When it comes to supplemental health care coverage for the elderly, the traditional heavy-hitters have been the Medicare Health Maintenance Organizations (HMO), and Preferred Provider Organizations (PPO).

But, an announcement recently made by the Centers for Medicare and Medicaid Services (CMS), indicates that a new player is suiting up to help manage the health care of senior Americans—the Accountable Care Organization (ACO).

An ACO is a collection of health care providers who come together and agree to be responsible for the care, quality, and cost of healthcare services for a set group of people, according to Henry Chung, M.D., vice president and Chief Medical Officer for the Montefiore Care Management Organization.

CMS officials recently revealed the creation of 27 new ACOs as part of its Shared Savings Program—a cost-saving initiative outlined in the much-debated Affordable Care Act. This is in addition to the 32 ACOs (Montefiore among them) that began participating in the "pioneer" program, which began in January of this year.

ACO, PPO, HMO—who knows?

Medicare by itself doesn't cover all of a senior's medical expenses, but those who qualify for the government program have several options when it comes to purchasing additional health insurance. These options are called Medicare Advantage plans, and they fall into one of three basic categories: Private Fee-for-Service, HMO, or PPO.

Where does the ACO fit in to all of this?

A Medicare beneficiary may sign up for any type of Medicare Advantage plan, but only those under the feel-for-service model can currently receive care from an ACO.

Chung emphasizes that an ACO is a physician partnership model with a payer, like Medicare, working together to improve quality and control costs—not an insurance plan.

In addition to the normal payments to healthcare providers for diagnosis and treatment, the ACO model provides an additional mechanism for rewarding health care providers—one that emphasizes quality of care. Health care providers in an ACO still get paid by Medicare, Medicaid, or a private insurer, but they also have the potential to receive additional payments based on how much money they save by coordinating care for their patients.

ACOs must meet certain standards for quality of care before they can get a cut of the savings.

Chung points out that one key difference between an HMO/PPO, and an ACO, is that seniors participating in an ACO cannot be denied services, as long as the test or procedure is covered in the Medicare fee-for-service package and that provider feels is medically necessary.

In HMOs and PPOs, insurers can require providers to receive pre-approval for certain tests or procedures.

Elderly minds and bodies benefit from focus on quality

Chung believes that the ACO model is particularly beneficial for seniors due to its focus on chronic disease management.

Aging adults are often plagued by a host of different ailments—ranging from arthritis to Alzheimer's—that can seriously complicate the care that they need.

A senior with chronic needs who participates in an ACO is can be assigned a nurse or a social worker as their care manager to help them coordinate their care and navigate tricky health decisions.

"For years, healthcare providers have been asking for nothing to get in the way of their relationship with their patients," he says, "ACOs offer the chance for doctors to take direct responsibility for communicating better, improving prescription management, and coordinating activity."

This emphasis on holistic care can be particularly important when it comes to the mental health of aging adults.

Research pointing to the interconnected nature of a person's mental and physical health abounds. But, the current structure of the healthcare system makes accessing psychological services so costly that many seniors forgo treatment for things like depression and anxiety.

Medicare beneficiaries consistently face higher co-payments for mental health services than medical services, according to Chung. And, despite the fact that an ACO must adhere to the payment guidelines of the Medicare fee-for-service plan, Chung says that many organizations are working to bridge the gap between medical and mental care.

At Montefiore, for example, nurse care managers are being trained to screen seniors for things like depression. If a mental illness is found, they will try to help the elderly adult cope with their symptoms and connect them with additional mental health services.

It will likely take doctors and patients some time to get used to an ACO's emphasis on communication, according to Chung. "There is a learning curve for seniors and their doctors, who will need to communicate better, and not only during visits, but between visits," he says.

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Reduce costs by reducing waste

The hope is that, in addition to improving care for the elderly, the ACO paradigm will lead to a reduction in the overall waste that, according to two recent reports, is rampant in the U.S. healthcare system.

The first report, co-authored by Donald Berwick, former administrator of the Centers for Medicare and Medicaid Services (CMS), and Andrew Hackbarth, policy analyst for the RAND Corp., claims that as much as 20 percent of the country's $2.2 trillion yearly healthcare bill is squandered. Overtreatment and failure to coordinate care topped Berwick and Hackbarth's list of reasons for this waste.

In a separate paper, nine different physicians groups presented lists of 45 unnecessary—but often prescribed—tests and treatments, including: excessive prescriptions for antibiotics, and avoidable electrocardiograms for low-risk patients.

Proponents of the ACO model hope that the implementation of a more coordinated care system will, by reducing some of this waste, stem the tide of rising health care costs in the U.S.

An enduring model

Even though the ACO model is formally outlined in the Affordable Care Act, Chung doesn't believe its future is completely intertwined with the health care reform legislation—which is currently being scrutinized by the Supreme Court.

"We cannot say for sure. But, since the Medicare Pioneer and shared savings programs do not require any upfront funding to ACO providers, and providers only share in savings when cost of care is lowered and when quality is high, it is likely that the ACO program will continue, even if the ACA is stricken," he says.