American medicine looks nothing like that now. The majority of U.S. doctors rarely communicate with one another, while those connected to hospitals are usually independent contractors who bill patients separately from the institution—which makes it tough to get everyone working together for the good of the patient. Coordination, policy wonks believe, will make healthcare both better and cheaper, and lawmakers clearly think so, too. By Jan. 1, 2012, Medicare must establish a program that would share any money it saves from coordinated care within a community with the ACO responsible for the savings.
Already, there's some evidence that the concept works. Consider the experience of Kaiser Permanente, the nation's largest nonprofit health plan. With 35 hospitals and more than 14,000 doctors in nine states and the District of Columbia, the combination health maintenance organization and medical system pays itself a flat fee per patient. All of its doctors are on salary, so they have no incentive to order extra tests or otherwise try to increase their own income. A study of Kaiser patients with chronic diseases such as asthma and diabetes between 1996 and 2002 found clinical improvements were 10 percent above the national average, while another study calculated that workers compensation insurers in California saved $395 million from 1996 to 2005 because medical costs at KP were lower than those of other plans.
And it doesn't take an ACO the size of Kaiser to produce savings. Geisinger Health System serves a rural area of Pennsylvania around its home city of Danville. The hospital started charging patients who came in for coronary bypass surgery a flat fee in 2006. A study of 181 patients treated that first year found that the number readmitted within 30 days fell by 44 percent, while their cost of care dropped by 5 percent. Little wonder that interest was spreading even before health reform passed. Last November, Baylor Health Care System in Dallas announced that it would convert 13 of its 26 hospitals to an ACO model by 2015. "This is all about...focusing on wellness, on prevention," says Baylor CEO Joel Allison.
All this coordination may not sound like such a great thing to the public, which could well equate the ACO to the much-maligned health maintenance organizations of the 1990s. HMOs capped payments for various treatments at predetermined levels, which left many patients feeling that hospitals and insurers were refusing to provide needed care because it cut into their profits. "HMOs got a lousy name, and deservedly so, because they were totally about cost, not quality," says David Bronson, chairman of the American Medical Group Association and president of Cleveland Clinic Regional Hospitals. With many HMOs, he says, care decisions were made by the insurance company, which often second-guessed the doctor. An ACO, by contrast, ideally would not have to worry about preset payments for procedures, and would make its own treatment decisions without insurer oversight.
That's how Montefiore is set up. The hospital serves one of the poorest urban populations in the country—27 percent of the Bronx's 1.4 million residents (and 40 percent of its children) live below the poverty line. It was forced to hire its own staff physicians back in the 1970s, when the Bronx, infamously, was burning. "It was almost impossible to get doctors in private practice to stay here," says CEO Steven Safyer. "We had to repopulate the borough's medical care." By far the largest hospital in the area with 1,500 beds, Montefiore today pays about 80 percent of its 2,500 physicians a salary, including 500 primary care physicians based in the community. The hospital also set up its own HMO, with 150,000 enrollees, taking over the care of Bronx residents for a flat annual fee paid by employers or other insurers. To make sure these HMO members stay healthy, the hospital does extensive community outreach, operating over 100 outpatient offices throughout the Bronx, ranging from school health centers to mobile clinics. The community focus is evident in Montefiore's efforts to fight diabetes, which affects 12 percent of the borough's population. Its diabetes center serves over 4,000 patients, with an approach that focuses on teaching them how to take care of themselves. The health of family members of pregnant women with diabetes is evaluated, for example, in an effort to prevent the newborn from developing problems.