Accountable Care Organizations

Accountable care organizations are one of the hot ideas for holding down health care costs; they are an attempt to find a middle way between the problems of fee-for-service and the problems of capitated insurance plans like health maintenance organizations.

A problem with fee-for-service, of course, is that it reduces the incentives to hold down costs when providing or consuming health care services. A problem with a capitated plan, which pays a fixed amount per patient, is that it provides too much incentive to hold down on costs by delaying or denying health care. The idea of an accountable care organization is that it receives a fixed payment per person, but it is also evaluated on the basis of many criteria for the delivery of high-quality care: that is,  measures like how many people get appropriate preventive care services, whether chronic conditions are treated in ways that avoid unneeded hospitalization, whether various protocols are follows in dealing with certain conditions, and the like. These measures of the quality of care should help to reduce the concern that health care will be delayed or underprovided. In addition, Accountable care organizations that perform well on these measurements can receive bonus payments--which they can use to fund programs that encourage health and wellness behavior that help to meet these goals, but are not the kinds of programs for which a health care provider can usually gain reimbursement.

For an overview of the movement toward developing measures of the quality of health care, and how these might be used by accountable care organizations, one useful starting point is an article in the Spring 2011 issue of my own Journal of Economic Perspectives by Mark McClellan:  Reforming Payments to Healthcare Providers: The Key to Slowing Healthcare Cost Growth While Improving Quality? "


For a skeptical view of accountable care organizations, one starting place would be a recent blog by  Robert Samuelson, the always-lucid Washington Post economics columnist. He writes: "Participation in the program may be modest, and savings are likely to be minuscule. ACOs make for good press releases and bad public policy. They give the impression that the administration is “doing something” about health spending when it isn’t." For another skeptical view, a doctor named Scott Gottlieb, writes "Accountable Care Organizations: The End of Innovation in Medicine?" He argues that similar arrangements have not controlled costs in the past, and are unlikely to be a source of innovations in health care.