How Accountable Care Organizations are changing health care Featured

4:19pm EDT July 5, 2011
How Accountable Care Organizations are changing health care

Health plans and health care providers are always working to improve patient outcomes and, ultimately, reduce costs. And one of the latest ideas that is generating buzz is the Accountable Care Organization.

“The creation of ACOs would make providers jointly accountable for the health of their patients,” says Sally Stephens, president of Spectrum Health Services. “Health care providers will receive strong incentives to cooperate and reduce costs by avoiding unnecessary tests and procedures. If they successfully reduce costs while also meeting quality targets, they will be able to keep a portion of the savings.”

Smart Business spoke with Stephens about how ACOs work and what their eventual impact may be on employers, employees and the health care delivery system.

What is an ACO and how does it work?

According to the Centers for Medicare and Medicaid Services (CMS), an ACO is ‘an organization of health care providers that agrees to be accountable for the quality, cost and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.’

Under the new health care law, an ACO would agree to manage all health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years. Unlike our current health care system, in which patients are getting each part of their health care separately, ACOs are designed to reduce costs and improve quality of care through cooperation and coordination among providers.

Why are ACOs becoming more prominent?

As part of the new health care law, many providers — mostly hospitals and physician groups — have embarked on a quest to quickly implement ACOs. And, as lawmakers search for ways to reduce the national deficit, Medicare has become a prime target. As baby boomers enter retirement age, the cost for programs for elderly and disabled Americans is expected to soar.

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. For ACOs to work, they would have to cooperate and seamlessly share information. Those that save money, while also meeting quality targets, would keep a portion of the savings.

Health and Human Services estimates that ACOs could save Medicare up to $960 million in the first three years. That’s far less than 1 percent of Medicare spending during that period; but if the program is successful, it can be expanded by the secretary of Health and Human Services.

How can ACOs affect employers, employees and the health care delivery system?

While the main focus is on the Medicare population, ACOs may also service private insurance as offered through employers. ACOs promise to provide a solution to the ‘serious gaps in quality and widespread waste’ within the health care system. The ACO model is designed to address the lack of financial incentives for reducing costs while improving quality, coordination and consistency of care.

What factors must be met for a health care provider to consolidate to an ACO model to satisfy reform legislation?

Requirements as outlined in the new health law state that ACOs:

n Must be willing to become accountable for the quality, cost and overall care of the Medicare fee-for-service beneficiaries assigned to it.

n Shall enter into an agreement with the secretary of Health and Human Services to participate in the program for not less than a three-year period.

n Shall have a formal legal structure that allows the organization to receive and distribute payments for shared savings to participating providers and suppliers.

n Must include a sufficient number of primary care professionals for the number of Medicare fee-for-service beneficiaries assigned to the ACO.

n Must, at a minimum, have at least 5,000 such beneficiaries assigned to it in order to be eligible to participate.

n Will provide the secretary with information on participating professionals as the secretary determines necessary to support the assignment of Medicare fee-for-service beneficiaries to an ACO, the implementation of quality and other reporting requirements and the determination of payments for shared savings.

n Shall have a leadership and management structure that includes clinical and administrative systems.

n Must define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care to remote patient monitoring.

n Shall demonstrate that it meets patient-centered criteria specified by the secretary.

What challenges does the ACO model face before becoming mainstream?

Because few ACOs exist, it is difficult to know how effective they will be. In theory, ACOs provide financial incentives to health care organizations to reduce costs and improve quality. Some skeptics feel that, given the complexity of the existing system, ACOs may fail because they will most likely exacerbate the very problems they set out to fix. Many health care economists fear that the race to form ACOs could have a significant downside in hospital mergers and provider consolidation.

As hospitals position themselves to become integrated systems, many are joining forces and purchasing physician practices, leaving fewer independent hospitals and doctors. Greater market share gives these health systems more leverage in negotiations with insurers, which can drive up health costs.

In the end, ACOs could suppress competition and entrepreneurship, which are so vital to innovation and job growth.

Sally Stephens is president of Spectrum Health Services. Reach her at (317) 573-7600 or sally.stephens@spectrumhs.com.