Accountable Care Organization

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An Accountable Care Organization (ACO) is an HMO-like model created by ObamaCare, which encourages physicians, hospitals, and other medical service providers to form organizations to contract with third-party payers on a cost-savings basis. The financial incentive for ACOs is to keep patients out of hospitals, where medical care is more expensive. The ACO model emphasizes coordinated and preventive care in order to reduce health care expenses. The savings are to be divided between the ACO and the third-party payor.

Most ACOs do not include hospitals, but are focused on the use of primary care physicians and electronic medical records to manage patients. Many hospitals, although typically not the best ones, are also forming ACOs.

The basic idea is this: lower readmissions rates at hospitals by using technology to communicated with and track blood pressure and cholesterol better, and also follow-up better with diabetic patients.

About half of the nearly 500 ACOs in existence in late 2013 are approved by and contracted with Medicare (HHS), while the other half are in contracts with insurance companies. Soon many of the Medicare ACOs will be up for renewal, and it is possible that many of them will elect not to continue as a Medicare ACO.

Medicare ACOs

About 14% of Medicare patients use ACOs. The two main types of Medicare ACOs are:

  • Medicare Shared Savings Program
  • Advance Payment ACO Model, which contains additional financial incentives for selected ACOs from the basic Shared Savings program

There was also a Pioneer ACO Model, but that preliminary program is no longer open to applications.

Medicare patients are not obligated to see physicians or facilities that are in Medicare ACOs.

Requirements for Medicare ACOs

The basic requirements for a Medicare-based ACO are as follows:

  • a minimum of 5000 Medicare patients
  • a commitment to remain an ACO for at least 3 years
  • sufficient primary care physicians in the ACO to manage the volume of patients
  • a legal structure that allows the sharing of savings
  • use of electronic medical records
  • compliance with HHS patient guidelines
  • promotion of evidence-based medicine
  • reporting to HHS on data such as hospital admissions, discharge and follow-up

The incentives for an ACO include:

  • reimbursement by Medicare as before, plus eligibility to receive "shared savings" if certain HHS-defined performance standards are met.
  • the "shared savings" incentives are based on reduced annual average per capita Medicare Parts A and B expenditures for the patients.
  • penalties apply if costs are greater than expected.

There are caps on the shared gains and losses roughly 5-10% of the benchmarks.

Pioneer Program Results

An early pilot program, called the "Pioneer Program." was largely unsuccessful for the participants, with a substantial percentage dropping out and several prestigious programs owing multimillion-dollar penalties for not meeting goals in reducing patient expenses, in addition to their own extra costs required to participate.

Specifically, only 13 out of the original 32 Pioneers saved enough in health care costs to receive any of the incentive benefits from Medicare, and those benefits probably did not cover additional administrative and technology costs necessary to participate in the program.

HHS announced that these health care providers decided to leave the Pioneer Program:

  • Presbyterian Healthcare Services - a large provider in New Mexico
  • University of Michigan
  • Seton Health Alliance
  • Prime Care Medical Network Inc.
  • Healthcare Partners - Nevada and California ACOs (LLCs)
  • Physician Health Partners LLC
  • Plus (North Texas Specialty Physicians and Texas Health Resources)
  • JSA Care Partners LLC