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An Introduction to Accountable Care Organizations

Not only is the fragmented way we receive health care in this country inconvenient– with patients forced to arrange coordinate care through different providers, who barely communicate with each other and still process everything on paper– it’s can also be dangerous, especially for seniors:

Today, more than half of Medicare beneficiaries have five or more chronic conditions such as diabetes, arthritis, hypertension, and kidney disease. These patients often receive care from multiple physicians. A failure to coordinate care can often lead to patients not getting the care they need, receiving duplicative care, and being at an increased risk of suffering medical errors.  On average, each year, one in seven Medicare patients admitted to a hospital has been subject to a harmful medical mistake in the course of their care.  And nearly one in five Medicare patients discharged from the hospital is readmitted within 30 days – a readmission many patients could have avoided if their care outside of the hospital had been aggressive and better coordinated.

One way the Affordable Care Act attempts to improve coordination and communication in our health care system is by encouraging physicians and other providers to form Accountable Care Organizations (ACO’s). Recently the Department of Health and Human Services (HHS) released a set of proposed rules guiding their creation.  

What is an Accountable Care Organization?
HSS has a simple, but vague definition:

A group of health care providers (doctors, hospitals, etc.) who give coordinated care, chronic disease management, and thereby improve the quality of care patients get. The organization’s payment is tied to achieving health care quality goals and outcomes that result in cost savings.

But it’s probably easiest to understand what an ACO is by thinking about it from a patient’s perspective. The New Republic’s Jonathan Cohn does a great job here:

Imagine you’re in your 50s and you’re relatively healthy, although you have allergies and have recently developed high blood pressure. Then you probably have a general doctor or nurse practitioner, an allergist, and a cardiologist. When you twisted your ankle playing tennis, you also saw an orthopedist, got MRIs at a local screening center, and saw a physical therapist for several weeks. You might have driven all over town to see these different professionals. And it’s quite possible they communicated with each other very little, except for a handful of phone calls and memos.

The idea of ACO is to give you one-stop shopping, ideally in one physical setting where you can get most of your health care. Here, the generalists and specialists are in constant contact with each other, handling your chronic condition (in this case, high blood pressure) with a coordinated strategy. When you have some kind of acute episode or emergency, the professionals have your records right in front of them: They know everything from your drug allergies to your complete medical history.

You can imagine why this sort of medical care is better for you. It focuses more on prevention and evidence-based care, while reducing duplication of services. The chances of treatment duplication or, worse, dangerous medical error is far lower. And your checkbook balance will look a little better too, since this kind of care tends to be less expensive overall. All in all, it’s a pretty sweet deal.

Not only is it a sweet deal for patients, ACO’s should also be good for doctors and Medicare. The hope is that reducing unnecessary care and medical errors will save Medicare money. Medicare will split that savings with the doctors and hospitals that make up the ACO– this new program is called Medicare Shared Savings.

What the proposed rules say for doctors and hospitals
It starts with doctors, hospitals, and other providers forming Accountable Care Organizations. The proposal isn’t very specific on how ACO’s have to be structured– some ACO’s may include hospitals, others might be networks of primary care physicians and specialists. Some might be run by doctors, others might even be run by insurance companies. The idea here is to preserve flexibility.

HHS does lay some ground rules though. Each ACO has to:

  • take responsibility for at least 5,000 medicare beneficiaries for three years;
  • be able to provide primary care for those beneficiaries;
  • include health care providers, suppliers, and Medicare beneficiaries on its governing board.

According to the proposed rule, each year ACO’s will be judged on 65 standards for quality that fall into five areas:

  • patients’ experiences in receiving care;
  • the extent to which care is coordinated;
  • patients’ safety;
  • the degree of emphasis on preventive health; and
  • the teams’ effectiveness in treating Medicare patients who are sick and frail.

If an ACO meets enough of the quality benchmarks and costs less than what Medicare would normally pay, then it gets a bonus out of the money that Medicare saves. But if its patients end up costing more than expected, the ACO would have to help Medicare pay the extra cost.

What patients would have to do
Basically nothing. Patients won’t sign up for an ACO– according to the proposed rule, primary doctors who join an ACO would have to inform their patients, but patients wouldn’t see a difference, other than hopefully more coordinated care.

Doctors would likely want to refer patients to hospitals and specialists within the ACO network. This should actually be good for patients, since doctors in the network would be under more pressure to provide high quality, patient-centered care. But patients are still free to see doctors of their choice outside the network without having to pay more.

What’s the downside?
The problem with ACO’s is that there’s a fine line between coordination and consolidation:

As hospitals position themselves to become integrated systems, many are joining forces and purchasing physician practices, leaving fewer independent hospitals and doctors. Greater market share gives these health systems more leverage in negotiations with insurers, which can drive up health costs.
On the other hand, the antitrust laws that are on the books to prevent the types of mergers and consolidation that drive up health care costs, could also prevent the improved coordination of care from ACO’s– especially in rural areas where there just aren’t that many providers.

It’s a delicate balance. According to the proposed rules:

The Federal Trade Commission and the Department of Justice will evaluate whether ACOs raise antitrust concerns based on the percentage of services they run in a geographic area. The agencies will grant an expedited review, which will be mandatory for some ACOs, while others will be safe from antitrust scrutiny.

Will ACO’s Work?
Nearly everyone agrees that more coordinated health care would be better, cheaper care, but the success of ACO’s depends on whether or not doctors and other providers decide to participate–which means getting the rules right.

Again, the key here is balance. For example, take the way providers will be paid under the new system. If the bonus payments from Medicare are too small or too hard to qualify for, providers won’t want to make the investments needed to form ACO’s. But if the bonus payments are too big and too easy to get, then Medicare won’t save money and patient care won’t improve.

Doctors and hospitals have complained that so far the proposed rules don’t get the balance right:

Reaction from the industry has been one of disappointment. Hospitals that for the past year have been laying the groundwork to become ACOs — hiring doctors on to their staffs and making alliances with labs, nursing homes and home care providers — complain that the proposal requires too much risk for too little reward. And even the successful ACOs so often lauded by Obama now [like the Mayo Clinic and Cleveland Clinic] say there is so much about the proposal that is inconsistent with the way they operate that they would not participate in the program as proposed.

But, as CMS Director Donald Berwick has pointed out, the rules for ACO’s are just in the proposal stage:

“Of course, we are listening to their concerns. We are going to come up with a way to work together. . . . We will produce a better final rule. That we know.”

It’s important that they get these rules right. As Washington Post columnist, Steve Pearlstein puts it:

They can debate all they want up on Capitol Hill about whether the growth in Medicare funding will be cut by $400 billion or $500 billion over the next 10 years, but let me assure you they won’t get anywhere near those numbers unless initiatives like value-based purchasing and Accountable Care Organizations succeed.

UPDATE: PBS News Hour also has an excellent introduction to ACO’s here.

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