Are ACOs Just the New HMO?


MEDITECH Physician Informaticist Steven Jones, MD, weighs in on the important differences between ACOs and HMOs.

Whether ACOs are a re-incarnation of HMOs is a question that has been getting a lot of press, good and bad, since the new model was first announced in 2011. Although both care models aim to control costs, there are significant differences in how HMOs and ACOs were designed to achieve those savings. Here, I give a brief, simplified history of the HMO to understand how it compares (and how it doesn’t!) to our newest payment model, the Accountable Care Organization.

Broadly speaking, HMOs were created to contain costs by encouraging physicians and patients to be frugal, even putting a cap on their spending. Quality of care was an important, but secondary, concern. Recall that the HMOs of the 1990’s thrived at a time when EHRs were just appearing on the scene. The collection of "big clinical data" was difficult or near impossible. Billing data in an electronic form was available in abundance, allowing for automated, statistical review, but by and large, clinical data was not to be had. Without an electronic health record, and thus without structured clinical data regarding specific patients, it was impossible to figure out, for example, what the average level of blood glucose control was for the numerous diabetic patients on a given physician’s panel. Similarly, it was impossible for the HMO to know which tests were ordered by the doctor but declined by the patient. On the treatment side, the HMO knew what medications the patient bought using his or her insurance card, but it did not know what medications the patient bought with cash, nor also what medications were prescribed but never picked up. As a result, without clinical data, the insurer could not give a doctor clinical feedback—e.g., “the average HgbA1c for your patients is much higher than for your colleagues.” Without the ability to give clinical feedback, it was hard to drive physician behavior toward higher quality, lower cost care.  
Given these constraints, HMOs focused more on straightforward cost containment than on cost containment through quality of care. They limited access to expensive procedures and specialists, and they made doctors share in the financial risk of caring for a panel of patients. That is, the physician participating in an HMO knew that if he or she ordered expensive tests or sent a patient to an expensive specialist, the physician was likely to lose money on the patient. On the patient's side, the HMO often restricted access to expensive procedures and specialists either by denying payment or creating enormous co-pays. Ironically, there are times when an expensive work-up or an expensive specialist may actually save money in the end. Simply focusing on initial cost is not always to most cost-effective way to manage a patient.
In contrast, the theory of ACOs is to contain costs by focusing on quality and outcomes. ACOs drive physicians both toward standardized care and away from procedures that do not improve outcomes. By driving physicians to do a better job of taking care of patients—by focusing on outcomes and quality rather than the number of patients seen and the number of procedures done—the ACO also happens to reach the secondary, socially desirable goal of cutting down costs.

For an ACO to succeed, it must have an electronic health record. To encourage physicians toward best practices, it must use order sets, standardized protocols and clinical decision support (such as pop-ups!) embedded in an EHR. To track and correct those physicians who deliberately chose not to follow the protocols and embedded clinical recommendations, it must have an EHR to find out which physicians ignored the protocols and the recommendations. Also, to track preventive care, it has to have an EHR. To track expensive patients, it needs billing data, and then to coach those patients intensively and follow outcomes, it needs an EHR.  In short, it is impossible to run an ACO without all the combination of the clinical quality and billing data that one can gather with a robust EHR such as MEDITECH.

The Financial Bottom-line 
ACOs eliminate the fee-for-service model of payment, in which providers are paid based on the number of patients seen and the number of procedures done. By tying pay to output, fee-for-service encourages providers to perform more procedures and to see more patients. This is not necessarily good. Too many patients seen and too many procedures performed can actually harm patients, creating worse outcomes while driving up costs. Fee-for-service is therefore a perverse economic incentive. 

Although HMOs hoped to improve on the fee-for-service model (by capping payments to physicians), they still lived within it. They still paid physicians based on fee-for-service billing, which the HMO viewed as fine so long as the physicians stayed under a cap. In this way, HMOs created conflict within individual physicians and among groups of physicians—how to maximize each physician’s income while not going over the cap?

Instead of using the fee-for-service model, the ACO model bases payments to providers on whether the providers collectively can render high-quality care at a cost lower than a given benchmark. To calculate the benchmark, the global cost of a population of patients is observed under the old, fee-for-service model. That is the baseline cost. Then, going forward, physicians and hospitals together receive a lump-sum payment for the year. If they take better care of their patients—focusing on quality of care and outcomes—they save the system money. In order to force savings overall, the lump-sum payment is lower than the baseline cost, usually by 1 to 2%. In a fascinating set of trial demonstrations, ACOs have been shown to work.

Whether ACOs succeed or not in the long-term depends on how well they allow patients to enjoy a higher quality of care while also paying a smaller bill. If ACOs only focus on saving money instead of also on quality of care, then they will revert to being "advanced HMOs" and will lose their most redeeming value—making patients better while costing less.