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What You Need to Know about ACOs

You may be hearing a lot about Accountable Care Organizations (ACOs) lately—and there’s good reason. The reformed health care provider structure offers several benefits to those organizations that participate. Of course, as with any reform, there are many questions and several unknowns. The remainder of this article will highlight what you need to know about ACOs—and specifically how it relates to Medicare—so you can actively engage in any discussions that involve ACOs as well as make educated and informed decisions. We’ll explain exactly what ACOs are, how they work, possible benefits and risks, and how you can become involved and/or explore additional options.


Let’s get started!


ACOs Explained
ACOs are groups of doctors, hospitals, and other healthcare providers who come together voluntarily to give coordinated, high quality care to their patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. ACOs make providers jointly accountable for the health of their patients, giving them financial incentives to cooperate and save money by avoiding unnecessary tests and procedures.


Additionally, the key goals of an ACO are to:

  1. Pay providers in a way that encourages them to work together.
  2. Pay providers in a way that does not encourage supplier-induced demand.
  3. Create an organization that is rewarded for providing high quality care.


When it comes to Medicare patients, ACOs must agree to manage all of the health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years. If the ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will ultimately share in the savings it achieves for the Medicare program. HHS estimates that ACOs could save Medicare up to $940 million in the first four years.


Of course, a common question arising with ACOs, includes, “Why doesn’t Medicare just use their current Medicare Advantage program to accomplish these goals?” There are indeed a few key differences—which we’ll now discuss.


How ACOs Work
In the Medicare Advantage program, Medicare pays a lump sum to private insurers and holds them accountable for all the medical care the beneficiary needs. In contrast, with an ACO, instead of an insurance company or the government reimbursing each provider for each service provided to each patient, the ACO is paid simply to care for a group of patients. Moreover, in Medicare’s traditional fee-for-service payment system, doctors and hospitals generally are paid more when they give patients more tests and do more procedures. Experts say that this drives up costs. ACOs wouldn’t do away with fee-for-service, but would create savings incentives by offering bonuses when providers keep costs down.


ACOs also differ from traditional payment models because:


  • The “accountability” rests with the providers. ACOs, rather than insurance companies, are evaluated on the quality and efficiency of care.
  • Medicare patients don’t need a referral. Whereas many private managed care plans force patients to choose a primary care provider, with ACOs, Medicare patients can still see any physician they want without a referral. Fee-for-service Medicare patients who see providers that are participating in a Medicare ACO maintain all their Medicare rights, including the right to choose any doctors and providers that accept Medicare. Whether a provider chooses to participate in an ACO or not, their patients with Medicare may continue to see them.

The doctors and hospitals that comprise the ACO must also meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic diseases. So, another key difference between traditional payment models and ACOs is that ACOs get paid more for keeping their patients healthy and out of the hospital.


How Will Quality of Care be Measured?
In addition to how much money Medicare ACOs save, the quality of care they provide patients will be judged against national benchmarks. The Centers for Medicare & Medicaid Services will use patient surveys, billing data, electronic health records, and an online reporting tool to measure how successful the hospitals and doctor groups are at:


  • Providing timely appointments and access to specialists
  • Communicating with patients
  • Helping patients to avoid readmission after a hospitalization

The government has already received its initial round of applications for the ACO Shared Savings Program, and pilot programs have been underway. The initial results and data from these pilot programs should help give newly formed ACOs, or healthcare organizations that are thinking about forming an ACO, a good idea of what to expect as far as outcomes.


What Will It Take to be Successful?
To be successful, ACOs must provide continuum-wide care that effectively treats patients at the right time and without unnecessary or redundant services (which again, drives up costs).


For ACOs to work they ultimately have to:


  • Seamlessly share information. Successful ACOs must coordinate with nursing facilities, mental health providers, home health and therapy services, and more. An efficient and secure information exchange is critical as providers share patient information and treatment practices. This continuous, efficient and seamless exchange of information is intended to give patients more direct contact and communication. In an ideal ACO, patients should feel that their healthcare providers know them better, are looking after them, and providing them with more feedback in regard to their health and treatment plans.
  • Implement an integrated infrastructure. Remember, doctors traditionally get paid only for face-to-face encounters and for administering specific tests or treatments. The ACO model aims to change this by shifting the payment system—rewarding doctors who keep their patients out of the hospital, even if that means serving them in new ways. Successful ACOs, therefore, must have an integrated infrastructure in place (i.e., registries, electronic health records, diabetes educators, RNs, etc) to provide these new, coordinated care experiences to patients.
  • Stay up-to-date and trained. Staff members must remain trained on the ACO quality care mandates. Disease prevention and early intervention are two specific efforts that are central to how ACOs will be measured and reimbursed.

The organizational model that perhaps is most readily adapted to the ACO concept is the integrated delivery system. Typically, these systems work under a shared leadership and foster a shared culture, so the crucial collaborative foundation that is critical for ACOs is already laid.


What Are the Possible Drawbacks?
There are, of course, possible drawbacks of an ACO. For example, if an ACO is not able to keep patients healthy and save money, it could be stuck with the costs of investments made to improve care, such as adding new nurse care managers (ACOs sponsored by physicians or rural providers, however, can apply to receive payments in advance to help them build the infrastructure necessary for coordinated care). The ACO may also have to pay a penalty if they don’t meet performance and savings benchmarks.


Many healthcare economists also fear that the race to form ACOs could result in increased hospital mergers and provider consolidation. As hospitals position themselves to become integrated systems, many are joining forces and purchasing physician practices, which leaves fewer independent hospitals and doctors. Greater market share gives these health systems more leverage in negotiations with insurers, which can drive up health costs.


Where Can I Go For More Information?
CMS offers different learning opportunities for organizations interested in learning more about ACOs. If you want to explore alternatives, CMS provides opportunities for that as well. The CMS Innovation Center offers a menu of alternative options, including:



Above all, it’s critical to remember that participating in an ACO is purely voluntary for providers. Different organizations are at different stages in their ability to move toward an ACO model, so this is definitely a strategy your organization wants to fully evaluate and explore before implementing.

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