Medicare, Medicaid, Accountable Care Organization

Subject: Healthcare Financing
Pages: 6
Words: 1412
Reading time:
6 min
Study level: College

Medicare Payment Mechanism

Today hospitals and physicians are reimbursed by a range of different public and private services. The payments they provide can be both direct and indirect. Today the government tries to control healthcare costs by reducing reimbursement and establishing managed care programs for Medicare and Medicaid (Banach and Melanie 6).

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Medicare is the program that was created to help elderly people as the largest federal health insurance program. Medicare’s structure includes two main components that exist separately. However, their interconnection is seen. The first one is Hospital Insurance. It is also known as Part A that pays for inpatient hospital care, skilled nursing facility, home health, and hospice care (Brennan, Conway and Tavenner 99). Part B is the Supplementary Medical Insurance, which helps pay for physician, outpatient, home health care, and various other medical services (Auerbach et al. 1781).

Hospitals and physicians are reimbursed under the current Medicare payment mechanism, which is based on diagnosis-related groups. This means that the fixed amount of money provided by the program is assigned to a group of people with common diseases. Medicare used to pay hospitals only this particular sum for the number of services that were provided; however, now it also pays great attention to the quality of the services.

Physicians also faced such treatment and got payments according to the SGR formula, which did not take into consideration the quality of care they provide. Before the reform, actual physician spending differs much from those that were paid according to the SGR. Now they are adopting alternative payment mechanisms that provide better financial support for reforms in care delivery that improve quality of care, and in so doing may reduce overall health care costs (O’Gara 101).

It is claimed that a consultation with a Medicare physician costs about 70 dollars if it lasts for 15 minutes. If the time of consultation increases up to 25 minutes, Medicare will pay a bit more than 100 dollars for it. The program also pays physicians for drugs that they have in the offices and prescribe the patients.

The Medicare payment schedule is one more element that influences the payments. Medicare approves as the reimbursement level for the service, and all references to the full Medicare payment schedule include the 80 percent that Medicare pays and the 20 percent patient coinsurance (Auerbach et al. 1784).


For many years already the government takes care of poor people and those who suffer from chronicle diseases. It provides some amount of money to hospitals, but this funding is not systematic and fits only some services. In 1965, Congress established two programs that were aimed at healthcare; however, their peculiarities differ depending on the location. These were the Medicare and Medicaid programs.

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Medicaid is a social entitlement healthcare program that provides payments for medical services for people who need them but is not able to pay for them. These can be just individuals or the whole families who do not have enough income and resources. It is a federal-state program, which presupposes that it may vary depending on the location. Within federal guidelines, states set their own Medicaid standards of eligibility; determine the type, amount, duration, and scope of covered services; and administer their programs (Shrank 809).

The program can be used only by people who are citizens of the United States or those who became its permanent residents legally. These can be both adults and their children, or, as it very often happens, people with some disabilities. Still, if one does not have money it does not mean that the person will be surely admitted by the program.

Medicaid is the best variant that poor Americans can afford. It spends several billion dollars to ensure access to the services of good quality. The program covers various services but among the traditional ones are:

  • Diagnostic tests that ate treated as necessary ones (these can be X-rays, blood tests, etc.);
  • Mental health services (physicians, social workers, etc.);
  • eye care (examination and eyeglasses);
  • Diabetes self-care management training (nutrition, medication, etc.);
  • durable medical equipment for people who need permanent treatment at home;
  • annual examinations and preventive dental care;
  • Pregnancy care (delivery, midwife services, etc.);
  • Emergency care (hospital admittance, transportation, etc.) (Banach and Melanie 7).

Healthcare providers, such as hospitals and physicians, are paid directly or through different arrangements. Providers participating in Medicaid must accept Medicaid payment rates as payment in full (Shrank 810).

The Medicaid reimbursement to physicians differs depending on the state; however, it is still lower than the Medicare reimbursement (about 60 percent). Needless to say that this causes dissatisfaction, and doctors have less will to continue working for Medicaid.

ACO Reimbursement

Accountable Care Organization (ACO) is concentrated on the delivery of healthcare of high quality that is maintained due to the coordination between healthcare providers (hospitals and physicians). This program is administrated by Medicare and is made to enhance the quality of healthcare and reduce the costs needed for it.

