The New Health Dialogue

As we work to implement health reform and reshape our health care system so that we pay for value and quality of services instead of quantity, health systems across the US will test various strategies. One quality improvement concept generating a lot of buzz is the Accountable Care Organization. The ACO concept is popular, but the definition is still vague. In a series of blog posts this week, we will attempt to answer the question of what exactly constitutes an ACO, why we’re trying to make them work in the first place, and what they have to do with the new health reform law.

What is an ACO?

Accountable Care Organizations (ACOs) are a relatively new concept, dating back to around 2006 in their current incarnation. A lot of the foundation for the ACO concept comes from the work of the Dartmouth Institute for Health Policy (which looks at variation in Medicare spending levels across the country -- we’ve written about their work on many occasions) and MedPAC (more here and the ACO report is here).

In general, an accountable care organization is exactly what it sounds like: an affiliated group of providers held accountable for the cost and quality of the health care they deliver through incentive payments. Occasionally, other qualifiers are added to this definition, such as the providers must have a certain defined population of beneficiaries, or the ACO must be able to implement quality improvement strategies if it fails to meet a goals, but the basic idea is the same.

A lot of policy experts are excited about ACOs because they try to tackle both cost and quality problems at once, which sounds great in theory. Where it gets confusing is in practice. How can we hold providers accountable for the care they deliver? The answers to questions such as 'who can form an ACO?' and 'what rules should govern payment and quality measurement within the organization?' are still being written and analyzed.

Why bother?

The accountable care organization concept is appealing because it represents one of the larger goals of the new health reform law -- to bring down health care costs by paying for value instead of volume. The idea is to reward health care providers for keeping their patients healthy, delivering high quality care, and holding down their costs. Because the ACO holds providers accountable for both cost and quality targets, it helps ensure that providers are not sacrificing the quality of patient care in their effort to cut costs.

In fact, the ACO model calls for increased provider accountability and coordination -- and coordination is an essential aspect of health care that our current fragmented fee-for-service system doesn't do well. By reducing that fragmentation and introducing payment incentives that reward coordination, care within in the ACO has the potential to be better and cheaper than what we have right now in our health system.

There will be more info about what kinds of entities can form an ACO in the next post.