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ACOs, PCMHs and Risk Contracting: A Primer

By Ben Miller, PsyD

Accountable Care Organizations (ACO), according to NPR, takes “up only seven pages of the massive new health law” yet has become one hot topic in healthcare circles. What are ACOs and what implications do they have on the community?

Well first, let’s define an ACO:

Accountable Care Organizations are partnerships between healthcare providers designed to be accountable for the quality and cost of the healthcare they provide in return for financial incentives. How these partnerships are implemented may vary, with some focused purely on primary care, while others include sub-specialists and hospitals. In all cases, primary care is expected to form the core of these organizations, the center of the wheel, and base for the ACO.

As we have discussed before on this website, primary care is so central to many health redesign efforts because it can help the system attain the triple aim (improve healthcare quality and patient experience, as well as reduce overall healthcare costs).

The promotion of ACOs is an exciting and innovative aspect of the Patient Protection and Affordable Care Act (PPACA). However, as with many things in healthcare, the devil is in the details. Much of the benefit and potential benefit for ACOs be found primarily through the Medicare Shared Savings Program (MSSP).  MSSP  is described in proposed regulations published by the Centers for Medicare & Medicaid Services (CMS) on April 7, 2011; however, the influence of the ACO regulations on the nation’s health system will extend beyond the MSSP.

ACOs are risk-bearing entities and require capitalization. To this end, hospitals and other healthcare professionals like physician groups are partnering with insurers to form these entities. The partnerships that participate in the MSSP will likely cross over into commercial plans, and Medicare will not be the only health insurer to benefit from the cost reductions realized by ACOs.

There appear to be some interesting opportunities within ACOs to deliver unique healthcare innovation. It is important, as with most healthcare initiatives, that the community be aware of what is happening at a macro level in order to be best informed on how to engage their healthcare community.  While ACOs can be confusing, the better we as a community understand the opportunities and implications, the more likely we are to have our voice heard. After all, someone outside of CMS is also going to need to say if this is working or not.

And of course, with any effort to change how healthcare is delivered, we must examine the payment mechanism.

There are three financial incentives models for ACOs: shared savings, savings bonus plus penalty, and capitation. Each of these tiers are characterized by increasing risk and benefit while decreasing the system and provider’s dependence on fee for service and with capitation, ultimately eliminated. This is a major step for healthcare as we can start to move away from fee for service (OH has written about FFS extensively here).

Shared savings allows for organizations to receive a portion of the amount saved compared to predicted costs in addition to regular fee for service payments. The savings bonus plus penalty model is similar to the shared savings model, with the addition that the organization must take responsibility for any excesses in spending, therefore increasing risk and potential reward.

What’s potentially very exciting is what happens when these savings are shared back into the community? Many interesting opportunities may unfold at this juncture, but how this will play out remains to be seen.

Since one of the goals of the triple aim is to enhance patient experience in healthcare, how do ACOs do this? Or do they? It’s a question that with every healthcare effort we should be asking.

  • How does an ACO make healthcare more patient-centered?
  • How does an ACO provide healthcare services that are more effective?
  • How does an ACO encourage providers to start to address health rather than just sickness?

The first step in helping answer these questions will come back to having a basic understanding of ACOs and their function in healthcare redesign. Have you seen ACO efforts emerge in your community? If so, what has your experience been? What thoughts do you have about this approach?

The ‘Looking at what’s to come: Accountable care organizations’ blog entry originally appeared in Occupy HealthCare.

Dr. Miller has his doctorate in clinical psychology and is an Assistant Professor in the Department of Family Medicine at the University of Colorado Denver School of Medicine where he is the Director of the Office of Integrated Healthcare Research and Policy. His core task is to integrate mental health across all three of the department’s core mission areas: clinical, education, and research. Opinions expressed here are his own and not those of his employer.

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One thought on “ACOs, PCMHs and Risk Contracting: A Primer

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