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Why Accountable Care Organizations Will Be Powerful and Necessary

By Chris Chen

One of the most talked-about provisions under the Affordable Care Act is the Medicare Accountable Care Organization (ACO) program, scheduled to begin in 2012.  Under this program, regional hospitals and physician networks will join together to form a legal entity.  While providers will still be paid via traditional fee-for-service, the ACO will also share any Medicare savings it achieves if it meets certain quality standards and its per capita Medicare Part A and B costs fall below a certain threshold.

As outlined by Fisher at al. in a 2009 Health Affairs article, the idea driving the ACO structure is three-fold.  First, by requiring regional accountability of a patient’s care, the ACO will encourage providers to better coordinate and manage a patient’s health holistically.  Secondly, by ensuring that providers can generate income not just from volume but also quality, the ACO model makes high-quality, low-intensity care more financially viable.  Finally, by requiring reporting of performance measures, ACOs will create a uniform set of standards by which patients can evaluate the work of their providers.

The primary empirical basis for the ACO program is the 2005 Medicare Physician Group Practice Demonstration, in which 10 large multispecialty groups with diverse organizational structures were given the chance to share in any Medicare savings achieved if they met minimum quality standards.  By 2009, six out of the ten groups had generated Medicare savings of $78 million.  The fact that about half of the groups achieved savings created a perfect glass-half-full situation—detractors pointed to the project as evidence that ACOs were not ready for prime time, while optimists saw the project as evidence that the ACO structure could work.

The truth is that while the ACO structure holds promise, it is by no means a catch-all solution.  It is simply one more tool in the necessary quest to incentivize high quality care.  Hospitals and physician groups around the country that choose to participate in ACOs will have to take advantage of the tool in compelling ways to translate the ACO structure into improved quality and reduced costs.  Merely adapting the ACO structure (or declining to) means very little. 

Detractors of ACOs list many reasons to be skeptical of its potential impact: the difficulty of building the infrastructure necessary for consistent reporting of quality measures (e.g. health IT); heavy reliance on primary care networks that may not exist in certain regions; lack of technical expertise in quality improvement techniques; and lack of strong case management, to name a few. 

Their concerns are all on point.  But it is important to recognize that these obstacles are not just barriers to ACO development but also overall barriers to quality care.  In other words, if we are to create a high-quality health care system, these walls must be broken down sooner or later.  Thus the mere fact that these walls exist is not a reason to reject the ACO program.  Rather, it’s reason to use the ACO as a hammer to start breaking those walls down.   


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