The need to develop an Accountable Care Organization (ACO) is one of the leading priorities of most hospital executives but there continues to be ambiguity about what an ACO is and what it is designed to accomplish (see: Hospital Executives Search for the Formula for an Accountable Care Organization; The End of Health Insurance Companies by 2020?). A recent article in The Atlantic discusses emerging healthcare models and then provides more details about ACOs (see: The 5 Mega-Trends That Are Changing the Face of Health Care). Below is an excerpt from the article about emerging models with ACOs being one of them. Read the whole article if you have time.
As the sweeping transformation in health care takes hold, several models appear to be taking shape. Each has its strengths and weaknesses and each presents opportunities and risks, but the following three deserve serious analysis and represent different points on the risk spectrum:
- Bundled payments model: calculates total historical payments for the various components of a bundle and then discounts or at least holds constant that amount, placing the responsibility for cost and quality control in the hands of the collective providers.
- Accountable Care Organization (ACO) model: seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients.
- Capitation model: sends a fixed per-patient prepayment of premium dollars to a provider in return for medical services....
ACOs. For their part, ACOs are hardly proven, but in theory they should achieve results. The overarching idea is to get patients who aren't being treated in a coordinated manner into a system that can deliver care more effectively. The upsides to ACOs are:
- Physicians and other professionals have an opportunity to reap financial benefits of efficiency driven by quality.
- Hospitals that get involved can partially make up for declining volumes associated with higher quality and efficiency.
- Patients currently accessing services in a disjointed manner are likely to have a better overall health care experience in a coordinated system.
- Quality is likely to be enhanced because of coordination and aligned incentives.
- Providers will likely increase collaboration. Existing risk-bearing organizations can increase "membership," and many have already developed at least a portion of the infrastructure and have experience managing risk....
The ACO model, if more broadly accepted, could have a major impact on hospitals, especially because the overall goals here are to reduce unnecessary services and provide better overall health care, which would mean less traditional business for them. A prime issue is that costs--for labor, devices, supplies, equipment, and construction--aren't addressed. And the Affordable Care Act exacerbates this situation by creating additional taxes, such as those levied on device manufacturers and payers, that will be passed through to purchasers.
My general impression is that most hospital executives and, in fact, most healthcare professionals like nurses and physicians, don't have any idea about how to reduce unnecessary services. In fact, most of this group might have a hard time even defining unnecessary services. This is because most were trained and have practiced in an era of plenty where greater delivery of services was praised and elimination of services was criticized. Part of the dilemma lies in the fact that all services industries are highly dependent on labor costs (and new technology in the case of healthcare). Both sets of costs are difficult to ratchet down. In my opinion, part of the solution to the reduction of unnecessary services is engaging patients to take more ownership for their own health. Clearly, most of them need some advice about how to achieve this goal. Healthcare consumer education will thus be one of the major goals. Much of this will be accomplished via the web and social media but we have a long way to go to learn how to do it from both the hospital and consumer perspectives.
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