Accountable Care Organizations (ACOs) are the latest rage in the health policy world. The question is, what are ACOs. The Urban Institute’s Kelly Devers and Robert Berenson try to answer the following question: “Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandaries?”
The goal of ACOs is to pay providers in a way that encourages them to work together, to pay providers in a way that does not encourage supplier induced demand, and to create an organization that is rewarded for providing high quality care. What kind of organizations are currently poised to evolve into ACOs. This chart evaluates the prospects.
One question is why doesn’t Medicare just use their current Medicare Advantage program to accomplish these goals. In the Medicare Advantage program, Medicare pays a lump sum to private insurers and holds them accountable for all the medical care the beneficiary needs. However, there are three main differences between ACOs and HMOs.
- The “accountability” rests with the providers. Providers or provider groups, rather than insurance companies, are evaluated on the quality and efficiency of care.
- Direct contracting with provider organizations without the reliance on a health plan intermediary.
- The ACOs allow for flexibility in the type of organization. Some regions may prefer independent practice associations (IPAs) while others may prefer a physician-hospital organization (PHO).
The physician-centered organization makes much sense to many policymakers because “the resources that flow from the decisions physicians make with patients account for a major portion of overall health care costs, regardless of where the care actually takes place.”
Medicare could pay ACOs with a “gainsharing” mechanism. In the gainsharing framework, the fee-for-service payment structure remains, but a portion of patient cost savings gets passed through to the physician. On the other hand, Medicare could institute a partial capitation scheme. This would be similar to Medicare Part D, where the prescription drug plans get a flat rate per person, but they also receive are involved in risk corridors, which “limit a prescription drug plan’s potential losses should the plan happen to experience much higher utilization and costs than expected.”
One problem with this framework is that physicians are good at treating patients, not at risk management. Thus, many physicians may get stuck with high-risk patients and some ACOs may become insolvent unless there are adequate Medicare risk adjustment payments.
Secondly, patients may see ACOs as HMOs in disguise. “[I]f beneficiaries believe that ACOs are essentially tightly managed ‘HMOs in drag’ that are going to restrict their choices, undermine the doctor-patient relationship, and result in cheaper but lower-quality care, the concept will be met with skepticism, if not overt opposition.”
Other obstacles to ACOs include possible FTC and DOJ desires to quash ACOs on anti-trust grounds. Further, state governments may need to change laws related to insurance regulation as well as organizational and professional liability.
- Devers K, Berenson R (2009) “Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandaries?” Timely Analysis of Immediate Health Policy Issues, Urban Institute, October 2009.