According to a report published by the Health Industry Forum in 2008, the trend of rising healthcare costs in the US could lead to a healthcare system meltdown. The report cites the importance of payment reforms that could keep tabs on healthcare costs while improving the quality of care. There is a need for providers to introduce greater accountability into their processes when delivering quality healthcare and that is where Accountable Care Organizations come into play.

While a functional ACO should consist of adequate physicians, specialists and typically a hospital, it should also have set processes for payment systems, measuring performance and improving healthcare quality. Some of the factors that an Accountable Care Organization should plan in advance are:

•    How it plans to bridge the gap between quality and costs, and the strategy it would use to become successful.
•    Healthcare providers that can be made part of an Accountable Care Organization and analyze the barriers that could prevent these providers from working in sync.
•    Changes in healthcare payment reforms that need to be made to support the sustainability of these ACOs.

These are the four organizational models that have the capability to become part of an Accountable Care Organization

a) Integrated health systems
b) Independent practice associations
c) Physical hospital organizations
d) Multi-speciality groups

Why does healthcare need payment reforms?

Although there are many reasons to support the need of payment reforms, some of the core issues that they intend to address are:

•    Variation in costs: It has been seen that the cost for the same healthcare treatment varies considerably from one region to another, sometimes by as much as 100%. Accountable Care Organizations intend to reduce this gap in variation by introducing transparency in healthcare pricing and by increasing user engagement in the whole process.
•    Aligning incentives with performance: Previous healthcare models have worked toward incentives being earned based on healthcare volumes. Accountable Care Organizations work towards changing this model by aligning incentives with performance as ACOs get incentives based on the quality they provide and not the volume.

The Shared Savings Model

One of the key benefits that payment reforms present is the adoption of shared savings model that supports the creation of ACOs. The concept of a shared savings plan is quite straightforward. If the healthcare provider can reduce the cost of healthcare as expected by the payer (Medicare, insurance company, etc.), he gets a share from the savings. The provider should also maintain the desired quality level, while decreasing the costs associated with quality care. The result is decreased spending for the payer and more revenues for the providers, a situation that both parties are keenly interested in. Unfortunately, this approach poses a few problems that need to be addressed before this reform can be implemented widely.

•    Presents risks to providers: The situation for healthcare providers looks bright from the start, they get rewards for cutting costs and there is no penalty for failing to do so. However, what this plan does not take into account are expenses providers incur during implementation processes that could bring the healthcare costs down. It leaves the provider with no guarantee that his extra expenditure would be covered in the near future.
•   High spenders are the biggest gainers: There are two different approaches being used by providers. On the one hand, there are providers who waste the maximum resources and still do not meet the quality requirements, and on the other hand are providers who offer the best quality with minimum resources. The latter group is already saving Medicare a lot of money and there is little they can do from here, which means less incentives, whereas high spenders who have to make a great deal of amendments can actually bring the costs down considerably and gain the most out of the incentives system.

The only way these payment reforms can work equally for different providers is by letting the payers and providers share the risk for value improvement programs and by also recalibrating the hospital payment levels.