A Perspective on Accountable Care Organizations

April 18, 2011

Accountable care organizations (ACOs) are legal entities that are responsible for the cost, quality, and care of a population of patients. ACOs are part of the Shared Savings Program of Medicare under the Affordable Care Act.

Accountable care organizations (ACOs) are legal entities that are responsible for the cost, quality, and care of a population of patients. ACOs are part of the Shared Savings Program of Medicare under the Affordable Care Act, which allows healthcare providers to pool together with or without a hospital or health plan organization to create an ACO. The Department of Health and Human Services has posted the preliminary rules that will define how key stakeholders will adopt the new ACO format in March; the finalized rules will be issued in late 2011. The ACO program will officially begin on January 1, 2012. 

The purpose of the program is to carve out a path to fix the existing systemic and endemic healthcare problems by 1) providing better care for individuals, 2) facilitating better overall health for populations, and 3) deterring the growing cost of medicine by improving the quality of care.
(see Head of Medicare and Medicaid Describes Newly Proposed Plan to Lower Costs and Improve Care). The overall objective is a better-coordinated and more affordable healthcare system. 

How healthcare providers will organize ACOs, what they will ultimately look like, and what the pathway to achieving the hoped-for benefits for clinicians and patients are all still largely unknown. Since ACOs can take many forms, including medical groups, physicians employed at hospitals, and joint ventures between private doctors and hospitals; it will be interesting to see how ACO formation and activity occur.

In an online-first article in the New England Journal of Medicine, John K. Iglehart, founding editor of Health Affairs and author of numerous Health Policy Report essays, has written a perspective on the new ACO regulations (DOI: 10.1056/NEJMp1103603). According to Iglehart, ACOs were created by Congress to develop “more accountable, quality-driven health care delivery systems, promising performance bonuses for those who succeed”.  The government has recognized that since primary care physicians are the gatekeepers of our health care resources, they should be an integral part in developing a better system and a strong foundation for primary care.

ACO Organization and Issues

A group that wants to form an ACO must be able to deliver continuous care to at least 5000 Medicare patients and will be held accountable for the costs, quality, and efficacy of their care. Private health plans are encouraged to join ACOs, and the program will also encourage rural providers to band together in networks, in theory enhancing quality of care via collaborative efforts.

To implement the savings program and quality of care measure, the Center for Medicare and Medicaid Services (CMS) will create an expenditure “benchmark against which an ACO’s performance would be measured” in order to judge the achieved shared savings for each beneficiary as well as the responsibility of losses. CMS will also measure the quality of care delivered by an ACO. The quality will be measured using “65 nationally recognized measures in five domains: patient experience, care coordination, patient safety, preventive health, and health of at-risk and frail elderly populations”.  Medicare will still pay healthcare providers traditional fees for service. 

Funding of ACOs

CMA has supported giving a bonus to an ACO start-up when it achieves its cost-saving goals and no penalty if it fails in cost-savings in its first 2 years of operation. Larger medical groups with stronger management structure can opt to bear some financial risk, which Medicare currently assumes in return for higher bonuses upon savings success. A higher-risk sharing program will be tested by CMS as well. 

The projection of the number of ACOs that will be formed in the first few years is quite modest, totalling 75 to 150 and serving 1.5 million to 4 million beneficiaries of Medicare. $800 million of bonuses earned over 3 years are estimated to be paid out by the government. However, there will likely be expenses associated with building up a supporting system of primary care and implementing the necessary electronic record systems.

John K. Iglehart acknowledges that the design of ACOs is fraught with complexity, which suggests that managed care’s failure still lingers in the minds of many policymakers. One such complexity is the fact that Medicare beneficiaries are free to receive care from any provider, limiting an ACO’s ability to control the cost and quality of care to the assigned beneficiaries of an ACO. 

It is important to realize that the new regulations are a work in progress and must be amended via feedback from those involved and from stakeholders. The CMS has asked for comments on every major issue including calculating savings and how costs and quality trends will be tracked. Inglehart emphasizes that “no single interest dominates policymaking” and politically acceptable solutions continue to be carved out.