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ACOs and Medicare: The Basics


Scoot over, HMO, there’s a new acronym in town.

Accountable Care Organizations—better known as ACOs—are one of the most talked about initiatives of the Affordable Care Act. But what exactly are they? Following the long-standing tradition of healthcare affairs that leave both patients and providers baffled, the ACO phenomenon has resisted every attempt that has been made to present it clearly. Whether you merely want to double-check your understanding of this new initiative or have just Googled “ACO” for the first time, General Medicine presents a simple guide to understanding Accountable Care Organizations and their role in Medicare spending.

What is an ACO?

An Accountable Care Organization or ACO is a network of coordinated health care providers (doctors, hospitals, specialists, post-acute care, etc.) who work together and assume shared responsibility for patient care. ACOs are an arm of the Affordable Care Act (“Obamacare”) and were initiated to help fix the national healthcare system in which providers profit from the volume of patients they see, rather than the value of the care they provide to their patients. Coordinated health care programs like ACOs are an important part of the country’s transition from a volume-based payment system to a value-based payment system. The goal of this change in national healthcare is to prevent excessive government spending and improve the quality of patient care.

How do ACOs work?

ACOs aim to operate as a coordinated health care system in which all member-providers have access to the same shared patient information and records. This saves time, money and resources for both the provider and the patient. Forms no longer have to be duplicated and tests don’t have to be repeated, which also reduces the chances for any miscommunication resulting in adverse effects. Sharing information is conducive to producing a unified goal for each arm of the ACO network—quality patient care. ACOs that meet the set goals for both quality standards and cost reduction are rewarded with the ability to retain half of the amount of money saved. In other words, ACOs are provided financial rewards if they keep their patients healthy.

How do ACOs work with Medicare?

Medicare is one of the most important factors for ACOs. As the U.S. progresses in to the long-anticipated era when the baby boomer generation enters retirement, the entire nation worries about how the country will support its skyrocketing elderly and disabled population. Under the new Affordable Care Act, each ACO is required to provide care for at least 5,000 Medicare patients for a minimum of three years. It is estimated that the ACO model could reduce Medicare spending by up to $940 million within the first four years alone. In 2012, the inaugural year of the affordable care act, a small group of advanced ACO Medicare systems representing about 15% of the ACOs currently established improved care for 15 quality measures, a vast improvement from their performance in the volume-based, “fee-for-service” system. Alone, these programs saved a total of $87.6 million in one year. If that number is projected out, the ACO model will exceed their $940 million savings goal in half of the expected time.

Learn more about ACOs and why 46% of hospital administrators have no plans to coordinated health care.

Tom Prose