The Rising Accountable Care Organization

In the United States, healthcare costs individuals, employers, and governments a lot of money — $2.7 trillion in 2011 alone. If we are to sustain the recent decrease in spending (which many believe is a function of the Great Recession, and not a permanent trend), then something needs to be done.

But wait? Isn’t that the goal of the Affordable Care Act, also known as Obamacare? The simple answer is yes, that is the goal. The longer answer is that we need to wait and see if it actually does it. However, there are a few promising signs that certain reforms are working.

Take Medicare, the second largest entitlement program in the Federal budget. It accounts for nearly 21% of healthcare expenses and covers around fifty-million retired people. With its wide reach and immense scope of services, reforms to this program reverberate throughout the healthcare industry.

One such reform is the Accountable Care Organization (ACO). Like a Health Maintenance Organization (HMO), an ACO is a bundled group of providers — physicians, specialists, and hospitals — that coordinate care to reduce cost per patient by spending resources more efficiently. However, in an ACO, care providers, who meet specific quality metrics for their patients, can share in the difference between negotiated benchmark costs and the actual costs of care. By rooting out inefficiencies, such as unnecessary procedures, ACOs are expected to incentivize medical care that rewards quality over quantity.

Do ACOs actually reduce cost? A recent report by the Commonwealth Fund found that even with high investment costs, “early results suggest modest savings and significant promise.” The American Medical Association tracked a privately provided ACO and found that average cost fell for all patients serviced. Even initial adapters, who faced significant hurdles in implementing necessary changes, have reported cost savings. This is important because ACOs are a growing component of Medicare and are proving attractive to private healthcare providers.

The more important question is whether the ACO model will contribute to the financial sustainability of the healthcare system. While there are many facets to the industry, it just might be the change that encourages providers and patients to think more holistically about healthcare. Then again, people said that about HMOs in the ‘80s and ‘90s until they faced a consumer backlash and fell from favor. Regardless of the outcome, expect to hear much more on Accountable Care Organizations from the media, government officials, and your neighbors.

Image Credit: Alex Proimos (Flickr: The Stethoscope) [CC-BY-2.0 (]

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