Affordable Care Organizations or ACOs are part of a larger effort by the federal government to move gradually away from the more expensive fee-for-service model, in which providers are rewarded for each additional treatment.  With ACOs, the goal is to replace the FFS model with an integrated system that uses evidence-based standards to coordinate care to avoid unnecessary expenses such as duplicated diagnostics and hospital readmission.

ACOs require that providers and insurers share both financial and quality data – something that each side has been highly reluctant to do in the past.  The reward will be that all will share in savings generated by the system.  Personally, I’m not sure there will be any savings to share or if this is the primary point in the first place (see my earlier post on Defragmentation).  While many healthcare theorists believe ACOs may be a major way for the nation to reduce its healthcare costs, it is not a simple fix.

In today’s competitive environment it is impractical, at best, to get hospitals, doctors and insurers to work together.  Unless of course these entities decide to become vertically integrated, which we’re already seeing.  Behemoth hospital networks around the country have been purchasing physician practices then hiring the staff as a prelude to setting up ACOs, and insurers, too, are starting to get involved.

Earlier this month Aetna announced a new partnership with Baycare in Tampa, Florida.  Another example, Florida Blue has set up a bundled payment system with the Mayo Clinic — paying for an episode of care rather than for each individual service.  More widespread is its move that has put more than 700,000 patients in medical homes — generally with a primary care physician coordinating their care, offering extended hour and other benefits — so that basic care is easily available, reducing the need for expensive emergency room trips.

Unlike the old HMO model, the new medical home involves the insurer paying PCPs more so they spend more time with patients.  The limited data available thus far offers encouraging results. Physicians make more money, but overall costs go down.  The idea is too invest more money upfront to get better outcomes in the long-run.  Medical homes and ACOs are now separate concepts, but they’re likely to dovetail in the near future.  Both concepts are emphasized in the Affordable Care Act.

The healthcare cost trend was unsustainable…now employers must weigh the impact of future trends and plan accordingly.