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Accountable Care Organizations: Cutting Your Healthcare Costs

By Todd Campbell - Sep 2, 2015 at 9:19AM

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Accountable care organizations, or ACOs, are saving Medicare big money.

Source: American Medical Association.

Accountable care organizations, or ACOs, aim to help lower healthcare costs by streamlining patient care to reduce unnecessary and overlapping expenses.

According to the CMS, ACOs saved Medicare hundreds of millions of dollars last year, so let's learn more about them.

How do ACOs work?
An ACO is a group of doctors and other healthcare providers, such as specialists and hospitals, who voluntarily work together to provide coordinated care to patients.

In an ACO, a primary care physician spearheads all patient care within and outside of the ACO's network. Because the primary care doctor serves as a patient care quarterback across a team of deeply interconnected providers, primary care physicians can reduce costs by boosting communication to reduce the number of overlapping or unnecessary doctor visits, tests, and procedures.

Do ACOs really lower healthcare spending?
According to the Centers for Medicare and Medicaid, the ACO integrated care model is working.

Medicare reports that ACO programs serving 7.8 million Medicare patients last year saved a net $411 million, which is roughly $40 million more than was saved in 2013. Admittedly, those savings are a drop in the bucket considering that Medicare spending is roughly $600 billion annually, but savings still suggest that the ACO model works.

Overall, 97 of more than 350 ACOs participating in Medicare ACO programs received shared savings payments from Medicare, which is an incentive awarded to top performing ACOs by the agency as part of a carrot-and-stick approach to encouraging providers to create ACOs.

Although the majority of ACOs didn't achieve savings or performance benchmarks necessary to collect shared savings payments, ACOs that have been around longer did better than newer ACOs, and that could mean savings will improve as ACOs mature.

ACOs participating in the Pioneer ACO program designed for larger, more experienced coordinated care providers, for example, generated savings of $120 million during year three of the Pioneer program, up 24% year-over-year and up significantly from the $88 million in savings during year-one of the program.

What lies ahead for ACOs
If the number of people served by ACOs is to grow, then more ACOs will need to achieve savings that qualify them to receive Medicare shared savings payments. If not, then more ACOs could leave, rather than join, Medicare's program over the coming years.

Ultimately, however, it's ACOs' ability to improve patient health that will make or break the program. After all, savings matter only if they come in concert with healthier and increasingly satisfied patients.

Fortunately, the mean quality score for ACOs is climbing, indicating that patients are increasingly happy with the care they're receiving from them. Last year, the average quality score for a Pioneer ACO increased to 87.2%, up from 71.8% two years ago, and Pioneer participating ACOs saw their performance scores increase in 28 of 33 quality measures and five of seven patient satisfaction measures. Those numbers are encouraging enough to speculate that ACOs momentum will build, rather than wane, and if so, then annual savings associated with ACOs should keep growing.

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