An Evolution in Health Care The Rise of Accountable Care Organizations

The health care reform movement has introduced a new acronym, ACO, which stands for accountable care organization.

An ACO is a provider-led organization whose mission is to manage the full continuum of patient care and be accountable for the overall costs and quality of care for a defined population. It is comprised of a combination of primary-care and specialist physicians, hospitals, and other care providers that collaborate to provide the total care needs of patients while controlling costs. In turn, these providers share in savings bonuses by achieving measured quality targets and by demonstrating real reductions in overall spending.

ACOs must be legal entities of a size, organization, and sophistication to work with payers, monitor performance, implement improvements, and manage their members. Their success requires a critical volume of patients under care to reap economies of scale while limiting the financial risks of catastrophic illness.

They can be organized in a number of provider configurations with varying payer participants, including large integrated delivery systems, physician-hospital organizations, multi-specialty groups with or without hospital ownership, independent practice associations, and virtual interdependent networks of physician practices.

They can also feature different payment models and incentives ranging from ‘one-sided’ shared savings within a fee-for-service environment to a range of bundled prospective payment or capitation arrangements.

All About Results

Unlike traditional pay-for-performance programs, which often add to total costs by paying out incremental financial bonuses in exchange for meeting certain benchmarks on process measures, ACOs place a much greater emphasis on measuring and rewarding results at the level of a population of patients, not at the level of particular services or episodes that may or may not add up to a higher value of care.

ACOs could receive fee-for-service payments and share in any cost savings achieved relative to a risk-adjusted projected spending target for their patient population; alternatively, payment could be partially or fully capitated, with risks and gains both being shared by all providers. Performance measurement to evaluate the quality of care and to prevent potential overuse (in fee-for-service organizations) and underuse (in capitated ones) is a cornerstone of the model.

In the current health care reform environment, ACOs are considered an element of reform necessary to achieve urgently needed improvements in the quality and cost of health care. According to the Congressional Budget Office, ACOs can produce savings for Medicare; indeed, many payers, including the Centers for Medicare and Medicaid Services (CMS), are currently implementing ACO-type payment reforms.

It is the belief of the Obama administration that, only through large organizational structures, such as these, can we realize a significant reduction in health care spending.

There is opposition to this among physicians who argue that cost savings may be realized, but the quality of care will suffer. Because CMS, and some states such as Massachusetts, advocate the move to ACOs and bundled payments, it is highly likely your practice will need to adjust to the new paradigm.

Four Key Elements

There are four critical elements that will be required for an ACO to succeed. First, this change in practice management will require strong physician leadership to navigate through some difficult management, financial, and clinical decision-making.

Second, the ACO and affiliated physician practices will require state-of-the-art information technology and will need to demonstrate meaningful use of this technology to deliver timely, consistent performance information.

Third, the ACO will not succeed without a strong foundation of primary-care providers. It is widely recognized that the current shortage of primary-care practices is an obstacle to the design and development of ACOs, and that increased investment in primary care is needed to slow the overall rate of growth in health care spending.

Finally, collegiality and collaboration between physicians and hospitals is critical to the success of ACOs. There exists considerable concern that ACOs dominated by hospitals and specialists would garner a disproportionate share of any savings at the expense of primary care. Finding a way to align the incentives of all parties and to build a solid working relationship with primary-care providers must be a priority of ACOs.

James B. Calnan, CPA, is partner-in-charge of the Health Care Services Division of Meyers Brothers Kalicka, P.C., in Holyoke.