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Accountable Care Organizations

The Affordable Care Act encourages experimentation with a new method of delivering health care called an Accountable Care Organization. Currently, Medicare/Medicaid reimburses under a payment method called fee-for-service, wherein providers receive payment for each visit, hospitalization, and procedure. A criticism of fee-for-service is that it encourages overtreatment and therefore overspending. Former Democratic Party Chairman Howard Dean, also a one-time primary care physician, says of fee-for-service,
Fee-for-service medicine is the No. 1 driver of health-care cost inflation in this country, and everything else is such a distant No. 2 [that] it almost doesn't pay to debate about it. Fee-for-service medicine – that is 'the more I do, the more you pay me regardless of the outcome.' 
Accountable Care Organizations offer an alternative to fee-for-service. Here, Medicare compensates an ACO with periodic payments for each member of a population served, based on that member's age and condition. The ACO would then pass along proportionate payments to its member providers. An ACO itself is more like a network than a formal organization -- think of the ACO as a general contractor and the providers as subcontractors.

The underlying hope is that by removing the fee-for-service incentive to overtreat, ACOs will encourage communication among providers and decrease duplication of services, thus reducing costs. Skeptics note that provider-led efforts to manage costs are historically unsuccessful, and that as currently conceived require too much up-front financial sacrifice from providers and are not close enough to patients.

The Boston Globe has a useful Q&A about ACOs here. Author, consultant, and futurist Ian Morrison offers his take here.

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