Medicare ACO rule presupposes that the reimbursement will be provided due to the shared saving program. ACOs will be able to choose one of two variants of transition in Track. According to them, they will be able to choose a kind of shared saving model after gaining the agreement for three years. Under the first variant, the ACOs can take one-side saving for two years and two-sided for the last third year (Macfarlane 264). The second variant presupposed the two-sided model that will be active for three years. However, according to the modifications in the rule, a two-sided risk is not present anymore in the first variant.

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Comparatively long phase-in measures to evaluate the quality of healthcare will be presented. During the first year of an agreement the organizations will pay for reporting, during the next two years they will also provide payments for the performance.

As it was mentioned earlier, there are two risk models. On their basis, the sharing savings were supposed to differ. According to the one-sided model, the sharing should have started at savings of 2 percent while the two-sided model presupposed the sharing starting with 1 dollar. However, after some considerations, it was decided that both models will start sharing with the first dollar as soon as the saving rate is reached.

To enhance their competitive ability, a lot of ACOs maintained the strategy of “quality and cost leadership” (Macfarlane 264). They are aimed at the sharing of net savings that were gained from effective care management. Unfortunately, the approaches cannot produce a long-term strategic advantage for ACOs; because cost and quality standards are set by third-party payers, such as Medicare, any advantage gained in a specific market can be erased by shifts in minimum requirements for value-based purchasing (Macfarlane 265).

The success of the ACOs

The success of the ACO model in fostering clinical excellence and continual improvement while effectively managing costs hinges on its ability to incentivize hospitals, physicians, post-acute care facilities, and other providers involved to form linkages that facilitate coordination of care delivery throughout different settings and collection and analysis of data on costs and outcomes (Macfarlane 263). According to this, the ACO will need to create some organization that will maintain the care, ensure its high quality, gain, and parcel the payments to the personnel, and deal with possible risks. Thus, this organization will be a great benefit to the whole delivery system.

The environment, in which ACOs exist, changes rapidly, and this prevents them from achievement competitive advantage. Usage of strategic imaginations is the thing that may lead to a fundamental overhaul of the delivery system as it can streamline the process of identification of the customers and the beneficial opportunities on the market. The product development strategy is a promising one as it enhances sustainability and allows the organizations to provide consumers with low-cost but high-value services and products.

One more key element that will lead ACOs to success and influence the delivery system is the individual approach of different healthcare providers. There is no use to translate the strategies of business models and free-for fee-service reimbursement to the market of ACOs that was recently created, they should design their strategies based on particular organization structure and customer value configuration (Macfarlane 265).

Understandings that each healthcare provider is working under different influences and in various environments should make them realize that the strategies cannot be the same. Each change made for the adaptation to the specific characteristics of the environment will surely draw benefit to the organization.

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Works Cited

Auerbach, David, Hangsheng Liu, Peter Hussey, Christopher Lau and Ateev Mehrotra. “Accountable Care Organization Formation Is Associated With Integrated Systems But Not High Medical Spending.” Health Affairs 32.10 (2013): 1781-1788. Print.

Banach, Edo and Bella Melanie. “What Is the Focus of the Integrated Care Initiatives Aimed at Medicare-Medicaid Beneficiaries?” Generations 37.2 (2013): 6-12. Print.

Brennan, Niall, Patrick Conway and Marilyn Tavenner. “The Medicare Physician – Data Release – Context and Rationale.” The New England Journal of Medicine 371.2 (2014): 99-101. Print.

Macfarlane, Alex. “Sustainable Competitive Advantage for Accountable Care Organizations.” Journal of Healthcare Management 59.4 (2014): 263-271. Print.

O’Gara, Patrick. “Caution Advised: Medicare’s Physician-Payment Data Released.” The New England Journal of Medicine 371.2 (2014): 101-103. Print.

Shrank, William. “The Center For Medicare and Medicaid Innovation’s Blueprint For Rapid-Cycle Evaluation Of New Care And Payment Models.” Health Affairs 32.4 (2013): 807-812. Print.