Accountable Care Organizations — fee for service decline

Payment of health care providers by volume of service (fee-for service) rather than quality of service is blamed by many as the cause of  high cost and low quality in the US health care system.  

A possible solution was proposed in 2006 as the Accountable Care Organization (ACO).   The concept is modeled after other advanced countries which have lower cost and higher quality health care than the US.  The idea is to pay a large organization (the ACO) to provide all the  care needed for a large group of people.  In other words, a per capita system, with payments not related to volume of services.

 Medicare and the Affordable Care Act are betting on ACOs.  The private sector is moving that way as well.  The following graph shows the number of ACOs in the United States (CMS data)
aco map 2012

The following graph shows the increase in the number of ACOs starting in 2009 and ending the first quarter of 2012.

Rising Number ACOThe insurance industry is so entrenched it is hard to think outside of terms like deductible, out of pocket cost, and premiums.  And, current ACOs indeed use those terms.  But, under the hood, the ACO is run with a budget based on the cost to take care of a person for a year.

So, perhaps sometime in the near future you will just purchase health care by the year — something based on your age and ranging between $100 and $400 per person per month.  Undoubtedly, there will still be some co-payments in order to avoid over use of services by some people.

A well formed ACO has a strong focus on a medical home and should include pharmacy service (not Walmart,Target or Walgreens etc.), hospital service (not every hospital), doctors, nurses, physician assistants, x-ray services, medical equipment, and devices.   Not every hospital in the ACO would duplicate services — some would have specialty expertise, like brain surgery or heart surgery.

The materials to run the ACO would be purchased in bulk.  The providers would be predominantly on salary and the hospitals under a strict budget with  mandatory quality levels for all.

The rise of ACOs is encouraging but the actual number of covered patients is not large and the internal payment for ACO  providers is still rooted in volume of services.  But, with time and pressure (mostly from the business community) ACOs should begin to lower costs to levels enjoyed by other countries.

Congress could speed the process to be ready for the aging baby-boomers.  But, action in Washington seems nearly impossible.  It seems hard to argue against lower cost and higher quality, but they will.

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