The State of Accountable Care Organizations

The State of Accountable Care Organizations

By the Innovations Exchange Team, based on an interview with health policy and management expert Stephen M. Shortell, PhD, MPH, MBA

Introduction

The implementation of accountable care organizations (ACOs), a new payment and delivery model designed to improve health care and lower costs, is proceeding rapidly. More than 500 ACOs are now being funded by either the public or private sector or both sectors. An evaluation of ACOs over the next 5 years will determine the impact on quality of care and reduced health care costs.

Innovations Exchange: What are the key elements of an ACO?

Stephen M. Shortell, PhD, MPH, MBA: Clinicians in an ACO are held accountable for the quality of care they provide and health care costs for a defined patient population. A minimum of 5,000 patients must be enrolled in an ACO to be eligible under the Patient Protection and Affordable Care Act (ACA) passed by Congress in 2010. Clinicians must meet the quality benchmarks and spending targets established by payers to share in the cost savings. In some ACO models, the organization is at risk for a portion of any spending that exceeds the target. Because patient choice is guaranteed under the ACA, ACOs are responsible for the cost and quality of care provided by specialists outside their organization. To reduce its risk, an ACO may contract with out-of-network providers who agree to abide by its requirements. Medicare-funded ACOs are also required to submit data on the costs of providing patient care and complete data for 33 quality measures.

How will ACOs constrain health care costs?

ACOs will constrain health care costs by fundamentally changing the way in which care is delivered. Key opportunities include reducing unnecessary hospital admissions and preventable readmissions, eliminating unnecessary emergency department visits, improving transitions in care, reducing the need for office visit–based care, and improving at-home care using new home diagnostic and treatment technologies. The move toward capitated payments and global budgets can unleash many opportunities for innovation in how care is delivered. But the impact on costs will depend on how rapidly ACO-coordinated care models spread across the country.

How will ACOs affect payment reforms?

The ACO concept originated in response to a growing recognition that fee-for-service payment was a major contributor to the rapidly rising costs and poorly coordinated care that characterize the U.S. health care system. Accountable care organizations move providers away from the traditional fee-for-service payment toward capitation and risk-adjusted global budgets. Payment reform must go hand in hand with the organization of health care delivery. Financial incentives to keep people well will create the potential for cost savings; however, that goal must be balanced with meeting the quality targets for the defined population.

What impact has the ACA had on the development of ACOs?

The legislation has had a major impact on the development of ACOs. The ACA authorized the Centers for Medicare and Medicaid Services (CMS) to create accountable care programs that seek to reduce spending while maintaining care quality or to improve quality at no increased cost. CMS has developed 3 ACO models, funded approximately 287 ACOs so far, and spurred the development of approximately 250 private-sector ACOs.

  • The Pioneer ACO Model is designed to support organizations with experience operating as ACOs or in similar arrangements to provide more coordinated care to beneficiaries at a lower cost to Medicare. The model will test the impact of different payment arrangements in helping these organizations achieve the goals of providing better care to patients and reducing Medicare costs. So far, 32 pioneer ACOs have participated in this demonstration project.
  • The Shared Savings Program rewards ACOs that reduce their growth in health care costs while putting patients first and meeting performance standards on quality of care. In one model, there is no downside risk if the expenditure target is not met. The organization shares in any cost savings with CMS. In the other model, the organization shares in the potential savings and is at risk for losses as well. So far, 220 organizations have participated in the national Shared Savings Program.
  • The Advance Payment ACO Model is designed for physician-based and rural providers who are already in or interested in the Shared Savings Program and are providing coordinated high-quality care to Medicare patients. This model allows selected participants to receive upfront and monthly payments, which they can use to make important investments in their care coordination infrastructure, such as purchasing electronic health records (EHRs) and hiring nurse diabetes educators. The hope is that advance payment will enable ACOs to realize cost savings. So far, approximately 35 ACOs have participated in this ACO demonstration project.

What evidence indicated that ACOs were a promising model?

CMS drew heavily on the Medicare Physician Group Practice Demonstration project implemented between 2005 and 2010, which used accountable care principles. Ten large group practices, comprising 5,000 physicians who served 224,000 Medicare beneficiaries, participated. The evaluation showed that the group practices generally met the quality targets but did not achieve significant cost savings. A recent evaluation of the same demonstration project found that, in addition to meeting the quality targets, the group practices achieved a modest annual cost savings per beneficiary and a significant annual cost savings for dual-eligible (Medicare and Medicaid) beneficiaries. The greatest spending reductions occurred in acute care, especially by reducing hospital admissions for dual-eligible beneficiaries.

