ACO Model Risks and Rewards

I haven’t heard a single person say that the ACO (Accountable Care Organization) model is not here to stay. In fact, everyone that I’ve talked to is completely confident that healthcare is heading down the tracks of some sort of quality care model and away from our current fee for service model. The only real question is what form these ACOs are going to take.

With this as background, let’s consider something about ACOs that I haven’t really heard many (if any) people talking about: the risks and reward profiles of being an ACO (or part of an ACO).

I’ll save the detailed list of risks and rewards for a future post, but instead want to highlight how the risks and rewards of an ACO are quite different from our current fee for service model. In our current model, when you provide a service to a patient you have a pretty good idea of what the reward for that service is going to be. Sure, there are intricacies of insurance billing, but for the most part you know what you’re going to be paid for the services you rendered. There’s not very much risk associated with providing that service since the fee for that service is known. We could argue about whether the reward is worth it or not, but in the current model the reward is pretty solidly defined. You don’t get paid more for doing a better knee surgery than someone else. The payment is the same.

The opposite turns out to be the case in a true ACO world. Providers that are caring for a community of people will be rewarded based on the quality of care that they provide that community (at least that’s the idea). That means that providers and ACOs are taking on the risk associated with the care they provide. Bad care = less reimbursement. Better care = more reimbursement. While the associated risk is higher for providers under an ACO, so are the rewards. A provider that provides better care for their community has the possibility of making more money for the care they provided.

As an entrepreneur I must admit that the idea of getting paid more for doing something better than someone else is beautiful. This is even more true in healthcare where I love the idea of a doctor getting paid to really improve my health as opposed to getting paid for services that I may or may not need. Although, I can understand how many doctors might not feel the same way I do. Many doctors aren’t entrepreneurs. They just love medicine and patients. What are these types of doctors to do with this new and evolving ACO model for reimbursement?

I think there is a clear option for doctors that just want to practice medicine without the risk or rewards associated with the ACO model. The way they’ll get around this is likely working for someone else. There’s little doubt that there will be many organizations happy to take on the risk and rewards of the ACO model while paying a physician a salary for their work.

One thing seems clear to me: Providers take on a greater portion of risk in an ACO, but they also have the opportunity to take home a significantly higher net reimbursement.

About the author

John Lynn

John Lynn

John Lynn is the Founder of the HealthcareScene.com, a network of leading Healthcare IT resources. The flagship blog, Healthcare IT Today, contains over 13,000 articles with over half of the articles written by John. These EMR and Healthcare IT related articles have been viewed over 20 million times.

John manages Healthcare IT Central, the leading career Health IT job board. He also organizes the first of its kind conference and community focused on healthcare marketing, Healthcare and IT Marketing Conference, and a healthcare IT conference, EXPO.health, focused on practical healthcare IT innovation. John is an advisor to multiple healthcare IT companies. John is highly involved in social media, and in addition to his blogs can be found on Twitter: @techguy.

7 Comments

  • You make some good points about risk. However, with the shared savings model for an ACO that our network (of independent practices, hospitals, and long-term care facilities) is currently pursuing, at least initially (3 years), there are few risks to the primary care providers. If they save enough money AND do quality work, they are rewarded by getting approximately half of the money saved. Part of that money is then required to put back into the network in the form of infrastructure, workforce, etc. I think that this initial model will be very good for the region and good for PCPs as well. After that initial period, there will be risk involved, but as long as our network meets our quality goals, everybody wins. Better care coordination, better interoperability, and better outcomes.

    At least that is the idea.

  • Kalan,
    You’re right. The programs I’ve heard today seem to be what you describe. Mostly upside with little risk. However, I think that will change over time. Either because those “rewards” will become common place and basically assumed that you’ll get paid or because they’ll penalize poor performance. We’ll see how it evolves.

  • John, where is the push for the ACO model coming from? Is it based in legislation or private innovation? I agree that it would be great to see medical practices operate under the same risk/reward model that is common for industry. Could see this having a (good) impact on costs, since payment is not guaranteed. It also means you have to manage your hospital, practice, etc., more like a business than a legacy. There has been an awakening to this fact in healthcare over the last 10 years (mainly on the hospital side). Here’s hoping ACO’s are not just another contraction in the cycle of centralize/decentralize, repeat …

  • Mark,
    I think those are good questions and part of a much larger discussion, but I see it coming from both sides actually. The government certainly has ACO initiatives and pilot programs exploring the best way to make this happen. However, a number of insurance plans have announced programs as well.

    I’ll see if I can put together a future post on the various ACO related initiatives that are happening in the public and private sphere.

    This definitely could shift the model of healthcare for good.

  • […] Her comment really has had me thinking about revenue cycle management and particularly her final point about that being where the money is in their business. I’ve always believed in business that it’s a smart thing to follow the money, whether its sexy or not. On that note, I plan to do a series of posts related to revenue cycle management here on EMR and EHR. As for ACOs, I already started a series of ACO posts on EMR and HIPAA starting with my post “ACO Model Risks and Rewards.” […]

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