Accountable Care Organizations’ Role in the Evolving Healthcare Industry

Las Vegas—Although accountable care organizations (ACOs) have not been well defined and are still a mystery to many in the healthcare industry, ACOs will likely play a major role in coming years as providers will be held more accountable for controlling costs and improving clinical outcomes.

ACOs were discussed during a session at the Fall Managed Care Forum titled Running the Numbers on Accountable Care Organizations. ACOs were established as part of the Patient Protection and Affordable Care Act (HR 3590), but they will not be implemented until January 1, 2012. As of now, the guidelines and structure of ACOs are not clear. However, they will be composed of physicians, hospitals, and other providers working with Medicare fee-for-service patients. The providers’ reimbursement will be tied to quality and cost measurements. John Harris, MBA, principal at DGA Partners, a healthcare management consulting firm, defined an ACO as an entity that is clinically and fiscally accountable for the entire continuum of care that a population of patients needs. He added that executives at the Centers for Medicare & Medicaid Services envision ACOs as tools to promote change and transform how healthcare is delivered. For instance, according to Mr. Harris, ACOs will transform the current system from fragmented care to coordinated/integrated care, from volume-based payments to value-based payments, from a focus on treating patients to caring about a population, and from payer-driven managed care to provider-driven accountable care.

Final requirements for becoming an ACO are not yet determined, but Mr. Harris said some of the requirements could include that ACOs would be accountable for quality, cost, and overall care, have a 3-year commitment, have a legal structure to distribute payments, have primary care physicians (PCPs) who care for at least 5000 patients, include clinical and administrative systems and leadership, meet patient-centeredness criteria, and promote evidence-based medicine, patient engagement, and care coordination. Mr. Harris said groups joining ACOs would likely include physicians in a group practice, hospitals and physicians in a partnership, networks of individual physician practices, and hospitals with employed physicians. PCPs will probably be exclusive to one ACO, while specialists will be able to join multiple ACOs.

According to Mr. Harris, a hospital with employed physicians may succeed as an ACO because it can control the physicians’ workflow and compensation, whereas it would be more difficult for hospitals that have independent physicians. However, Mr. Harris said hospitals with employed physicians might have a difficult time managing the transition to value-based payments rather than the traditional method of payment based on volume. Physician organizations might also become ACOs, and they could leverage their control over care decisions to achieve success, according to Mr. Harris. Still, Mr. Harris said physician organizations could run into problems because they may have trouble raising enough money to ensure a smooth transition. Mr. Harris said ACOs would also have several infrastructure considerations such as having an engaged provider network (patient-centered medical home [PCMH] or a similar model), effective medical management based on evidence-based medicine, financial and analytic capabilities, information technology infrastructure and reporting to support clinical and financial efforts, administrative infrastructure, risk management systems, and enough money to fund the development and sustain a positive cash flow.

No Medicare ACOs exist now, so Mr. Harris said it is difficult to assess how they will be structured and how they will be able to achieve lasting success. Still, there are a few similar programs that may help groups that want to become an ACO. For instance, Mr. Harris mentioned a physician group practice demonstration that indicated 4 of 10 groups succeeded in reducing costs >2%. Of the savings, 80% came from reduced hospital services, although some areas such as care coordination required additional spending. The demonstration found that group practices and academic medical centers succeeded in cutting costs, but integrated delivery systems failed to save money. In addition, a demonstration of 15 Medicare coordinated care sites found improvements in quality but did not show significant cost savings in most sites. The only exception was Health Quality Partners (HQP) in Doylestown, Pennsylvania, which was the only site extended after 8 years. At HQP, nurses provided the primary intervention with patients but also collaborated with PCPs and hospitals.

According to Mr. Harris, the HQP site had savings of $3630 per year per patient in the Medicare Part A and B high-risk group as well as a 25% reduction in the risk of death. Mr. Harris said that some Medicare health maintenance organizations (HMOs) have achieved admission rates per 1000 beneficiaries ~33% lower than traditional Medicare plans. Still, Mr. Harris was cautious about ACOs achieving similar results because ACOs will have less control over patients than HMOs. Pilot programs involving PCMHs have also demonstrated improvements in quality, reductions in hospitalizations and emergency department use, and increased patient and physician satisfaction.

Based on the results, PCMHs are likely to be an important element in ACOs, according to Mr. Harris. Before committing to becoming an ACO, Mr. Harris said providers should consider several questions, among them are they ready to become an ACO, can they deal with potentially lower volume and lower revenue, should they partner with other providers, and what are the competitors doing. The financial impact of ACOs is a major issue, according to Mr. Harris. If successful, ACOs will keep patients healthier, which Mr. Harris said could reduce hospital utilization and reduce an ACO’s revenue. In addition, ACOs will require large infrastructure investments and will have high fixed costs, so any reductions in volume or revenue will impact their profitability.