Performance of Accountable Care Organizations

Under a traditional fee-for-service payment model, healthcare providers typically compromise the quality of care in order to reduce costs. Drawing on data from a national sample of accountable care organizations (ACOs), we study whether financial incentives offered under the Affordable Care Act led to fundamental changes in care delivery. Our research suggests that effective use of health information technology (IT) by ACO providers is critical in balancing competing goals of quality and efficiency. Unlike hospitals that did not participate in value-based care initiatives, ACOs were able to generate better quality outcomes while also improving overall efficiency. Furthermore, ACO providers that used health IT effectively demonstrated better patient health outcomes due to greater information integration with other providers. In other words, ACOs created value by not only reducing the cost of care but also improving patient outcomes simultaneously. Our research provides a roadmap for practitioners to succeed in a value-based healthcare environment and for policy makers to design better incentives to promote interorganizational information sharing across providers. Our findings suggest that healthcare policy needs to incorporate appropriate incentives to foster effective IT use for care coordination between healthcare providers. Accountable care organizations (ACOs) were established under the Affordable Care Act to address systemic problems afflicting the U.S. healthcare system related to high costs and poor quality issues. ACOs represent groups of healthcare providers that are responsible for coordinating patient care with the goal of improving health outcomes for their patient population. To develop a better understanding of the role of health information technology (IT) in a value-based care environment, we study (a) whether there are potential trade-offs between ACO efficiency and quality and (b) whether effective use of health IT enables ACOs to balance competing efficiency and quality objectives. We test our models with a nationwide sample of ACO data using a two-stage approach based on data envelopment analysis and econometric estimation. We observe that efficient ACOs do not make trade-offs with respect to healthcare quality, compared with inefficient ACOs. Furthermore, we observe that hospitals that participated in ACOs, and used IT effectively for care coordination with other providers, exhibited a positive association between efficiency and quality. ACOs with higher levels of meaningful use achievement of health IT demonstrate better patient health outcomes because of greater information integration with other care providers. Our findings imply that value-based incentives alone are not sufficient to resolve trade-offs between healthcare quality and efficiency, and healthcare policy needs to incorporate appropriate incentives to foster effective IT use for health information sharing and care coordination between healthcare providers.