Aetna Forms ACO with NEMG - Analyst Blog

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The news of Aetna Inc. ( AET ) forming another Accountable Care Organization ("ACO") with Northeast Medical Group, Inc. ("NEMG"), in Connecticut, on May 1, drove the share price 1% higher during the day. In the next trading session, however, the stock slid 0.4%, to close at $71.49, likely due to weakness in the broader market.

Aetna's ACO formation with NEMG is in sync with its effort to grow its new provider model, called accountable care solution. The ACOs are instrumental in offering this solution through improved yet affordable standards of safety and quality in patient care.

An ACO is a voluntary collaboration of healthcare providers offering coordinated high-quality care to patients. Such an organization is accountable for the quality, cost, and overall care offered to members.

With its latest ACO, effective Jul 1, 2014, Aetna will serve all its members in Connecticut who are fully insured or have self insured plans and have availed healthcare service from NEMG in the last couple of years.

Payment to NEMG and its physicians will be made on the basis of the quality of service rendered. The quality of care provided is measured in terms of management of patients with long-term diseases such as diabetes and heart ailments, reducing hospital readmissions, emergency room visits and lowering pharmacy cost, among others.

These ACOs or collaborative accountable care is one of the several means by which policies undertaken by President Obama will work toward improving the quality of health of all Americans.

Aetna is aggressively expanding its ACO strategy by collaborating with provider systems, which include multi-payer primary care, Medicaid primary care, state-wide ACOs and multi-line multi-payer ACOs. As a consequence, Aetna's ACOs are gaining traction and enhancing its core business. In 2013, the company signed 17 new ACO collaborative agreements, bringing its total count to 32, serving 550,000 members.

Aetna targets 60 ACOs by the end of 2014 with 0.75 million members and accountable for $2.5 billion or 7% of total revenue. Aetna has over 200 ACO deals in its pipeline that could serve 60% of the U.S. population. ACOs allow the company to exercise tighter control over medical management, generating on average,10% savings.

Other health insurers like UnitedHealth Group Inc. ( UNH ), Cigna Corp. ( CI ) and Humana Inc. ( HUM ) are also aggressively forming ACOs. Going forward, we expect such patient-centric collaborations to grow rapidly.

Aetna currently retains a Zacks Rank #2 (Buy).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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