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Coming to You: Accountable Care Organizations

Don’t look now, but you may have to join an Accountable Care Organization to see your long-time doctor.   According to the Los Angeles Times, physicians across the country are “racing” to join one of the many health care alliances being formed to provide cost effective, quality, coordinated care.  This is another development brought on by the Patient Protection and Affordable Care Act (PPACA).  These alliances, commonly called  Accountable Care Organizations (ACOs), are being incentivized by the health care reform act to curb costs and provide us with a better approach to health care and medical treatment.

What Are ACOs?

In an ACO, doctors from varying disciplines join together, often with hospitals, to establish a health provider enterprise.  Instead of maintaining separate relationships with their various doctors, people enrolled in an ACO are treated as patients of the ACO, and their care is centrally coordinated among the doctors who treat them.  All the ACO health care providers: doctors, hospitals, and staff, have access to the same patient information thereby eliminating duplications, conflicting drug prescriptions, and unnecessary treatments.  Kaiser Permanente and the Mayo Clinic are well-known examples of this type of ACO.

Capitation vs. Fee-for-Service

Doctors, when they join most ACOs also give up being remunerated on a fee-for-service basis.  Instead, they’re paid a flat fee based on the patients they’ve been assigned to treat.  This method of payment is commonly referred to as ‘capitation‘.  The fee, paid to the doctor, varies from patient to patient depending on their age and health.  What’s interesting is that the physician is paid this fee whether he sees the patient or not.  It’s in his/her interest to keep the day-to-day patient load down; and one way to do this is to keep patients so healthy they don’t need to come in very often.  He is, in effect, incentivized to educate patients in healthy lifestyles,  to devise healthy regimes for them, and to persuade them to follow his advice.  In contrast, doctors using the more common, fee-for-service, payment model are, in effect, incentivized to keep their patients coming back for more office visits and treatments.  Because a central authority is taking care of all the administrative tasks,  ACO doctors are released from all the insurance paperwork, accounting, and staff management tasks and are free to do what they’ve been trained for: caring for their patients.   In addition,  facility and equipment expenditures and maintenance are handled by someone else and the costs are shared by all.


Given the potential of better patient care at a lower cost, it is not surprising that the PPACA has built in incentives for doctors and hospitals to form ACOs.  It’s no wonder, than, with doctors and hospitals, both feeling the threat of lower government reimbursement for their Medicare and Medicaid services and the burden of more government regulations, that they are “racing” to ACOs as the solution.  But this trend has drawn many concerns.  With more doctors moving to ACO health alliances, will people be restricted in choosing doctors or getting certain treatments?  Given centralized authority inherent in ACOs, will doctors be restricted in proscribing more expensive but necessary treatments?  Could the consolidation of doctors and hospitals in ACOs give those health care providers a greater bargaining edge, driving up costs for insurance companies and government, and resulting in exactly the opposite of what was hoped for?

What Can We Learn From California’s ACOs?

These are all possibilities.  What’s interesting is that California has been dealing with ACOs  and these issues for the last 30 years and now has over 285 of them, perhaps the largest ACO presence in the country.   A recent study, Accountable Care Organizations in California, suggested that the lessons learned from the California experience should be taken into account before the Department of Health and Human Services (HHS)  outlines what they will recognize as acceptable ACOs as directed in the Patient Protection and Affordable Care Act.

These include:
# Allow the people forming the ACOs flexibility in determining how their ACO will work.  Some formats might suit particular markets and medical personnel  better than others.
# Although capitation might be the ideal pay structure for a patient-centered care environment, it doesn’t work for everyone. Therefore, traditional fee-for-service payment options should be allowed as well.
# California ACOs have experienced significant gains in quality care when insurance companies have devised plans that reward health care providers for their efforts.  Referred to as pay-for-performance or P4P, these rewards are bonuses given directly to health care providers when their health care results exceed measurable standards.  This should also be part of the HHS ACO guidelines.
# Over regulation of ACOs results in higher costs, fewer patient choices, and, in the end, consumer rejection of ACOs.  Don’t over-define or over-regulate.


Here’s the challenge:  Most people are used to seeing the independent health providers of their choice on an ad hoc basis.  However, the ACO model, although very different from this,  seems objectively to be the better health care delivery system, cost and quality wise.  Exactly how will HHS incentivize patients to change?  How will HHS define what it wants in an ACO?  Will it let each state decide or will HHS come up with a one-way-fits-all?

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