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The latest innovation in healthcare delivery: Accountable Care Organizations

By Paul Thompson, Director, Global Healthcare Strategy


Healthcare Accountable Care OrganizationsThis is the first of a short series of posts in which I will discuss Accountable Care Organizations (ACOs), and the Healthcare IT systems that support them.


ACOs seem to have burst onto the scene rather recently. Healthcare industry trades brim with articles about them and conferences routinely contain keynote speeches explaining the ACO. In reality, the concept was long in coming.


The lineage of the Accountable Care Organization traces back to Dr. Elliot Fisher of the Dartmouth –Hitchcock medical system who used the term in 2006 when testifying to MEDPAC. Dr. Fisher defined ACOs as, “Providers who are jointly held accountable for achieving measured quality improvements and reductions in the rate of spending growth.”


The Patient Protection and Affordable Care Act took Dr. Fisher’s approach and tacked on a Medicare focus to jumpstart the action. In this regard, Accountable Care Organizations are legal structures formed by provider groups to participate in financial gain-sharing or risk-sharing based on the results of specific quality measures under Medicare.


Commercial health plans have a vested interest in Accountable Care Organizations. Although ACOs most directly impact the provider community, health plans are interested in their potential for decreasing medical expenses and improving the clinical results for their members. Additionally, large employers are interested in the Accountable Care Organization model as they tend to be self-insured and thus bear a significant share of their medical expenses directly. These sophisticated employers are looking to the health plans for innovative solutions such ACOs.


While the Medicare ACO model uses two payment approaches, commercial health plans are piloting many different types of payment schemes tied to clinical quality measurements. Regardless of the specific payment formula used, payments tied to quality and outcomes mark a significant departure from traditional payment and contracting approaches.


The most common forms of contracted payments between health plans and providers include:


  • Fee-for-Service (FFS)
  • Capitation

For both approaches, volume is the primary determinant of payment. In fee-for-service arrangements, payments are tied to the number of procedures performed, and capitation is based on volumes of patients and estimated volumes of care.


The transition from specific and transaction-based payments (FFS and capitation) to longer-term and outcome-based payments significantly impacts the IT infrastructure supporting claim adjudication and payment along with provider payment systems.


The advent of Accountable Care Organizations impacts several health plan business domains. Claim adjudication and provider payment are the most obvious. In addition, ACOs require changes in clinical informatics, provider contracting, and network management. Each of these business domains represent significant amounts of investment in resources and supporting IT infrastructure to run current state operating models. Health plans will be challenged to meet the future requirements of ACO arrangements while cost-effectively and efficiently keeping current business models in operation.


In future installments, I’ll explore the impact to each business domain and identify the associated challenges in developing a new supporting IT infrastructure.


For additional information on ACOs and HP Healthcare Solutions, see:


Part B and Disability Benefits | ‎04-14-2012 08:34 PM

Just to add, Dr. Fisher specified a percentage of provider payments could be “withheld” and later distributed to providers if savings and quality targets are reached. (Targets could be developed based on regional baselines or historical ACO spending, among other options.) If savings and quality targets are not achieved, Medicare keeps the “withholds,” driving the same result as provider cuts. The program could be structured so that Medicare saves under either scenario with the key being that under a withhold approach – as opposed to across-the-board payment rate cuts – providers have an opportunity to recoup some or all of the withheld amount.

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