Clinical and Health Affairs
Accountable Care Organizations
A Primer
By Janet Silversmith
■ Accountable care organizations (ACOs) are being hailed as a promising element of health care reform, as some believe they will be critical to improving the quality of care and holding down costs. Several state and federal ACO demonstration projects are scheduled to begin in the near future. Yet, questions abound as to what exactly an ACO is and how they work. This article describes the concept, outlines challenges to implementing ACOs, and discusses concerns about this new care delivery and payment model.
Accountable care organizations (ACOs) have garnered significant attention as a promising element of health care reform. As part of the 2010 Patient Protection and Affordable Care Act, the Centers for Medicare and Medicaid Services will be required to establish a variety of demonstration projects to test and evaluate new care delivery and payment models for Medicare including medical homes, bundled payments, and ACOs. For many, however, the ACO concept is unclear. Some have described ACOs as a specific organizational structure, while others have equated them with payment mechanisms such as shared-savings or quasi-capitated models that place providers at financial risk for the care they provide. This has caused confusion among both providers and payers.
In general, the term ACO refers to a group of health care providers that accepts accountability for the cost and quality of care delivered to a defined population of patients. The concept was initially described by Dartmouth physician and researcher Elliott Fisher, M.D., and colleagues in a 2007 Health Affairs article in which they outlined an approach to improving quality and reducing waste by “fostering shared accountability” for the cost and quality of care among all providers involved in a patient’s care. In particular, they suggested the development of empirically defined “virtual” organizations composed of local hospitals and the physicians who work “within and around them.”1 In a subsequent article, Devers and Berenson described three characteristics essential to an ACO:
- Having the ability to provide and manage care across the continuum and across settings;
- Having the ability to prospectively plan budgets and assess the need for resources; and
- Being large enough to support valid performance measurement.2
Why the Current Interest?
The force driving interest in ACOs is concern about the cost and quality of health care in this country and the fact that current payment models provide few incentives for improving quality or reducing costs. The rising cost of health care has everyone searching for innovative ways to bend the cost curve downward. Similarly, evidence of underperformance in the quality and efficiency of care delivered, much of which can be attributed to fragmented or poorly coordinated care for patients with complex or chronic illnesses,3-5 has led to calls for greater collaboration among care providers. In addition, both physicians and purchasers of health care have questioned the feasibility of realizing cost savings and quality improvement given the incentives associated with current models of paying for care. The current fee-for-service payment mechanism does not, for example, reward providers for keeping patients healthy or out of the hospital; in fact, it encourages utilization of care—both that which is needed and that which is of limited or no value. Proponents of ACOs suggest that cost and quality can be addressed by holding providers accountable for the care they provide in exchange for financial incentives.
The Challenges
ACO implementation has uncovered a number of challenges, the foremost of which is developing the specific mechanisms to create accountability and new payment incentives. A number of factors come into play, including the clinical capacity of the ACO and the extent to which it is financially and clinically integrated. A large, formally integrated ACO that can provide a broad range of services may prefer to be paid using a risk-based payment model. An ACO with more limited capacity may prefer a blended model that combines fee-for-service payments with payments for coordinating the care of patients with complex medical conditions. Informal or virtual ACOs will likely encounter legal barriers as they try to accept and distribute payments among unaffiliated providers. This will make the development of ACOs extremely complex in some regions and among some providers.
For ACOs to work, payers must be willing to include them in their provider networks (thus providing ACOs with enrollees). The Medicare Payment Advisory Commission (MedPAC) has noted that in order for an ACO to align its clinical and operational decision-making, which is particularly important for partial or global capitation, it must serve a significant number of patients.6 Fisher and colleagues have suggested that a minimum of 5,000 patients per ACO are needed for measurement purposes.7
Patient participation in ACOs is another concern. One question that needs to be answered is whether patients will be given the option of enrolling in a particular ACO or whether they will be assigned or attributed to one. In its recommendations for Medicare ACO development, MedPAC calls for attributing patients to ACOs based on the primary care physician who provides the majority of their routine care.7 It is difficult, however, to imagine how a network of physicians and other providers could accept accountability and manage the care of patients without actually knowing who those patients are ahead of time.
