ACOs In Practice

The accountable care organization ( ACO ) is a new model that has been proposed for health care reform.

The primary objectives of the ACO are to reduce costs, increase efficiency and improve the quality of patient care. The payer is basically aiming to reduce costs and at the same time improve quality of care. Since payers would give the ACO's a lump sum to cover all care, the ACO's would retain any savings that result from more efficient patient care. This is supposed to be the motive for physicians and hospitals to ensure that the patient is healthy and out of the hospitals and not do more procedures.

The ACO members will  share in the savings that results from their cooperation and coordination. Thus, ACOs can–theoretically–act as a reform tool by incentivizing more efficient and effective care. This would help to combat the current perverse incentives of overutilization and overbuilding of health care facilities and technology.

ACOs In Practice :

The ACO would have to be a legal organization that can receive shared savings, and would have to incorporate primary care physicians who solely practice under the ACO. Furthermore, there would have to be at least 5,000 beneficiaries in the ACO for it to be viable. The ACO would provide CMS with a list of their providers willing to participate in the ACO. The beneficiaries would be determined by, among other things, the patterns of patient referrals in the region. However, beneficiaries would not be “locked in” to a given provider. The ACO would receive savings if their risk-adjusted, per beneficiary spending levels were below their benchmark.

 

An Example :

An hypothetical independent practice association (IPA) teams up with a community hospital to create an ACO. Medicare determines a benchmark, that is, what it will cost to treat the average beneficiary in that geographic area per year–let’s say $10,000. The physicians submit their traditional claims to Medicare under the RBRVS system while the hospital submits its typical DRG-base claim. Thus, the traditional fee-for-service system remains in place. At the end of the year, Medicare determines if the ACO has provided care for less than $10,000. If they have, the ACO is entitled to share in the cost savings, and the savings are divided among the providers and hospital. Though simple in theory, ACOs become more difficult when attempting to construct payment models that will distribute the savings of the ACO to the individual providers.