organizations: The Case of Accountable Care Organizations

Brigham Frandsen, James B. Rebitzer

NBER Working Paper No. 20034
Issued in April 2014
NBER Program(s):   HC   IO   LS

Accountable Care Organizations (ACOs) are new organizations created by the Affordable Care Act to encourage more efficient, integrated care delivery. To promote efficiency, ACOs sign contracts under which they keep a fraction of the savings from keeping costs below target provided they also maintain quality levels. To promote integration and facilitate measurement, ACOs are required to have at least 5,000 enrollees and so must coordinate across many providers. We calibrate a model of optimal ACO incentives using proprietary performance measures from a large insurer. Our key finding is that free-riding is a severe problem and causes optimal incentive payments to exceed cost savings unless ACOs simultaneously achieve extremely large efficiency gains. This implies that successful ACOs will likely rely on motivational strategies that amplify the effects of under-powered incentives. These motivational strategies raise important questions about the limits of ACOs as a policy for promoting more efficient, integrated care.

The NBER Bulletin on Aging and Health provides summaries of publications like this.  You can sign up to receive the NBER Bulletin on Aging and Health by email.

You may purchase this paper on-line in .pdf format from SSRN.com ($5) for electronic delivery.

Information about Free Papers

You should expect a free download if you are a subscriber, a corporate associate of the NBER, a journalist, an employee of the U.S. federal government with a ".GOV" domain name, or a resident of nearly any developing country or transition economy.

If you usually get free papers at work/university but do not at home, you can either connect to your work VPN or proxy (if any) or elect to have a link to the paper emailed to your work email address below. The email address must be connected to a subscribing college, university, or other subscribing institution. Gmail and other free email addresses will not have access.

E-mail:

Machine-readable bibliographic record - MARC, RIS, BibTeX

Document Object Identifier (DOI): 10.3386/w20034

Users who downloaded this paper also downloaded these:
Glied w20045 Health Care in a Multipayer System: The Effects of Health Care Service Demand among Adults under 65 on Utilization and Outcomes in Medicare
Ho and Pakes w19333 Hospital Choices, Hospital Prices and Financial Incentives to Physicians
Finkelstein, Taubman, Wright, Bernstein, Gruber, Newhouse, Allen, Baicker, and Study Group w17190 The Oregon Health Insurance Experiment: Evidence from the First Year
Gaynor, Ho, and Town w19800 The Industrial Organization of Health Care Markets
Rebitzer and Votruba w17535 Organizational Economics and Physician Practices
 
Publications
Activities
Meetings
NBER Videos
Data
People
About

Support
National Bureau of Economic Research, 1050 Massachusetts Ave., Cambridge, MA 02138; 617-868-3900; email: info@nber.org

Contact Us