ACOs: what they are, how they work and who benefits

Travis Turner

Employee Benefit News Badge

As Seen In

Maybe you’ve heard the chatter about Accountable Care Organizations. ACOs are networks of providers, including physicians and facilities, that track the delivery of care in a different way, focusing on accountability and quality of care. In other words, ACOs focus on the result of the care, rather than just collecting fees for service or volume of services provided.

The push for ACOs is driven in large part by the Affordable Care Act and its emphasis on quality care and downward pressure on overall health costs. ACOs are getting traction in the marketplace. Even the federal government is getting in on the act. The Centers for Medicare & Medicaid Services announced that it plans to launch this next generation of value-based medical care.1

All of this activity leads to several questions: where are ACOs headed, how viable are they into the future, and should your organization consider utilizing one?

Let’s first look into how an ACO functions. As I said earlier, the ACO model focuses more on preventive health and outcomes of care. For instance, the business incentive for traditional healthcare providers is to deliver aquantity of service; while most still focus on quality of care, quality is not their business incentive. In the ACO model, instead of delivering a certain number of MRIs a quarter, for instance, the provider’s focus turns to what happens to the patient after the MRI. Typically, payment is then based on outcomes rather than the volume of service delivered.

Doctors choosing to participate in an ACO get compensated by the outcomes of patients, not how many patients they see. Importantly, there still is a fee for service, but doctors who adhere to a follow-up protocol will be compensated at a higher level for positive outcomes.

ACOs are a win for doctors because they treat patients rather than focus on seeing as many patients as possible. They’re a win for the patient because they receive better care. And they’re a win for the insurance company because they’re making the correlation between better care and lower premiums.

The population they’re insuring is healthier, which leads to a lower cost. This aligns with the goals of the ACA, which aims to promote outcome-based care to reduce the total national healthcare spend.

Back to the question, should my organization consider utilizing one? Are they a win for the employer?

The answer is “it depends.” Right now it can be difficult for an employer to specifically set out to join an ACO. There’s generally not an option to choose an ACO, like you would a Health Maintenance Organization (HMO) or Preferred Provider Organization (PPO) medical plan. Instead, you select an insurance company and it may offer an ACO integrated into one of its options. Once the employer has chosen its carrier, based upon an array of factors it will ultimately have the choice of whether to offer the ACO to its employees.

Additionally, it depends on geography. ACOs tend to be formed around a specific geography because it requires the connectivity of physicians. Some regions have them, some don’t. For instance, there seem to be more options on the west coast.

Depending upon the maturity of an ACO, employees may have limited provider options; their preferred physician may not be in network. In an ACO that is being built out, getting doctor appointments can sometimes be difficult. Some employers will determine that the ability to provide affordable care is a trade-off worth making for their employees even if it limits their choices.

As employers speak with their insurance brokers, these are some of the considerations to make regarding ACOs. However, it might be useful to compare ACOs to that new restaurant in town. Sure, it’s enticing, but sometimes it’s smart not to be the first customer. Maybe wait a couple of weeks and let them iron out the kinks. Right now, our best advice is to continue to keep an eye on ACOs, how they grow and how they perform.

But make no mistake; we’re going to continue to see more and more ACO-like options for employers to choose from.

1 Forbes, “White House Launches “Next Generation ACO” With High-Touch Value-Based Care


©2016 Corporate Synergies Group, LLC. No part of this material may be republished or distributed without prior written consent.

Download PDF