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Change is here, with more on the way, in the world of health care. And with all of this change, there are plenty of new terms and buzzwords floating about. Here are four important ones that you need to know.
1. Accountable care organizations, or ACOs
Accountable Care Organizations, or ACOs, are groups of health-care providers, particularly hospitals, physicians and skilled nursing facilities, who team up to provide coordinated care to patients. The ACO is collectively responsible for quality and cost of the care, with the payments that it receives for providing care linked to both measures.
The concept of ACOs was first discussed publicly in 2006, although some aspects of ACOs are similar to those of health maintenance organizations, or HMOs, which have been around for decades. ACOs gained significant traction with the passage of the Affordable Care Act, commonly referred to as Obamacare, which established ACOs for Medicare. According to health-care consultant group Leavitt Partners, there are now 488 ACOs in the United States. More than half of these are Medicare ACOs.
Patients might not notice much of a difference if the hospital or physicians they go to participate in an ACO. However, there is a lot more interaction between different care settings behind-the-scenes with an ACO. The hope is that ACOs will hold costs down and improve the quality of patient care as a result of the shared financial incentives for health-care providers to work closely with each other.
2. Health information exchanges, or HIEs
One of the tools ACOs can use to share data among participating health-care providers is a health information exchange, or HIE. HIEs aren't just limited to ACOs, though. Many health-care providers can send and receive data via an HIE.
HIEs facilitate the electronic exchange of clinical data between different organizations. These organizations can include hospitals, physicians, skilled nursing facilities, insurers, government agencies, and pretty much any other entity with a legitimate need for accessing health data.
While all of the health information exchange performed by HIEs is invisible to patients, they should see some of the benefits. Providers that link into a fully operational HIE often have access to important clinical information for patients on a near real-time basis that they otherwise either wouldn't have at all or might only see later after care has already been provided.
3. Health insurance exchanges, or HIXes
Health insurance exchanges, or HIXes, sound a lot like health information exchanges, but they're actually quite different. There are two types of HIX -- private exchanges and public exchanges established as part of Obamacare.
With private health insurance exchanges, employers contract with the exchange, which then allows employees to select from multiple plan offerings. A private HIX supports the migration of employers to a defined contribution model, where they contribute fixed amounts to accounts that employees can use to purchase health insurance.
Obamacare established public health insurance exchanges that are scheduled to begin operation on Oct. 1. These exchanges, also called health insurance marketplaces, allow individuals to enroll for health insurance online. Sixteen states plus the District of Columbia will operate their own exchanges, while all other states will use a federally operated exchange. Most individuals not covered by employers or government programs will need to purchase insurance through one of these exchanges or potentially pay a tax penalty.
4. Consumer-driven health plans, or CDHPs
Consumer-driven health plans are insurance plans in which members pay for routine medical expenses from contributions made to a savings account, while a high-deductible insurance policy covers more expensive medical services. Either employers or individuals may contribute to the CDHP accounts.
Individuals become much more involved in the decision-making process about their health care with CDHPs. Because initial costs are paid out of the savings accounts, there are financial incentives for individuals to seek the most cost-effective treatment options.
Some private health insurance exchanges include insurance that falls under the CDHP umbrella. Implementation of the Obamacare individual mandate for buying health insurance could leave more Americans without employer insurance coverage who have incomes too high to qualify for federal subsidies looking to CDHPs as an alternative.
Plenty of companies are abuzz in profiting from the trends behind these buzzwords. How could investors potentially participate? The major health insurers are the first to come to mind.
UnitedHealth Group (NYSE: UNH ) , for example, is involved in all four buzzword trends. The big insurer announced in July that it plans to double its ACO contracts over the next five years. UnitedHealth acquired Axolotl in 2010, a major provider of HIE services. It also plans to participate in a dozen Obamacare health insurance exchanges and some private exchanges. UnitedHealth offers several CDHP products as well.
WellPoint (NYSE: ANTM ) also has jumped into the ACO and CDHP markets. The nation's second-largest insurer invested in HIE provider Availity in 2009. WellPoint is participating in Obamacare exchanges in all of the states where it operates and bought a large stake in a private HIX in 2011.
One possible ACO play is large hospital chain Tenet Healthcare (NYSE: THC ) . Tenet announced plans to buy smaller Vanguard Health Systems (NYSE: VHS ) earlier this year for $4.3 billion. Some saw this move as a bet on the ultimate success of the ACO model because of Vanguard's involvement in the federal government's Pioneer ACO program.
As for HIX, eHealth (NASDAQ: EHTH ) stands to be a prime beneficiary if the Obamacare exchanges do well. The company recently won a contract with the federal government to support enrollment in the exchanges through its website. If eHealth manages to gain additional business with some of the state-run exchanges, it could emerge as an even bigger winner.
Understanding the buzzwords that could paint the picture of the future of health care makes sense. Gaining insight on what's happening in health care now makes even more sense. Obamacare is rewriting the rules for the health-care industry, and in the process of doing so, it's creating massive opportunities for investors to get ridiculously rich. How? By investing in a handful of specific health-care stocks. In this free report, our analysts walk you through these opportunities and the companies that are positioned to exploit them. The informational edge contained in it is invaluabl, but can only be exploited profitably while the rest of the market remains in the dark. To access this free report instantly, simply click here now.