Accountable Care Organizations 101: a primer

The Patient Protection and Affordable Care Act of 2010 includes provisionsto create “accountable care organizations” (ACOs) to participate in Medicare.

ACOs are health care providers that would be paid based on performance rather than purely on a fee-for-service basis. In Massachusetts, policy makers are looking to the ACO model as a way to reduce costs and improve quality. However, there is much that is unclear about what ACOs are and how they would work.

The Centers for Medicare & Medicaid Services (CMS) defines an ACO as “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 thetraditional fee-for-service program who are assigned to it.”

Conceptually, ACOs have three essential aspects:

1) The ability to deliver services across the continuum of care,

2) Prospective budgets, which establish the ACO’s total costs in advance, and

3) A sufficient number of patients to support the validity of performance measurement.

Elliot Fisher, MD, director of The Center for Health Policy Research at Dartmouth Medical School, who is credited with coining the term “accountable care organization,” has said that the three key attributes are organized care, performance measurement and payment reform. These attributes should be aligned to support physicians in improving the quality of care.

The theory behind ACOs is that, by taking on the risk of delivering care on a prospective payment basis, providers would have incentives to manage patient care across multiple settings.  While this might sound like capitation revisited, the difference between the ACO (and other global payment models) and the managed care of the 1990s is the connection to quality measures. The incentives are based on delivering value, rather than on under-utilization (capitation) or over-utilization (fee-for-service) of health care services.

From the physician perspective, the orientation toward ACOs would require a major cultural shift, said Dr. Lawrence Casalino of Cornell Medical School to a New England Journal of Medicine roundtable. “Quality” will change from what the doctor does for an individual patient at the point of care to what the organization does for the population of patients throughout the year.

There are three different models of ACOs that are relevant to consider: a “virtual” organization that aligns physician practices, a hospital and perhaps other providers to receive value-based payments; an actual organization that integrates both the insurance and care delivery functions; and a legally contracted organization that is paid on a fee-for-service basis but shares savings for efficient quality care – the model that is used under the new Medicare program.

• The virtual ACO

Under the virtual model, hospitals, physicians and other providers do not need to be legally organized, but might have a memorandum of understanding about how payments will be distributed.

For example, the PROMETHEUS payment model is designed to pay providers based on evidence-informed case rates for a specific condition, and allows either such “virtual” organizations or integrated delivery systems to participate. (See www.hci3.org for more information.)

• The integrated ACO

While ACOs may seem like a theoretical construct, there are several prominent organizations that are serving this function today, and deriving their incentives for efficient and quality care by integrating the insurance and delivery roles.

Examples include Geisinger in Pennsylvania, Kaiser Permanente in California and other states, Group Health Cooperative of Puget Sound in Washington and Dean Health System in Wisconsin.

• The Medicare ACO

The new Medicare program is scheduled to begin in January 2012. It is important to note that it is not a pilot or demonstration, but rather a permanent part of Medicare.

Each Medicare ACO must have a formal legal structure to receive shared savings payments and distribute them among participating providers, and must meet quality and reporting standards.

In addition, an entity applying to become an ACO must have at least 5,000 Medicare beneficiaries to ensure the statistical validity of performance measures. The organization must also have a defined process to promote evidence-based medicine, report data for quality and cost measures and coordinate care.

The Medicare ACO requirements include automatic assignment of patients to the ACO, performance measurement, shared savings based on reducing costs relative to targets and no risk initially of provider costs exceeding budgeted amounts (although this could change over time).

Although patients are assigned to an ACO, Medicare beneficiaries served by the ACO would also be able to receive care outside of the ACO.

Medicare ACOs will have three-year contracts. Payment will be made on a fee-for-service basis, but the ACO will receive shared savings payments if spending is lower than the per-person spending growth for all Medicare beneficiaries in that ACO, with some complicated adjustments.

Further, bonus payments will be available for meeting quality metrics.

In addition to Medicare ACOs, the law allows states to establish ACOs for their Medicaid programs under a demonstration program beginning in 2012 that is designed for pediatric providers.

At the end of 2010, CMS sought comments on how small physician practices might participate (and suggestions for other payment models that might be appropriate for small practices), how to determine which beneficiaries are part of an ACO’s patient pool at a given time, how to measure patients’ care experience, quality metrics, measures of patient-centeredness and proposals for alternative payment methods.

Clearly, there are numerous details that still need to be determined.

In the interim, analysts are assessing the potential transformative impact of ACOs.  Because the Medicare ACO program model does not involve risk and would pay providers based on fee-for-service rates, some have questioned how “accountable” these organizations have to be.

While some are dubious about the ability of ACOs to solve the problems with the health care system, there is widespread consensus that the fee-for-service system is broken, and Congress and CMS believe that the new Medicare program is a promising way to begin to transform it.

Medicare program is a promising way to begin to transform it.

Craig Schneider is the Director of Healthcare Policy at the Massachusetts Health Data Consortium in Waltham. The Consortium’s website is www.mahealthdata.org.