ACOS: Reducing Costs While Improving Quality of Care

As debate over healthcare reform rages on, those who oppose the Patient Protection and Affordable Care Act enacted in March 2010 argue that it does not address the issue of rising healthcare costs. According to the Kaiser Family Foundation, the U.S. government spent more than $2.3 trillion on healthcare in 2008, averaging $7,681 per person, which is more than three times the $714 billion spent in 1990. That amount is twice as much as what is spent on food, says the McKinsey Global Institute, despite the fact that the prevalence of disease is relatively less than that in comparable countries. Add to this the rising cost of health insurance premiums (an increase of 131 percent for employer-sponsored health coverage since 1999), and one can see that healthcare expenditures are indeed a significant issue.¹

While proponents of the healthcare reform bill agree that it doesn’t directly address the core issues of rising costs, they argue it’s a start; it expands benefits and provides coverage to millions of people who were previously unable to get it. And, it does contain one provision that aims to both decrease healthcare spending and increase the quality and efficiency of care: Accountable Care Organizations (ACOs).

What Is an ACO?

ACO is a phrase attributed to Dr. Elliot Fisher, director of the Center for Health Policy Research and a professor of medicine at Dartmouth Medical School. For the past 30 years, Dr. Fisher has led the Dartmouth Atlas Project, which focuses on the quality of healthcare, as well as its cost, and the relationship between the two. Findings from the project illustrate wide variations in the cost of care across the country, and that the regions that spend more per patient don’t necessarily obtain better outcomes. In response to these findings, Dr. Fisher came up with the idea for ACOs as a “locus for shared accountability” for a patient’s healthcare.²

Introduced as one of Medicare’s pilot programs in the healthcare reform bill, “an ACO is a network of doctors and hospitals that shares responsibility for providing care to patients.” The ACO would be responsible for coordinating all of a patient’s healthcare services (primary care, specialists, hospitals, home healthcare, etc.) to ensure the best quality of care. Providers in the ACO would be jointly accountable for the health of their patients, which would give them incentives to cooperate and save money by avoiding unnecessary tests and procedures. What’s more, providers do not have to be in the ACO’s network; patients are free to go to the provider of their choice.³

Dr. Thomas Lee, associate editor of The New England Journal of Medicine (NEJM) and network president of Partners Healthcare, says in a video roundtable of NEJM on ACOs that what’s hoped for “is a delivery system that delivers higherquality care more efficiently.” Speaking in the roundtable, Dr. Fisher says that ACOs should have three key attributes: organized care, performance measurement and payment reform, which when aligned support physicians in their efforts to improve care.⁴

How Will ACOs Be Formed?

In January 2012, a pilot program will be established by the Centers for Medicare & Medicaid Services (CMS) to give groups of Medicare providersthe opportunity to form a qualified ACO. To facilitate ACO formation, the secretary of the U.S. Department of Health & Human Services (HHS) is authorized to waive statutes and regulations that currently inhibit physicianhospital integration.

In CMS’ pilot, the types of qualifying providers include physician group practice arrangements, networks of practices, hospital-physician joint ventures and hospitals employing physicians and other clinical professionals. To participate, providers must agree to become accountable for the overall care of their Medicare fee-for-service (FFS) beneficiaries, participate for a minimum of three years, have a legal structure enabling it to receive and distribute bonuses, provide information on physicians practicing in the ACO, have a management and leadership infrastructure in place, define processes to promote evidence-based medicine and patient engagement, and meet patientcenteredness criteria determined by the HHS secretary.

Key competencies of an ACO also are required, including clinical, financial and operational buy-in; a patient-centric culture; a highly integrated delivery system; an IT infrastructure to support care coordination and population health management; a system for monitoring, managing and reporting quality; the ability to manage financial risks; a legal/management structure to allow for payment distribution and coordinated decisionmaking; a collaborative, transparent relationship with payer(s); reimbursement contracts that reward value rather than volume; and a process improvement system.⁵

How Will ACOs Operate?

