What is an ACO, and what does it mean for physicians?

ByDavid M. Glaser, JD

An ACO is an Accountable Care Organization and there is certainly a risk that if physicians don't prepare for them, they may feel like “A Commanding Officer." ACOs are one of the many acronyms to emerge from the latest round of health reform. You may have heard President Obama say something to the effect of "it is time to pay physicians for keeping patients well." If that sounds familiar, it is because the same arguments were used in the 1970s and 1980s to justify capitation, a fixed monthly payment for the care of patients. While capitation fell out of favor, it is being rebranded and relaunched as an "ACO."

The notion that we should "pay physicians to keep patients well" certainly has some rhetorical appeal. In fact, it sounds brilliant. But what does it mean? The idea behind an ACO is that physicians, hospitals and other organizations responsible for delivering health care will band together and offer to provide a complete care package to patients for a negotiated price. The ACO will be responsible for meeting all of the patient's needs.

Many of the details of ACOs are yet to be determined, and they are likely to be limited primarily by the creativity of the participants. However, presumably many ACOs will, like the HMOs of the 80s, compensate physicians less the more care they provide to a patient. While it is certainly possible to put a positive spin on such an arrangement ("you get paid for doing nothing!") the more accurate way of framing the issue may be "the more you do for a patient, the less compensation you receive."

The premise behind ACOs is that the current insurance system "incentivizes" physicians to keep patients sick, rather than to keep patients well. While I am a firm believer that people respond to incentives, there is something terribly insulting about the notion that the economic triumphs over others, rendering physicians unable to determine whether patients need care. Nearly all professionals are asked to determine what amount of work is required in a particular task. Lawyers, a plumbers and professors are just like physicians; they determine what the job requires. Periodically, society concludes that physicians are more likely than other professionals to abuse that trust. The result will be a payment system that provides an incentive for physicians to provide less care.

One factor I have never understood is that if one believes that the current fee-for-services system results in significant overtreatment, one should expect that a system that pays a physician NOT to provide care will result in undertreatment; financial incentives would presumably have the same impact either way.

Assuming that ACOs come to pass, it is likely that insurers will be offering fixed payments for "total care" of a patient, including all hospital care, therapy, imaging and the physician's effort. Such a system means that physicians will be fighting with hospitals, therapists, and imaging centers for their share of the reimbursement. The government expects that ACOs will result in increased integration. That seems quite possible. If ACOs are formed, physicians who have the ability to negotiate from a position of strength when dealing with hospitals and payors are likely to fare much better than physicians who lack any leverage.

Now is a good time for physicians to consider how they can increase their leverage. One obvious example of how physicians can prepare for ACOs is to consider forming or joining a larger group. Physicians who have the ability to negotiate as a group can work to increase their share of the overall payment.

How you can form a group will be the topic of the next blog entry.