In addition, early evaluations of medical homes, on which many ACOs are built, suggest cost savings between 2 and 4 percent through sustained improved quality and by eliminating hospital readmissions and emergency department visits.

What are the key issues and challenges facing ACOs?

To be effective, ACOs need to address a number of important issues :

  • Engage physicians in changing their practice patterns so they can practice more in teams, use professional medical guidelines, and implement EHRs. Treating patients with chronic illness requires clinicians to work as interdisciplinary teams and implement team-based care.
  • Engage contracted physicians in ways that will help them identify with the ACO. Consider providing them with EHR assistance, care transition management assistance, and constructive peer pressure from salaried physicians who refer patients to them.
  • Encourage patients to take an active role in their care through shared decisionmaking and communication about self-management, medications, and changes in lifestyle. Patients can also contribute to the design of the practice and share their experience of medical visits.
  • Standardize reporting metrics across multiple payers. An ACO often has contracts with CMS and two or three private health insurance carriers such as WellPoint, Anthem, or Aetna. Each payer uses its own set of quality metrics and reporting procedures. The National Quality Forum and other quality standards groups are advocating for increased standardization in reporting quality metrics—similar to what CMS already requires of ACOs.
  • Connect EHRs across organizations and spread that implementation. A multispecialty medical practice may have 10 years of experience with EHRs, but when it joins an ACO it has to connect with hospitals and other providers in the ACO that may not be on the same platform.
  • Hire ongoing health information technology support staff to maintain the functionality of an EHR system, including changing and upgrading the software and incorporating new information on patient diagnosis and treatment.

Have physicians, hospitals, and other clinicians and health care organizations in ACOs worked effectively together to meet ACO goals?

We will know more in the next few years, but the ability to form effective new partnerships will be key. A physician group or a physician group in a hospital needs to develop partnership skills and alliance-building skills to reach out to other physician groups, home health agencies, and nursing homes that are brought into an ACO. The key is to develop skills in relational coordination. A good example is the partnership among Blue Shield of California, Dignity Health (a hospital system), and Hill Physicians Medical Group. This ACO operates under an annual global budget reflecting total expected health spending for a defined population of individuals covered by the California Public Employees Retirement System (more commonly known as CalPERS). In its first 2 years, the ACO significantly reduced hospital use and overall health care costs.

What roles do performance measurement and evaluation play?

A primary care physician I interviewed a few years ago said, “Most of my career I didn't know if I was a good doctor because I never got any feedback. Since we have had medical records in our practice, it's like a veil has been lifted from my eyes.”

This physician receives monthly feedback on her patients, her performance is measured against the performance of other doctors in the practice, and the practice is benchmarked against other practices. Performance measurement is critical at the practice level and the individual physician level to know what corrective actions to take. EHRs are important not only for the delivery of patient care but to aggregate physician practice and patient data to submit to CMS or to a private insurer.

What is your proposed framework to evaluate the performance of ACOs?

A key step in this process of evaluating ACOs was the development of a “logic model.” Such a model provides a graphical representation of how we believe this approach to payment and delivery reform might achieve its intended effects, what those anticipated effects might be, and what local and national factors might influence success.

The framework includes the following components:

  • Environmental context: The competitiveness of the local market in which the ACO exists as well as its history, tradition, and culture are all part of the environmental context. We also look at the length of time ACO partners have been working together and the State regulatory environment.
  • Capabilities and their implementation: To deliver better care, practices need to have skills in developing effective teams and implementing EHRs and be capable of managing change.
  • Intermediate process measures and outcomes: Process performance measures include ensuring that patients receive recommended screening tests and examinations and that their blood pressure, lipids, and related measures are in control. Outcomes measures include the functional health status scores of patients and the total per-capita costs.

We believe that this framework will serve the field well. Our understanding is that CMS plans to use a similar framework in its evaluation contract of CMS grantees.

What are the most common mistakes group practices make in forming ACOs?

Practices typically overestimate their ability to manage risk. This is a major lesson learned from the experiment with capitated managed care in the 1990s. Some hospitals have the ability to manage and measure inpatient care, and some physician organizations have the ability to manage or measure ambulatory care. However, CMS and many private payers require the organization to manage the entire continuum of care.

