Those involved in the healthcare industry will be hearing a lot about accountable care organizations (ACOs) in the coming months.

As presented on seven pages of The Patient Protection and Affordable Care Act (PPACA) signed into law last March, the stated purpose of ACOs is to offer doctors and hospitals financial incentives to provide good quality care to Medicare beneficiaries while keeping down costs.

What is an accountable care organization?

An ACO is a network of doctors and hospitals that shares responsibility for providing care to patients. Under the new law, an ACO would manage all of the health care needs of a minimum of 5,000 Medicare beneficiaries for at least three years. The idea is to bring together the different components of care for the patients – primary care, specialists, hospitals, home health care, etc. – and ensure that all of the components work well together.

When will ACOs begin operating?

Officially, the ACO initiative is scheduled to launch in January 2012, but hospitals, medical practices and insurers across the country are already announcing their plans to form ACOs, not only for Medicare beneficiaries but also for patients with private insurance. Some groups have already created what they call ACOs.

Why did Congress include ACOs in the healthcare reform laws?

Medicare is a prime target as lawmakers search for ways to reduce the national deficit. The costs of the program are expected to soar in the coming decades. The department of Health and Human Services (HHS) estimates that ACOs could save Medicare up to $960 million in the first three years.

What are some of the pros and cons of ACOs?

The providers in an ACO would be equally accountable for the health of their patients, giving them strong incentives to cooperate; they would save money by avoiding unnecessary or overlapping tests and procedures. Those that save money while also meeting quality targets would keep a portion of the savings, but some providers could also be at risk of losing money. Also, providers would have to seamlessly share information for the ACO to work, and guidelines are not yet in place for doing so.

Who would run ACOs — hospitals, doctors or insurers?

The guidelines do not specifically address this topic. According to a senior fellow at the nonprofit Urban Institute, the question was left purposely vague in order to be flexible. Right now, the feeling is that there is a range of provider organizations that could manage an ACO, but nobody has determined which would be the best choice.

Some regions of the country, including parts of California, already have large multispecialty physician groups that may create their own ACOs by networking with neighboring hospitals. In other regions, large hospital systems are attempting to buy up physician practices with the goal of becoming ACOs that directly employ the majority of their providers.

Some of the largest health insurers in the country have already announced plans to form their own ACOs. Insurers say they can play an important role in ACOs because they track and collect data on patients, which is critical for coordinating care and reporting on the results.

The purpose of the Affordable Care Act, and therefore ACOs, is to improve the safety and quality of patient care and make health care more affordable. By focusing on the needs of patients and linking payments to outcomes, delivery system reforms such as ACOs are meant to help improve the health of individuals and communities and reduce cost growth.

Our next post will examine some of the financial, legal and personal implications of ACOs.