June 29, 2013

SHOW THEM THE MONEY:

The trillion-dollar opportunity that could save health care (Abhas Gupta, June 28, 2013, Quartz)

Unlike a fee-for-service system, an Accountable Care Organization (ACO) is a health system where providers--doctors, hospitals, etc.--agree to align financial incentives with better health for a particular population. ACOs come in various flavors, but one particularly disruptive ACO business model is capitation. In capitated systems, organizations receive a fixed payment for delivering care, which means that they accept the financial risk for managing the costs of their covered population. Doctors who successfully control the costs of their patients get to pocket the difference between the fixed payments and their patients costs. This type of system ultimately profits by unleashing entrepreneurial innovation towards lowering health care costs.

Given their limited track record and sparse distribution, ACOs are widely perceived as a tiny movement with oversized hype. However, as Geoffrey Moore, venture partner at Mohr Davidow Ventures; innovation expert and Harvard professor Clayton Christensen; and others have long observed, industry disruptions follow an S-curve of penetration: they start out slow, accelerate rapidly, and eventually slow again as the market saturates. Fitting an S-curve (Figure 1) to the growing reach of ACOs over the last three years suggests that in the next few years, ACOs could become the dominant operating model in health care, thereby unlocking tremendous opportunities in a $2.7 trillion industry. (Early 2013 data on ACO growth also supports an exponential growth phase. It is worth noting that these data points reflect the reach of ACOs and not just the lives covered under true ACO contracts, so they are much more optimistic; nevertheless, the delay for conversion to true ACO contracts is likely to be nominal, as in additional years, not decades.) Although the Affordable Care Act catalyzed this movement by enabling Medicare to enter into ACO contracts, increasingly, the growth of new ACOs is coming from the private sector.


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Posted by at June 29, 2013 8:14 AM
  

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