Explainer: Accountable Care Organizations Reshape Healthcare Delivery

Andrew Kitchenman | October 29, 2013 | Explainer, Health Care
Advocates say patients benefit from emphasis on cost-cutting and efficiency

explainer button shadow
Accountable care organizations (ACOs) have been a rising force in how healthcare is organized and delivered, both in New Jersey and nationally. They seek to reduce the growth in healthcare costs while improving the quality of care that patients receive.

They are similar in some ways to health maintenance organizations (HMOs), the major health insurance trend of the 1980s and 1990s, which ultimately proved unpopular – but there are significant differences.

Bringing providers together: ACOs are groups of providers who agree to be held accountable for the cost and quality of care they provide to a group of patients. They generally do this by having a portion of their payments depend on how they perform. For example, in Medicare Shared Savings ACOs, providers are paid more if they are able to keep costs down while meeting agreed-upon standards for providing quality care.

How this is done: The central feature of ACOs is a focus on greater coordination of care. ACOs generally employ care coordinators, such as a registered nurse, who is responsible for ensuring that patients receive appropriate care from a range of specialists. They do this both by helping patients to schedule appointments and by following up with patients to make sure that they are taking the right medications. This can be particularly important for patients with a high-risk of readmission to hospitals, such as patients with diabetes who have difficulty managing their blood-sugar levels.

Cost-cutting incentives: While there are variations in how providers are compensated in ACOs, in the Medicare Shared Savings model , for example, doctors, hospitals and other providers receive a portion of their payments through a fee-for-service model and a portion based on whether they achieve savings compared with their projected costs.

After the first three years, providers face penalties if the care they provide is more expensive than projected. The government is using a variety of measurements to ensure that providers don’t achieve the savings by reducing the quality of care.

Coordinating and communicating: The focus on care coordination is intended to address one of the chief problems with the U.S. healthcare system: the inefficiencies caused by poor communication between various providers and patients, leading to unnecessary tests and hospital stays, as well as an inability in some cases to manage chronic conditions.

The range of ACO programs: Both private and government insurance programs are contracting with providers to form ACOs. Medicare ACO programs were included in the 2010 Affordable Care Act, in one of the provisions of the law that focused on how healthcare is delivered rather than on expanding access to health insurance.

Federal officials have been authorizing a growing number of Medicare ACOs in the state, including a recent agreement between Barnabas Health, which is the state’s largest healthcare system, and Horizon Blue Cross Blue Shield of New Jersey, its largest insurer. Private insurers also have been working to increase the number of providers in ACOs.

What about New Jersey? New Jersey plans plans to launch a Medicaid ACO pilot program next year. It will involve a high proportion of all providers in geographic areas with large numbers of low-income residents. Healthcare experts, including Dr. Jeffrey Brenner of Camden, have said the state program could become a national model if it’s successful.

Similarities and differences with HMOs:Health maintenance organizations were the first great experiment with shifting from the healthcare system’s traditional reliance on paying fees for each service that providers give.

In an HMO, providers agreed to receive payments for each patient they served rather than for the services they provided, which was known as capitation. While ACOs also include capitation, there are some major differences with HMOs. Unlike HMOs, ACOs do not require patients to stay within the ACO’s network of providers. In addition, advances have been made in how to measure the quality of care that patients receive, which in turn have been incorporated in ACO payment systems.

What’s next? The portion of New Jerseyans whose healthcare providers are in ACOs has been rising steadily. Nationally, 14 percent of patients Americans were served by ACOs as of February, according to management consulting firm Oliver Wyman.

The focus on better care coordination has also increased pressure on doctors to join their practices with larger groups or hospital systems. That change is rapidly remaking how many New Jerseyans receive healthcare.