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The Financial Professional's Guide to Healthcare Reform by Gregory Anderson, Mark Dietrich

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Chapter 8

Accountable Care Organizations

The term accountable care organization (ACO) is believed to have originated with Elliott Fisher, director of the Center for Health Policy Research at Dartmouth Medical School and to have first been used at a public meeting of the Medicare Payment Advisory Commission (MedPAC) in 2006.1 ACOs represent perhaps the most significant element of potential payment reform, change in the manner in which providers are paid for treating Medicare (and perhaps Medicaid) beneficiaries, along with the related financial incentive of risk-based shared savings. That said, the concept behind the model is neither particularly unique nor new.

This chapter focuses primarily on the factors directly impacting financial elements of the ACO.

Historical Parallels

Although relabeled, the idea of the Medicare program sharing savings generated through reduced utilization or better pricing is not at all new. Chapter 4 looks at the history of Medicare Advantage, which at its inception was risk-based and still has that model in place. Health Management Organizations (HMOs) accepted a capitation payment equal to 95 percent of the Medicare fee-for-service cost in a given county and in exchange agreed to accept the financial responsibility for the healthcare costs of enrollees. As that chapter discusses, these arrangements were often highly beneficial to the HMO and participating provider organizations. Certain Medicare Advantage models then pass a significant form of the ...

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