What's an accountable care organization (ACO)? Cleveland Clinic just became one, joining University Hospitals and Summa Health System (which adopted the model three years ago) and MetroHealth (which adopted it in 2013).
Under traditional insurance, a doctor gets paid no matter what. This encourages doctors to over-prescribe tests, medication, and hospital stays in order to boost their income. Insurers hated it, so they tried to get patients to demand better care by making patients pay for healthcare (deductibles and co-pays). That failed because, quite frankly, patients don't know jack about medicine. They either sucked it up and paid (not asking about the quality of care), or they didn't pay for the care -- and ended up in the ER and costing the insurer a boatload more money.
Insurers then tried capping payments. Doctors and hospitals who agreed to limit their medical choices to a pre-approved list of medications and services were preferred (the PPO), and got higher reimbursements than those who didn't. PPOs tended to limit patient choice, however, especially among the poor -- who could not travel the long distances to see a doctor in the PPO system. Some doctors ignored the PPO system, and began cherry-picking the richest and healthiest people to add as patients. This left insurers with the sickets and poorest patients, and that wasn't good.
The Health Maintenance Organization (HMO) was designed to actually improve the quality of care, and thereby reduce the cost. By focusing on preventative care and early intervention, the idea was that costs over time would drop. Until that happened, doctors and hospitals in the HMO would see very sick patients -- for whom they got very little money. HMOs who had doctors on salary or owned their own hospitals (like Kaiser Permanente) did well, but those which didn't tended to alienate healthcare providers. Moreover, the HMO model didn't punish patients for refusing to engage in preventative healthcare or early intervention care. So improvements in patient health were hard to obtain.
Now comes the ACO, which was adopted by Medicare and Medicaid in 2011.
The ACO is different in that it is run by the healthcare provider, not the insurer. Like the HMO, its focus is on preventive and early intervention care. But the ACO also requires its doctors and hospitals to only provide the preventive care that generates high-quality outcomes, and is cost-effective (e.g., high-cost care is permitted, only if it generates the very best outcome). When doctors and hospitals adopted new practices or treatments that lower costs as well as improve the quality of care, savings are generated. These savings are, in part, passed on to the doctor and hospital as higher reimbursements. The ACO also gathers immense amounts of patient date. This data is crunched in real-time and provided to doctors and hospitals. The data helps convince doctors and hospitals that the changes they have made are actually saving money and improving care. The data also helps them identify even more ways to improve healthcare outcomes and improve cost savings. The ACO requires its doctors and hospitals to review this data, and those who act on it get more savings passed on to them.
In the past, "medical arms races" occurred as one healthcare system would get a CAT scanner (which it couldn't afford, but which it heavily advertised -- and which patients believed showed the healthcare provider's commitment to quality care). Its competitors would, too. Then another provider would get a gamma knife -- and then they all would. These mega-expensive machines are only cost-effective when hundreds of patients a day use them. But a single healthcare provider can only funnel 10 or 20 patients a day to the machine. Worse, sometimes these machines only provided a marginal improvement in healthcare outcomes. These machines only offered marginal improvements in care, but practically bankrupted the healthcare system.
Changes in health insurance mean that no one is going to pay for these "medical arms races" any more.
ACOs aren't big money generators. But with Medicare and Medicaid willing to reimburse for big-ticket machinery -- IF it's shared among providers, and IF the cost-benefit analysis is right, and IF the health of patients is actually improved -- then adopting the ACO model (which will be required by Medicare and Medicaid in a three more years or so) is important.
In February 2015, Cleveland Clinic finally agreed to adopt the ACO model, Crain's Cleveland Business is reporting.
The ACO model seems to be working at University Hospitals (UH). UH dumped its 25,000 employees into an ACO care system in 2011. Astonishingly, this allowed UH to keep employee insurance premiums flat for several years. Even when an increase finally occurred, the premium hike was well below what other insurers were demanding.
At Summa, the ACO model focused on same-day care for those who fell ill. This encouraged less use of ERs, which are horribly costly. Summa generated $11.8 million in savings, of which $5.8 million went right back into Summa's pocket.
At MetroHealth, the ACO model is even more challenging. As a public hospital, the vast majority of its patients are poor and elderly with many chronic diseases (like high blood pressure and diabetes), poor health (obesity and smoking), and almost no access to primary or preventive care. Although cost savings numbers for MetroHealth won't be known until later this year, the public healthcare provider has already hired "patient navigators" to help patients at the highest risk of a severe health outcome (heart attack, cancer, etc.) get the care they need. This includes encouraging them to make regular appointments, driving them toward health improvements (like weight-loss and stop-smoking centers), and answering their questions and concerns about health. It even includes helping them with transportation (just getting to the doctor can be hard for transit-dependent poor), legal assistance (to navigate the health insurance system, and stay out of medically-induced bankruptcy), and coordinating social services (such as child care, nutritional assistance, and even landlord-delivered pest control).