An accountable care organization (ACO) is a healthcare organization that ties payments made by patients to quality metrics and the cost of care. It all started when a group of coordinated healthcare professionals and practitioners decided to form an alternative payment method which is now known as ACO Health Solutions. Basically, it means that the organization is accountable to patients and third-party payers for the quality, appropriateness, and efficiency of its services. According to the Centers for Medicare and Medicaid Services, an accountable care organization is “an organization of health care practitioners that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it” – Wikipedia
Background on New Payment Models
The background and origins of this payment method sterns from a need for change.
Today’s fee-for-service contracts reward health care organizations that increase the volume of services that they provide. Broadly, value-based contracts attempt to use payment to incentivize other aims, such as cost reduction and quality improvement. Many of these payment models attempt to improve on the current fee-for-service system, while adjusting the model in a range of ways both small and large, in an attempt to more adequately compensate ‘value’ in health care. Other models, like capitation, represent a break altogether from the current fee-for-service system. Providers, payers, and employers across the country are experimenting with a wide variety of these payment models in an effort to find contract types that best improve care delivery to patients.
Accountable care solutions seek to eliminate and replace other payment models. Some examples of at-risk contract types are:
Fee-for-service plus bonus
Also called pay-for-performance contracts, these are traditional fee-for-service contracts that include incentive payments for hitting pre-defined targets. The disadvantage of this is it uses quantitative measures only and ACO seeks to add qualitative measurements of care provided to the calculation of a payment structure.
Bundled payment initiatives attempt to reduce care fragmentation and improve the overall quality of care by aligning the financial incentives between all providers (for example, hospitals, physicians, and post-acute care providers) that touch a single episode. While these payments increase coordination across the episode, they don’t provide any incentive to reduce episode volume.
Shared savings initiatives give providers the opportunity to benefit or ‘share’ the cost reductions that they drive through their improvement initiatives. Providers and payers negotiate a benchmark rate, typically representing what the expected payment would have been in the absence of an ACO. This is an upside-only arrangement also called a one-sided model in which the provider’s risk is limited. They benefit from any savings but don’t incur losses if spending goes above the target. In a model with a downside (also called a two-sided model), providers typically have a greater financial stake but also go at risk for losses should total payments surpass the benchmark.
Under capitated payment models, providers receive a set per-member-per-month payment and are at full financial risk for the members of their population. This is a lot of cases pts the providers at a financial disadvantage. ACO seeks to balance this risk.
In an attempt to competency build but limit financial risk, many healthcare organizations are experimenting with lower-stake forms of shared-risk contracts, such as upside-only shared savings agreements. In future years, healthcare organizations are likely to encounter contracts with higher risk and greater rewards. This shift is underway already, as evidenced by CMS’s third iteration of its ACO programs which no longer includes an upside-only option.
Notably, in all of the above arrangements, quality measures commonly accompany cost targets to ensure that as provider organizations work to drive down costs, they don’t do so at the expense of quality.