Accountable Care Organizations: The Future of American Health Care?

October 26, 2011
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The implementation of the Affordable Care Act continues to move ahead, although the kinds of things that are happening lately aren’t exactly the kinds of things that make it onto the evening news. A major example is the Obama administration’s release of the final regulations for accountable care organizations (ACOs). You may not have heard much about ACOs, because they are the sort of thing that only health care administrators, insurance companies, and policy wonks care much about.

The implementation of the Affordable Care Act continues to move ahead, although the kinds of things that are happening lately aren’t exactly the kinds of things that make it onto the evening news. A major example is the Obama administration’s release of the final regulations for accountable care organizations (ACOs). You may not have heard much about ACOs, because they are the sort of thing that only health care administrators, insurance companies, and policy wonks care much about. That’s unfortunate, however, because ACOs may–and I stress may–have the potential to dramatically change the way our health care system works.

ACOs propose to change the way Medicare pays hospitals and physicians. Instead of the more traditional fee-for-service system, where the more a doctor or hospital does, the more they get paid, the ACO structure makes a single payment either per patient or per diagnosis that is shared by the hospital and the physician. This is, essentially, capitation. If the hospital and physician can provide care to the individual for less than the fixed amount they are paid, they get to keep a portion of the difference as their “reward.”

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The idea is that this creates incentives for providers to provide high quality care and increase efficiency by, for example, reducing duplicitous services. Of course, there’s always the possibility that people will figure out how to game the system. For example, if the capitated payment is diagnosis-based, expect to see people diagnosed much more readily with far more ailments. There is always the potential for fraud and abuse. As one mentor of mine is fond of saying, “In a program this big, if it can happen, it will.”

So, ACOs may completely change American health care, or they may do nothing at all. Over at the Health Affairs blog, the release of the ACO regulations prompted a series of excellent posts. You can find them here, here, and here.