In about 600 words, here is the short answer.
Some background: Experts generally agree that US healthcare has become unaffordable at a rapid rate. Health insurance premiums have become a burden for many families (see the graphic below that shows the rise of family health insurance premiums over time). And, the quality of much healthcare has been inconsistent.
As an antidote to these problems, the concept of “accountable care” was introduced about a decade ago (though it has its roots in the HMOs of the 1970s). In short, “accountable care” is a way of paying for healthcare in a way that gets the people who provide health services (doctors, hospitals, health systems…) to have a financial interest in the medical outcomes they generate. Accountable care is designed to align the patient’s and the healthcare provider’s interests.
To understand how radical this concept is, you need to consider the current, dominant form of healthcare payment in the US, called fee-for-service (or FFS).
Fee-for-service has been the main payment model in the United States for decades. Under FFS, every medical service delivered by physicians and hospitals is paid on a piecemeal, widget by widget basis by payers such as insurance companies and the government (e.g Medicare and Medicaid). Every widget sold means additional revenue.
Among other problems with FFS: 1) The payment model doesn’t reward the thoughtful use of resources (in fact, the more resources used the higher the potential profit…) 2) There is no financial incentive for physicians to coordinate care or seek efficiencies. 3) There is no financial incentive to encourage wellness, or to provide preventive care since long-term outcomes aren’t rewarded and 4) There is really no financial consequence to the provider for providing low-quality care.
Accountable care has come about in an attempt to disrupt the misaligned incentives of the FFS payment system. It does this by having providers share in the financial upsides and downsides of their decisions. The goal is to put provider “skin in the game” and to align the patient’s long term interests with those of the system.
Accountable payment models vary in design. Here are a few examples of the payment strategies now being used in accountable systems.
Bundled Payment: in this model, the provider receives a fixed payment to provide a “bundle” of services for a procedure. For example, an organization may receive a flat fee for providing a cardiac bypass. An efficient organization can generate a profit; an inefficient organization will lose money. If there is a complication, the provider pays to manage it.
Performance-based fee-for-service, or value-based care: Some portion of a healthcare payment is withheld (or bonuses offered) if the provider achieves certain metrics with regard to utilization and quality.
Capitation: A healthcare organization receives a fixed amount of money monthly to provide healthcare services to a given population. The most extreme form of capitation, known as global capitation has the provider covering the cost of all medical services needed by the patient– hospitals, drugs, office visits and the like.
The biggest opportunity for accountable practices to make a profit under a capitated model is to be very thoughtful about controlling the total medical expense of their enrolled patients by being careful to not order unnecessary medical interventions, by making cost-effective purchasing decisions and by making upfront investments in wellness and prevention to prevent downstream catastrophes. In accountable care, the patient’s preventable catastrophe is the provider’s preventable catastrophe too.
The US healthcare is still in great flux. But, it’s increasingly looking as though FFS is headed the way of the telegraph– and that accountable payment models are here to stay. My thought: the sooner, the better. This alignment between providers and their patients can only be a good thing.