Considerations of Value for the
Positive Externalities of ACOs
Healthcare industry stakeholders have consistently disagreed over the relative costs and potential
benets of ACOs. Notwithstanding this uncertainty, there is growing support for the position that
the ACO concept has value, if not the current proposed structures for ACOs and their implementa-
tion and operation. Outside of the potential of nancial return to investors from ACO development
(as discussed in the previous chapter), an ACO also is likely to have nondirect investment- related
benecial effects for third parties. These external benets received by third parties are known
as positive externalities, which occur when a third party has a legitimate interest in a particu-
lar outcome.
For the purposes of this chapter, the outcome addressed is the successful develop-
ment and implementation of ACOs, by which value may accrue to third parties including patients,
employers, and the broader U.S. population (SOCIETY); health systems, hospitals, and physicians
(PROVIDERS); and managed care organizations, commercial insurers, and Medicare (PAYORS).
Each of these third parties may benet from ACOs, in which benets may be differentiated between
monetary and nonmonetary.
Key Term Definition Citation
Positive externalities Positive effects or benets on third
parties (e.g., society, providers, or
Health Care Economics, 6th ed. Paul J. Feldstein,
Clifton Park, NY: Thomson Delmar Learning, 2005,
Desires and interests are, as we have seen, themselves causal conditions of results. As such, they are
potential means and have to be appraised as well. … There is an indenite number of proverbial sayings,
which, in effect, set forth the necessity of not treating desires and interests as nal in their rst appear-
ance but of treating them as meansthat is, of appraising them and forming objects or ends- in- view
on the ground of what consequences they will tend to produce in practice. … They are summed up in
the old saying, Respice nem, a saying which marks the difference between simply having end- in- view
for which any desires sufces, and looking, examining, to make sure that the consequences that will
actually result are such as will be actually prized and valued when they occur.
John Dewey
Theory of Valuation, 1939
All value is the expectation of future benet.
In the healthcare industry, this expectation of future
benet, on an economic basis, can be measured as “health outcomes achieved per dollar spent.
A visual depiction of the measurement of the expectation of future economic benet in the health-
care industry is illustrated in Figure8.1.
Key Concept Definition Citation
Value The expectation of future economic
benet. In the healthcare industry, this
is measured by “health outcomes
achieved per dollar spent.
What Is Value in Health Care? Michael E. Porter, The
New England Journal of Medicine, December 23,
2010. Online at: http://www.nejm.org/ doi/
full/10.1056/NEJMp1011024 (Accessed 11/22/11).

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