Accountable Care Organization

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.

About half of the roughly 488 ACOs in existence in late 2013 are approved by and contracted with Medicare, while the other half are in contracts with insurance companies.

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.

Pioneer Program Results

An early pilot program, called the "Pioneer Program." was largely unsuccessful for the participants, which a substantial percentage dropping out, and several prestigious programs having to pay multi-million-dollar penalties for not meeting goals in reducing patient expenses.