Accountable Care Organizations (ACOs) Demystified


Accountable care organizations (ACOs) have become one of the most talked about acronyms in health care reform. The concept of an ACO was developed in 2006 by Elliot Fisher, Director of the Center for Health Policy Research at Dartmouth Medical School during a discussion of the Medicare Payment Advisory Commission as experts desperately sought ways to curb the spiraling costs of Medicare. The idea of an ACO is to give financial incentives to doctors and hospitals for providing quality care, specifically to Medicare beneficiaries, while also keeping costs down. Kaiser Permanente and HealthCare Partners Medical Group are two examples of successful ACO prototypes.

An ACO is accountable to the patients and the third-party payer for the quality, appropriateness, and efficiency of the health care provided. According to the Centers for Medicare and Medicaid Services (CMS), an ACO is “an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program”.

ACOs were developed to reform the delivery of health care, where patients are getting each part of their health care from separate providers who may or may not be talking to each other. The aim of an ACO is to have one entity coordinating all of the health care of one person in a holistic manner, in turn, incentives are provided for doctors and hospitals if they keep the cost of care down.

The concept of an ACO may remind some of the Health Maintenance Organizations (HMOs) in the 1990s that espoused the “doc in the box” model of health care delivery. One key difference between an ACO and an HMO, however, is the ability of the patient to access care out of network if they feel more comfortable doing so. According to Steve Lieberman, Deputy Director for Policy and Analysis at the National Governors Association, “ACOs aim to replicate the performance of an HMO in holding down the cost of care while avoiding the structural features that give the HMO control over patient referral patterns which limited patient options and created a consumer backlash in the 1990s”.

While the ACO model is designed to be flexible, medical policy experts define three core principles for all ACOs:

  1. Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients;
  2. Payments linked to quality improvements that also reduce overall costs; and,
  3. Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care.

According to a recent article from the Kaiser Family Foundation,“Most hospitals and doctors get paid more by delivering more, not necessarily better, care. ACOs will reward providers for holding down costs and meeting certain quality measures, such as reducing hospital readmissions or emergency room visits. In many ways, ACOs aim to replicate the much touted models of care at the Mayo Clinic in Rochester, Minn., and the Geisinger Health System in Pennsylvania, where hospitals and doctors coordinate their efforts within the same organization”.

Though an arguably sound principle, the concept lost favor with the provider community when the Obama administration released proposed rules pertaining to ACOs. Hospital and doctor groups complained that the program created more financial risks than rewards and imposed onerous reporting requirements.

Further, if an ACO is not able to save money, the providers who created it could be left with the costs of investments made to improve care, such as adding new nurse care managers. Also, ACOs may have to pay a penalty if they don’t meet performance and savings metrics. ACOs sponsored by physicians or rural providers, however, can apply to receive payments in advance to help them build the infrastructure necessary for coordinated care – a concession the Obama administration made after complaints from rural hospitals.

On the upside, according to CMS estimates, ACO implementation as described in the PPACA is estimated to lead to an estimated median savings of $470 million from 2012 – 2015.

Providers can be creative in how they structure an ACO. For example, in some regions of the country, including parts of California, there are multispecialty physician groups that may become an ACO on their own by networking with neighboring hospitals. In other regions, large hospital systems are buying up physician practices with the goal of becoming ACOs that directly employ the majority of their providers. Because hospitals usually have access to capital, they may have an easier time than doctors in financing the initial investment required by an ACO.

Some of the largest health insurers in the country, including Humana, United Healthcare and Cigna, already have announced plans to form their own ACOs for the private market. Insurers say they are essential to the success of an ACO because they track and collect the data on patients that allow systems to track patient care and report on the results.

However, many health care economists fear that the race to form ACOs could have a significant downside: hospital mergers and provider consolidation. As hospitals position themselves to become integrated systems, many are joining forces and purchasing physician practices, leaving fewer independent hospitals and doctors. Greater market share gives these health systems more leverage in negotiations with insurers, which can often drive up health costs.

In addition, doctors, hospitals and others in the health care industry have raised concerns that ACOs could run afoul of antitrust and anti-fraud laws, which try to limit market power that drives up prices and stifles competition. One concern is that ACOs, particularly those in rural markets, could grow so large that they would employ the majority of providers in a region.

ACOs were officially set to launch this spring. The success of this approach remains to be seen, but it is certainly a creative, sensible approach to providing a total health care solution for each person in the Medicare sphere.
Sources: Kaiser Health News, Wikipedia “Accountable Care Organizations”