Accountable care organizations and healthcare delivery models

¶ … Accountable care organizations (ACOs) are a new concept intended to help reduce the cost of healthcare. In principle, ACOs are an intermediary step in between health management organizations and a traditional fee-for-service healthcare payment system. They are designed to provide some of the same cost-savings benefits as health management organizations (HMOs) but in a manner that promotes greater health savings. That is because, unlike HMOs, ACOs encourage but do not force patients to utilize network healthcare providers, and also unlike HMOs, ACOs do not negotiate fees for specific medical services on behalf of payers like Medicare. Instead, ACOs and payers negotiate lump-sum payments intended to cover the cost of all medical services. The essential difference is that under the traditional HMO-based system, there is no incentive to reduce costs, which is one of the most significant reasons that healthcare costs continue to rise in the United States. Instead, the ACO concept allows ACOs to retain whatever funds they save by reducing the costs of healthcare services they provide.

Personal Reaction

As a healthcare provider, I am extremely hopeful that a system such as the proposed ACO concept will be successfully implemented in U.S. healthcare. The current system does not address the need to reduce costs by eliminating unnecessary and redundant testing and treatment. Moreover, the fact that patients reap no benefit from avoiding unnecessary or redundant treatment means that they have no incentive to do so whatsoever. In fact, there is a tendency for patients to seek more healthcare services than they need out the belief that since they are already paying such high health insurance premiums, they might as well get their money's worth. Likewise, since providers are reimbursed automatically by health insurers and publicly funded programs, they have no incentive to reduce costs. Even worse, because the negotiated rates for services is so much lower than the non-insured rates for those services, many providers may actually provide services more liberally than necessary to make up for the lower revenue of each service rendered.

Eventually, I believe the only way to really address the problem of healthcare costs is to adopt the results-based compensation structure already successfully in use in Britain. Unfortunately, such profound systemic changes will be tremendously difficult to implement in the U.S. In the meantime, therefore, the ACO concept may be the most viable means of incentivizing healthcare cost reduction on the part of providers as well as patients.

Relevance to Risk Management Concepts