ACO vs HMO: How You Can Tell an ACO From an HMO | Mercer US

How You Can Tell an ACO From an HMO

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How You Can Tell an ACO From an HMO
Calendar02 February 2015

If you’re confused about the difference between an old-school HMO and the new Accountable Care Organization, you’re not alone – which is why health economist Austin Frakt wrote this article for The New York Times. While there are similarities – both the HMO and ACO model encourage providers to integrate – ACOs were designed “more in response to the shortcomings of HMOs than as a copy of them.” A key feature of the HMO concept was capitation, which puts all the financial risk of care on providers because they get a fixed payment per member no matter how much care the patient uses. But, this raised concerns that HMOs would economize by providing less care than needed. On the other hand, the more typical fee-for-service reimbursement arrangement creates an incentive to provide more care than is needed. ACOs fall somewhere in between: they usually put providers at risk for only a portion of the cost of care. They also tie bonus payments to quality, a new feature intended to remove any incentive to sacrifice quality for lower cost. Another important difference is that ACOS routinely employ far more sophisticated information resources than were available to HMOs in the 1990s, which support quality measurement and improvement. The potential upside of ACOs is significant, and very large employers are moving quickly to incorporate them into their health programs. The potential downside is that as provider groups integrate and grow, they gain the market power to raise prices. Employers considering a move to an ACO should consider whether there’s enough competition in their market to keep that potential in check. (For a more detailed discussion, the author refers you to a paper published in Health Affairs.)

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