Obamacare Affordable Care Organizations Should Be Expanded Across the U.S.

ByKate Lawrenz

The United States should expand incentives for Accountable Care Organizations throughout the health care system, as they represent a necessary shift from our country’s current fee-for-service policy.

Accountable Care Organizations (ACOs), as provided for in the Patient Protection and Affordable Care Act of 2010, coordinate and direct patient care across multiple disciplines while striving to contain costs and emphasize high-quality care. However, the ACO provision extends only to Medicare and Medicaid; without nation-wide implementation, health care costs will continue to rise. Accountable Care Organizations in the United States today exemplify the model’s cost-effectiveness. After three years as an ACO, the Medicare Physician Group Practice decreased expenditures by over 2 percent in half of the practices. Similarly, Community Care of North Carolina saved over $535 million in five years for its Medicaid and Children’s Health Insurance Program; and in Seattle, Group Health Cooperative also reduced costs, improved patient outcomes, and enhanced physician collaboration.


Health care systems typically utilize a fee-for-service payment system, in which physicians receive payment based on the number of services provided to a patient. This payment structure contributes significantly to the rising cost of health care. The most costly 20 percent of hospital referral regions in the United States produce 80 percent of all hospital expenditures, and the high volume of services similar patients receive in these referral regions explains the vast differences in spending.” However, widespread implementation of Accountable Care Organizations could decrease health care expenditures, as ACOs emphasize the quality of care over quantity of treatments. For example, the Mayo Clinic typically spends $40,000 less per Medicare patient compared to fee-for service hospitals. As Mayo Clinic President Dr. Denis A. Cortese explains, “[Our physicians] have no financial incentive to do more than is necessary for the patient.”

Physicians receive payments based on a “defined clinical episode” or a “set period of management of a chronic condition.” Unlike the fee-for-service system, this capitation payment encourages collaboration among physicians to prevent unnecessary medical expenditures, thereby promoting patient care over profit.

Next Steps

To create successful Accountable Care Organizations throughout the country, the structure of physician practices and hospitals needs to change. Currently, few ACOs exist because neither payers nor physicians and hospitals have an incentive to implement payment reform before the other. Payers are reluctant to embrace capitation payment systems unless more successful ACOs exist. Unfortunately, hospitals and physicians have few incentives to become ACOs because the fee-for-service system does not encourage integration. Without future incentives for both the payer and the provider, ACOs will remain a rarity, instead of the norm, in the United States’ health care system. Policymakers must incentivize a national shift away from our fee-for-service system in the public and private sector alike. Medicare influences all other stakeholders in our country’s health care system; if it takes the lead in payment reform nationally, the private sector will follow in its path. Medicare’s change also can encourage the private sector to reform, because it will “drive greater structural integration, which can increase the capacity for additional payment reform, and so on.”  As a result, widespread incentives to establish ACOs will help usher in a new era of health care policy in the United States -- an era marked by higher-quality care and more cost-effective practices.