Accountable care organizations: Everything old is new again

In addition to providing coverage to millions of uninsured Americans, one of the key attributes of the Affordable Care Act (aka Obamacare) is reforming the way that we finance health care in the U.S.

Since the rise of the health insurance industry (as a job benefit or under Medicare), we have operated under a system known as “fee-for-service,” in which every little nugget of health care provided (from an operation to an aspirin) incurs a charge. There are exceptions to the rule (like the Group Health Cooperative in WA, Kaiser in CA), but in practice the more doctors, hospitals, and health providers do, the more we charge. This is what’s become known as volume-based care. It has enriched many, as health care for the most part has inelastic pricing, steady high demand, and very little transparency or information symmetry.

As is evidenced by its name, the Affordable Care Act seeks to bring down the costs of health care. At nearly 20% of our GDP, there’s a collective will to bend the cost curve.

How can we do it, you ask?

We need to switch from volume-based care to a system of value-based care, in which payments are based on the quality of care delivered, not simply the quantity of care. Should we pay for hundreds of thousands of open-heart surgeries just because we do them, or should we pay for them in bulk based on outcome data that shows recipients live longer, symptom-free lives?

It’s anybody’s guess how to make the transition from volume to value. But there are myriad pilot programs underway racing us all to a new era. Perhaps no pilot idea has gained more traction than the creation of ACOs: accountable care organizations.

ACOs align the insurer with the provider of service (e.g. your doctor or hospital), such that monies are paid in advance, rather than after the fact for itemized bits of service. The advance payments are then creatively used with a goal to keep people healthy (and out of, for example, hospitals) instead of ringing the cash register every time you get sick.

ACOs put the incentive on thrift (using best available evidence and high quality practices — all requiring lots of data so we’re not flying blind) instead of on simply doing more. Savings derived from providing less (but more effective) care are shared with providers in this model — in essence rewarding utilitarian health promotion ingenuity. However, the potential downside is that the emphasis on thrift means some necessary care may be denied in the name of cost savings or cost-effectiveness.

We experienced something like that in the 1990s with the rise of managed care, or what became demonized as HMOs, health maintenance organizations. HMOs saved money by tightly regulating networks of providers and rigorously negotiating prices with them.

It’s far too early to tell if ACOs will make any dent in our national health expenditures, or if they will even turn out to be feasible. My fear is that they’re a high-minded idea that will fail to catch on with a confused public. The up front investment in ACOs is considerable, so even with public support the idea may never make it to prime time.

The more things change …

John Schumann is an internal medicine physician who blogs at GlassHospital.

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