“ACO” (Accountable Care Organizations)
Healthcare is famous for its three letter acronyms. Over the past 40 years we have been given the HMO, PPO, MSO, and the MCO to just name a few. Today there is new “three letter” name in the market, ACO.
The ACO’s full name is Accountable Care Organization and just as many of its predecessors, it is the latest attempt at creating a business model to “save” healthcare. What are we attempting to save healthcare from, you ask? Most economists agree that healthcare spending is rising so rapidly that soon, most people won’t be able to afford either their insurance premiums or the cost of care. The concept and name was first noted in a conversation between two doctors at the MedPAC meeting in November 2006. As with all the previous models, which have effectively failed, the goal continues to be to contain costs and more effectively manage the dollars being spent in Healthcare. So what is an ACO?
An ACO is a multispecialty network of doctors and a hospital that is either organized as a virtual network or a real network. The real network will generally be defined by ownership of the members by a single entity; the virtual network will have doctors simply contractually tied to an entity for patient care and so as to be to receive payment for services through the network. In the real network, physicians will be employees, whereas in the virtual network the physician will be an independent contractor. The ACO is seen as the principal tool to reduce Medicare spending. ACO member healthcare providers will manage the total cost of care and provide better outcomes. It is purposed that by treating patients within the network providers will generate better outcomes and at a lower cost. The benefit to the healthcare economic model will be achieved by sharing patient information quickly and efficiently across their network, so that the providers can make better decisions that will cost less. Immediate saving should be experienced by improved communication within the network which will eliminate unnecessary visits, redundant testing and excessive healthcare services. The savings will then be shared across members in the form of incentives or bonuses. The ACO will be defined by three essential characteristics.
- The ability to provide, and manage patients through the continuum of care across different institutional settings, including at least ambulatory and inpatient hospital care.
- The capability of prospectively planning budgets and resource needs.
- Sufficient size to support comprehensive, valid and reliable performance measurement. (It is estimated for ACO to function it will require a minimum of 5000 Medicare lives or 15,000 lives covered with private insurance.)
Today, the majority of healthcare providers are paid on a fee-for-service model that permits them to make more money by providing more services. In the ACO model, providers would not be incentivized for more services but instead for generating better outcomes at a lower cost. They would continue to be paid on a fee-for-service model, but would receive incentives and bonuses for limiting expenses and meeting specific quality outcome benchmarks. The focus of care would shift to preventative services and to the management of chronic diseases.
The compensation model again sounds vaguely familiar to the HMO model where providers were incentivized for “managing” the cost of care associated with their patients. With few details available today, it has not been explained how providers will specifically be incentivized by the ACO. The fear will be that providers, who are trained to deliver care, might be encouraged to withhold services or “manage” care for economic reasons that will benefit the ACO but not necessarily the patient. The goal will be to balance economic decisions against successful outcomes. Whether it is true that better patient outcomes will cost less money is still to be proven.
ACO’s are a principal part The Patient Protection and Affordable Care Act that was passed by Congress and signed into law by President Obama in 2010. In the law, ACO’s are seen as a primary tool for attacking the rising cost of Medicare. “The Congressional Budget Office has estimated that ACO’s will save Medicare at least $4.9 billion through 2019. This amount seems relatively insignificant when considering the total cost over the period but it has been suggested that if ACO’s are successful they will expanded to create a more significant impact and savings. The Engelberg Center reported that Medicare currently spends three times more per person in some regions than it does in other regions with no evidence that the additional expense is directly related to better outcomes.
ACO’s are scheduled to begin operations in 2012. In preparation for that Hospitals are actively purchasing medical practices to create their Multi-specialty ACO Networks. In some cases, providers are simply entering into a relationship to participate with the ACO, creating a virtual network. Currently “pilot” programs are running in several areas of the country which includes Atlanta, Southern New Hampshire and Virginia. It is still too early to know if the ACO model will be a long term solution for that can contain healthcare costs and improve the quality of care, but it is certain our latest Healthcare Acronym will be the subject of many discussions and educational programs in Healthcare for years to come.
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