Getting patients to accept the ACO model could be a challenge, as the concept may remind them of the HMOs of the 1990s, which limited their choice of providers and were perceived as rationing care. One of the most common criticisms is that ACOs are simply a return to the capitation model of the 1990s that some consider “a colossal and expensive failure.”8 Minnesota’s effort to create Integrated Service Networks in the mid-1990s, which for the most part was considered a failure, bears some resemblance to current ACO efforts. From a practical perspective, it will be essential to develop sound risk- adjustment mechanisms in order to protect ACOs from financial failure and prevent them from enrolling only healthy patients. Yet it is not known whether this is possible. Some point out that despite real advances, today’s risk-adjustment methodologies were developed for research or quality reporting and not for rate-setting.9
Another concern is that current quality metrics may not be sufficient for monitoring ACO performance and ensuring that financial pressures do not result in the withholding of appropriate care. There also are questions about how ACOs could be formed in rural or sparsely populated areas, and how to manage care a patient might obtain outside the ACO. Furthermore, some have questioned whether interest in ACO development will simply result in the creation of more large, integrated provider groups that will use their significant market power to leverage payments—a consequence that could blunt any potential cost savings.10 Finally, some of the expected functions of ACOs blur the lines between care delivery and insurance functions. The distinction between insurance risk and performance risk is important, not only to ensure adequate payment rates but also in determining solvency and how insurance regulations might apply to ACOs.
Testing the Waters
The Centers for Medicare and Medicaid Services has been charged with developing an ACO demonstration project by January 2012, with the goal of promoting accountability, coordinating services under Medicare Parts A (hospital services) and B (physician services), and encouraging investment in infrastructure and redesigned care processes. Provider participation in the ACO project will be voluntary. To be eligible, a group of providers must:
- assume accountability for the quality, cost, and overall care of fee-for-service beneficiaries assigned to it;
- agree to participate for three years (and not participate in any other Medicare or Medicaid shared-savings demonstrations);
- have a legal structure that allows for the collection and distribution of payments to providers and suppliers;
- have a sufficient number of primary care providers to care for the no-less-than 5,000 Medicare beneficiaries assigned to it;
- have a clinical and administrative leadership and management structure; and
- have defined processes to provide evidence-based medicine, report on quality and cost measures, and coordinate care.
The 2010 health care reform law gives the CMS discretion in terms of how payment to ACOs could be structured. Payment options might include partial capitation, which may be limited to highly integrated provider systems and those capable of bearing risk. In such a case, fee-for-service payments would continue but the ACO would share a portion of any savings achieved in excess of a defined threshold.
The law also authorized the creation of ACOs for the Medicaid population. In particular, it calls for the creation of a pediatric ACO demonstration project whereby Medicaid providers could be designated as ACOs and receive incentive payments similar to those being considered for the Medicare demonstration. In addition, the law establishes a Medicaid global payment system demonstration project under which states will be able to adjust their current payment structure for safety-net hospitals from a fee-for-service to a capitated payment system.
In Minnesota, the 2010 Legislature adopted language calling on the Department of Human Services to develop a demonstration project to test alternative and innovative health care delivery systems including ACOs.11 The demonstration project is intended for Medical Assistance (Medicaid) and MinnesotaCare enrollees and is expected to begin July 1, 2011. Providers will deliver services to a specified patient population for an agreed-upon total cost of care or risk-gain sharing payment arrangement. The quality and cost metrics and method of payment that will be used have yet to be determined.
