Accountable Care Organizations (ACOs) are entities in which health care providers (not the government or third parties) assume accountability for the quality and cost of care for patients. Under ACOs the providers become accountable for the care provided and the need for the care, in ways they have not been before.
A critical aspect of ACOs is how they are reimbursed for their services. Instead of being paid based on the performance of more procedures and more tests, under ACOs providers of health care services are paid based on delivery of quality care and achievement of better outcomes. The goal is a reimbursement approach that the Medicare program and commercial payers (managed care companies and self-funded employers) will all utilize to move away from fee-for-service medicine to payment based on delivery of efficient and quality care.
There are a number of drivers underlying the introduction of ACOs. Health care in the United States is expensive. Per capita health care expenditures in the U.S. are approximately twice as high as in any other industrialized country. Health care expenditures constitute nearly 18 percent of our nation’s GDP and are growing, with projections to reach 25 percent of GDP within the next 15 years.
We do not receive better quality for this higher cost. The 2011 study of The Commonwealth Fund, a private foundation focused on health care issues, ranked the United States very low on measures of quality compared to other industrialized nations. We were ranked last of 16 countries on infant mortality and mortality amenable to medical care. The United States also ranked the poorest on measures of access to care and on the number of duplicative tests performed.
Because US companies foot much of the health care bill, this health care performance places United States manufacturing and other companies at a competitive disadvantage in our global economy.
A managed care company executive recently explained that a prevalent ailment in the population is lower back pain. A large variable in the expense of treating lower back pain depends on whether a patient initially seeks care from a primary care physician or from a surgeon. The former will often develop a care plan that leads to physical therapy and exercise, while the surgeon frequently recommends a surgical approach, something he or she knows best. The cost difference can be large with no consistent difference in the outcome.
Our society also incurs significant health care costs because of a lack of wellness programs and preventative care, the failure to efficiently manage those with chronic diseases, and the need for sensible decisions for people as they near the end of life. ACOs are designed to make providers accountable for improvements, including in these areas.
The Centers for Medicare and Medicaid Services (CMS), which oversees the Medicare program, issued regulations in late October to develop a program known as the Medicare Shared Savings Program, that would pay providers who voluntarily choose to develop an ACO and participate on a basis that rewards them for reducing Medicare expenses. That program pays ACOs a share of the savings in Medicare expenditures, with the share based on how successfully the ACO has met quality performance standards. While initially skeptical of this Medicare program, providers are increasingly willing to participate.
Another program will test paying providers one sum for all the care involved with a patient's hospitalization whether performed by hospitals, physicians, labs, nursing homes or others, including care provided up to 90 days after the hospital discharge. The payment method encourages coordinated decision-making among the providers.
Still another program utilizes a medical home, or team of primary care providers, to be assigned to patients with chronic diseases. The medical home understands the patient more fully and makes decisions that coordinate care and reduce duplication and fragmented care. These medical home models have been shown to reduce costs of care while improving quality.
In commercial markets, innovative providers are developing their own ACO approaches to help ensure that coordinated and non-fragmented care is delivered to patients. Some providers, in combination with insurers, are standing behind their ability to be accountable for the quality and cost by offering guarantees.
As ACOs develop in our local market, businesses and individual consumers will likely be faced with accessing the health care system through these new models. It’s still very early in the game to determine how effective ACOs can be, but they represent a significant attempt to rein in health care costs and improve care.
Fred Geilfuss is a partner in Foley & Lardner’s Milwaukee office and a member of the firm’s Health Care Practice Group, which was recently recognized by U.S. News and World Report as the top health care practice in the United States.