Practices also underestimate the amount of time required to get an ACO up and running and the time and resources involved in EHR implementation. They also underestimate the effort needed to organize team-based care including defining roles and responsibilities, hiring the right people, and providing data feedback on team performance.

Practices must have the right leadership in place with relevant managerial experience, and they need to build trust and effective relationships with payers.

What innovations are occurring as a result of ACO formation?

ACOs are unleashing innovations around the country. Once an organization has a new payment model, it is free to focus on saving money and keeping patients well. Kaiser Permanente has done this for years. Examples include using patient navigators to help patients access the system, encouraging and making it easy for patients to more fully engage and be a partner in their care, and using health coaches and at-home monitoring devices.

What steps need to be taken to accelerate the ACO movement?

The most important step is for states, legislators, and private-sector payers to move rapidly away from fee-for-service to risk-adjusted global payment and budgets. Then the provider community can start reorganizing itself using multiple organizational and payment models.

Over the past 2 years, I chaired the Berkeley Forum for Improving California's Healthcare Delivery System, which brought together leaders from State health insurers, integrated delivery systems, and the private and public sectors. The Forum endorsed two major goals for California to achieve by 2022:

  • Reducing the share of health care expenditures from fee-for-service from the current 78 to 50 percent
  • Doubling, from 29 to 60 percent, the share of the state's population receiving care via fully or highly integrated care systems that coordinate care for patients across conditions, providers, settings, and time

ACOs are an important component of such systems. The spread of ACOs across the country needs to be accelerated. This can be done by encouraging widespread changes in payment by insurers, by encouraging more mature ACOs to share lessons learned with those still developing, and by the kind of work that the AHRQ Innovations Exchange is doing.

What ACO models will bridge the divide between health and health care?

What produces health is not the health care delivery system, but the communities in which we live and how we invest in our own health. We need to reduce the burden of illness on the U.S. population. I would love to see a community- or population-based ACO in which payers provide a fixed budget for an entire community to take care of its health or to manage patients with diabetes, for example. All the determinants of health including departments of housing, transportation, education, and public health, as well as the health care delivery system, would be invited to the table and told, “You have a fixed amount of dollars. How do you want to allocate them?” Some might say, for example, that we should hire 25 school nurses, which is a better investment than hiring 24 more diabetes nurse educators. All relevant sectors would be accountable for the health of community residents. The risk-adjusted global budget could be allocated across sectors based on the best return on investment to health.


Editor's Note: Read about other innovations related to ACOs by viewing these Innovation Profiles:

Medical Center Establishes Infrastructure to Manage Care Under Capitated Contracts, Leading to Better Chronic Care Management and Lower Utilization and Costs

County-Based Accountable Care Organization for Medicaid Enrollees Features Shared Risk, Electronic Data Sharing, and Various Improvement Initiatives, Leading to Lower Utilization and Costs

 

About Stephen M. Shortell, PhD, MPH, MBA: Dr. Shortell is the Blue Cross of California Distinguished Professor of Health Policy and Management and Professor of Organization Behavior at the School of Public Health and Haas School of Business at the University of California (UC), Berkeley. He is also the Dean of the School of Public Health at UC Berkeley. Dr. Shortell holds appointments in the Department of Sociology at UC Berkeley and at the Institute for Health Policy Research, UC San Francisco.

Disclosure Statement: Dr. Shortell reported receiving grants from the Commonwealth Fund and the Robert Wood Johnson Foundation to conduct research on ACOs and receiving payment from Kaiser Permanente for services provided.

Footnotes

  1. Colla CH, Wennberg DE, Meara E, et al. Spending differences associated with the Medicare Physician Group Practice Demonstration. JAMA. 2012;308(10):1015-23. [PubMed]
  2. Larson BK, Van Citters AD, Kreindler SA, et al. Insights from transformations under way at four Brookings-Dartmouth accountable care organization pilot sites. Health Aff. 2012;31(11):2395-406. [PubMed]
  3. Fisher ES, Shortell SM, Kreindler SA, et al. A framework for evaluating the formation, implementation, and performance of accountable care organizations. Health Aff. 2012;31(11):2368-78. [PubMed]
  4. Singer S, Shortell SM. Implementing accountable care organizations: ten potential mistakes and how to learn from them. JAMA. 2011;306(7):758-9. [PubMed]
  5. Shortell SM. Bridging the divide between health and health care. JAMA. 2013;309(11):1121-22. [PubMed]
Publish Date: 05/08/13
Date Last Updated: 03/26/14

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