Accountable Care Organizations (ACOs)

Accountable Care Organizations (ACOs) are an important part of Obama’s health care reform plan. Details of the concept have yet to be created, but what is known so far is the following:

WHAT IT IS: a network of doctors and hospitals that shares responsibility for providing care to patients. An ACO would agree to manage all of the health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years. Each ACO would be governed by a board representing medical providers, suppliers and Medicare patients.

WHY: With baby boomers entering retirement age, the costs of Medicare for elderly and disabled Americans are expected to soar. Now, patients are getting each part of their health care separately. ACOs aim to create a network where people can go for all their health care services.  ACOs will need to prove that the overall health care product they’re creating does work better and costs less in order to encourage patients to buy and use it.

HOW: ACOs would make providers jointly accountable for the health of their patients, giving them strong incentives to cooperate and save money by avoiding unnecessary tests and procedures. Those that save money while also meeting quality targets would keep a portion of the savings.

Today, doctors and hospitals generally are paid more when they give patients more tests and do more procedures, as Medicare works on a fee for service basis.  ACOs wouldn’t do away with fee for service but would create savings incentives by offering bonuses when providers keep costs down and meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. In other words, providers would get paid more for keeping their patients healthy and out of the hospital. Officials say ACOs that show cost savings could be rewarded with $800 million over three years, but those that don’t meet targets could pay penalties of $40 million to Medicare.

START AND POTENTIAL: The programs planned starting date is January 2012. Federal officials estimate the program could save up to $960 million in three years by streamlining care, reducing redundancies and improving patient health.

HMO versus ACO: Unlike HMOs, patients within an ACO are free to go to any doctor, hospital or other facility that’s not in the ACO. Although physicians will likely want to refer patients to hospitals and specialists within the ACO network, patients would still be free to see doctors of their choice outside the network without paying more. ACOs also will be under pressure to provide high quality care because if they don’t meet standards, they won’t get to share in any savings – and could lose their contracts.