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ACOs: A Quick Primer

Imagine a health system that pays doctors and hospitals to keep you well, not just treat you when you’re sick. A system where doctors would have a financial incentive to limit unnecessary tests and prod patients to exercise more and eat better. A system where hospitals would benefit from – now this is really radical – keeping you out of the hospital.

This is the goal behind accountable care organizations, or ACOs, the latest health care delivery model that’s poised to get a test ride in the national health overhaul legislation. The House bill calls for a three-to-five year Medicare pilot project to see if ACOs-which don’t exist yet–can lower costs and improve care.

Each ACO would be operated by a group of doctors and hospitals which would be paid by Medicare to care for all the health needs of at least 5,000 elderly or disabled people.

In the existing fee-for-service payment system used by Medicare and most private insurers, doctors get paid more by giving more services, and hospitals make more by increasing admissions. With ACOs, doctors and hospitals would get paid based on their ability to hold down overall costs and meet quality-of-care indicators. In effect, their pay would be based on improving care, not driving more of it.

If the ACOs fail to meet certain quality and cost savings targets, the providers in the ACO would face lower payments from Medicare. On the flip side, the ACOs would also be awarded for keeping patients happy and meeting national quality standards such as making sure diabetics get regular foot exams and women get their annual mammograms.

In effect, ACOs are an attempt to buid integrated health systems like the Mayo Clinic where none exist. But Mayo took several decades to become a global destination for health care. The studies of ACOs called for in the congressional proposals aim to see if one can be formed in a year or two.

Mayo or Geisinger Health System in Pennsylvania would be logical institutions to form ACOs because they have decades of experience with hospitals and doctors working closely together. Large multi-specialty physicians groups and big hospitals could also form ACOs.

But creating ACOs requires hospitals and doctors to work closely together and to share financial risk as well as potential profits. “There are political and cultural challenges,” said Elliot Fisher, the Dartmouth health expert who helped devise the concept. “Many doctors still hold autonomy as a high attribute and many don’t want to be bossed around or be employees.”

KHN (Kaiser Health News) is a national newsroom that produces in-depth journalism about health issues. Together with Policy Analysis and Polling, KHN is one of the three major operating programs at KFF (Kaiser Family Foundation). KFF is an endowed nonprofit organization providing information on health issues to the nation.

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