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Insurers’ ACO Enthusiasm Continues in Control Cost Zeal


Health insurers have been trying to clinch Accountable Care Organization (ACO) deals since the passage of the 2010 healthcare reform law.

The law’s emphasis on accurate and efficient healthcare service rather than volume of service has led to the emergence of ACOs. These are formed when a group of healthcare providers (physicians, hospitals, non-physician providers, and the likes) collectively take responsibility for the financial and quality outcome for a defined population.

Given their focus on reducing medical cost and improving outcome, ACOs are appealing to insurers. Insurers form an essential part of ACO because these track and collect patient data, enabling an evaluation of patient care. Since clinical information and care processes are shared and supported by all providers, it becomes easier to manage care and effectively lower the cost. With Obamacare, health insurers have to be more than just a claims payer.

This network of doctors, hospitals and other healthcare providers that coordinate patient care are eligible for bonuses when they deliver the required care more efficiently. The reimbursement under ACOs are based on the quality of care provided and not the quantity. This improves service and avoids duplication which also helps in reducing overall costs.

Medical Sector Price Index

Medical Sector Price Index

Under health reform, insurers have lost flexibility in ways that they can cope with rising medical expenses. They can no longer rely on many of their traditional medical underwriting strategies, such as the exclusion of pre-existing conditions. The most effective approach for insurers now is to rely exclusively on the current cost control mechanisms to manage members’ medical expenses. Private commercial payers, such as Cigna, Anthem and Aetna are thus endorsing ACO formation.

The companies in the sector are therefore committed to investing in capabilities and creating partnerships to promote cost savings. Humana added eight ACOs in the second quarter bringing the total to over 900 serving 1.7 million Medicare Advantage members and 200,000 commercial members across 43 states. While Humana Inc. HUM carrying a Zacks Rank # 2 (Buy) has the maximum number of ACO relationships (more than 900), UnitedHealth Group Inc. UNH ranks second with more than 750 deals, followed by Cigna Corp.’s CI 156, Anthem Inc.’s ANTM 142 and Aetna Inc.’s AET 71. Aetna has a pipeline of 200 ACO deals. You can see the complete list of today’s Zacks #1 Rank stocks here.

However, many healthcare economists believe that the race to form ACOs could have a significant downside in the form of hospital mergers and provider consolidation. Nevertheless, recent developments attest to the fact that ACOs are gaining prominence rapidly, and are crucial to building a more efficient healthcare system in America.

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