Some provider organizations and private insurers are not waiting for the federal government to define ACOs for them and have moved forward with new arrangements. For example, Fairview Health Services and Medica announced a new partnership in July of 2009 whereby Fairview could earn performance-based payments tied to improving clinical quality and managing the total cost of care.12 Similarly, the Northwest Metro Alliance, a collaboration between Mercy Hospital, Allina Medical Clinic, HealthPartners Medical Group, and HealthPartners Health Plan, has established a shared-savings model focused on improving population health, improving the patient experience, and reducing spending.13 And in November 2010, Blue Cross and Blue Shield of Minnesota announced new contracts with Allina, Essentia Health, Fairview, and HealthEast that would increase the proportion of incentive-based payments.14
Minnesota’s health care home model has many features similar to those considered essential to the success of ACOs, namely a focus on care coordination, disease management, and enhanced communication among a team of providers. The fact that it has taken more than two years for the state to roll out the health care home program suggests that the adoption of further delivery and payment reforms will take time and patience.
What’s Next?
Although there is interest in the concept of ACOs in Minnesota, it is unclear whether it will extend beyond large, integrated systems. The formidable and real questions regarding implementation, however, suggest that a tempered and thoughtful approach is needed to avoid unintended consequences and mistakes of the past. MM
Janet Silversmith is the Minnesota Medical Association’s health policy director.
References
1. Fisher E, Staiger D, Bynum J, Gottlieb D. Creating accountable care organizations: the extended hospital medical staff. Health Affairs. 2007; 26(1): w44-57.
2. Devers K, Berenson R. Can accountable care organizations improve the value of health care by solving the cost and quality quandaries? The Urban Institute Research of Record. Available at: www.urban.org/url.cfm?ID=411975. Accessed January 18, 2011.
3. Institute of Medicine. Crossing the Quality Chasm: A New Health System for the Twenty-first Century. Washington, D.C.: National Academies Press, 2001.
4. Coleman EA, Berenson RA. Lost in transition: challenges and opportunities for improving the quality of transitional care. Ann Ann Int Med. 2004; 141( 7): 533-6.
5. Coleman EA, Smith JD, Raha D, Min SJ. Posthospital medication discrepancies: prevalence and contributing factors. Arch Int Med. 2005;165(16): 1842-7.
6. Medicare Payment Advisory Commission. Report to the Congress: Improving Incentives in the Medicare Program, Chapter 2. Washington, D.C.: 2009.39-58. Available at: www.medpac.gov/documents/Jun09_EntireReport.pdf. Accessed December 22, 2010.
7. Fisher E, McClellan M, Bertko J, Lieberman S, Lee J, Lewis J, Skinner J. Fostering accountable health care: moving forward in Medicare. Health Aff. 2009 Mar-Apr; 28(2): w219-31.
8. Goldsmith J. The accountable care organization: not ready for prime time. Health Affairs Blog, August 17, 2009.
9. Miller HD. Creating accountable care organizations in Massachusetts. Massachusetts Hospital Association. November 2009. Available at: www.mhalink.org/AM/Template.cfm?Section=Home&TEMPLATE=/CM/ContentDisplay.cfm&CONTENTID=9056. Accessed December 22, 2010.
10. Berenson RA, Ginsburg PB, Kemper N. Unchecked provider clout in California foreshadows challenges to health reform. Health Aff. 2010;29(4):699-705.
11. Minnesota Laws 2010, Article 16, Sect. 19, M.S. § 256B.0755.
12. Fairview Health Services. Fairview and Medica sign contract that addresses health care cost, quality. Press release, July 24, 2009. Available at: www.fairview.org/About_Fairview/Newsroom/c_659762.asp. Accessed January 18, 2011.
13. Hasbrouck M. Evolving to value payment. Allina Health System. Presentation Health Care Access Commission Payment Reform Work Group. September 8, 2010.
14. Yee CM. Blue Cross and other health insurers are pursuing new approaches to paying doctors, clinics, and hospitals for care. Minneapolis Star Tribune. November 29, 2010.