An ACO would agree to manage all of the healthcare needs of a minimum of 5,000 Medicare beneficiaries for at least three years. The traditional fee-for-service system would remain in place; however, providers would be given bonuses to “keep costs down and meet specific quality benchmarks, focusing on prevention and carefully managing patients with chronic disease,” as well as share in the savings when reducing costs below the predetermined benchmark.³

Quality benchmarks, which the ACO would be required to report on, will be established by the HHS. These will include measures of clinical processes and outcomes, patient experience and care, and utilization and costs.⁵ Each ACO’s cost benchmark will be based on the most recent available three years of per-beneficiary expenditures for Parts A and B services for Medicare FSS beneficiaries assigned to the ACO. And, these benchmarks will be adjusted for beneficiary characteristics and other factors, including the projected absolute amount of growth in national per capita expenditures for Parts A and B.⁶ An ACO that meets specified quality performance benchmarks will be eligible to receive a share (a percentage and any limits to be determined by the secretary of the HHS) of any savings every 12 months, if the actual per capita expenditures of their assigned Medicare beneficiaries are a sufficient percentage below their specified benchmark amount.There is no payment penalty ifsavings targets are not achieved.⁶

Bonuses will be awarded based upon how the ACO scores on the quality-of-care measures. Some prominent doctor and hospital groups are pushing for limits on how the quality of their care will be judged, as well as for bonus rules that will make it easier for them to be paid extra for their work, and to be paid quickly.⁷ Dr. Fisher suggests providers “report regularly on performance measures that will reassure the public and payers that the quality of care is actually improving.”⁴

What’s Unknown?

There still are a lot of unanswered questions. While CMS indicated it would release its proposed ACO regulations, as of this writing, it has not. These regulations, which will likely be based on an open-door forum on ACOs that was held in June to gather provider input, will answer such questions, for instance, as how the quality-of-care measures will be judged and how beneficiaries will be assigned to ACOs, among a host of others. However, a CMS fact sheet does indicate that beneficiary assignment will be “invisible” to the beneficiary and will not affect his or her benefits or choice of physician.⁵

Other unknowns include both legal and economic concerns. Many in the healthcare industry have raised concerns that ACOs could run afoul of antitrust and anti-fraud laws, which try to limit market power that drives up prices and stifles competition. For instance, ACOs in rural markets could potentially grow so large that they would employ the majority of providers in a region. The Federal Trade Commission says it’s trying to clarify antitrust guidelines for ACOs, and the U.S. Justice Department’s antitrust division has offered to provide an expedited antitrust review process for ACOs. There also is concern that ACOs could accelerate hospital mergers and provider consolidation. But Steve Lieberman, a visiting scholar at the Engelberg Center for Health Care Reform at the Brookings Institution and the president of Lieberman Consulting Inc.,says that’s already “such a powerful and pervasive trend that it’s a little like worrying about the calories I get when I eat the maraschino cherry on top of my hot fudge sundae. It’s a serious public policy issue with or without ACOs.”³

Who Is Moving Forward?

Despite the fact that ACOs are intended as a Medicare pilot program under the healthcare reform bill, many states, insurers, hospitals and providers in the private sector are moving ahead with them.

In January, the New Jersey Senate Health, Human Services and Senior Citizens Committee approved a bill that would enable five groups of medical professionals and managed care companies that treat at least 5,000 Medicaid patients to form an ACO. The bill, which is on the heels of six ACOs formed by hospital and physician practices in the past year in New Jersey, will serve low-income patients in one concentrated area who rely on the state’s $9 billion Medicaid program.⁸

Some of the largest health insurers in the country, including Humana, United Healthcare and Cigna, have announced plans to form their own ACOs, saying they can play an important role in ACOs because they track and collect data on payments, a critical component to coordinating care and reporting on results. Even large hospital systems are buying up physician practices with the goal of becoming ACOs that directly employ the majority of their providers. Hospitals, which have greater access to capital, could have an easier time financing the initial investment required to start an ACO.³

In the private sector, both Premier, a healthcare alliance, and the Brookings Institute are working with hospitals to develop ACOs. The Premier ACO collaborative was launched in May and has two tracks. The first is an implementation cohort that has developed the foundational elements necessary to execute an ACO strategy. The second is a readiness cohort designed to help health systems develop the foundational elements. Beginning this summer, organizations that are part of this cohort will participate in learning events and receive support to develop the infrastructure and collect population-based health metrics. The Brookings Institute, in conjunction with the Dartmouth Institute for Health Policy, is working with three providers to create organizations that are locally accountable for population health and share in savings generated from an “intervention”- based healthcare system to a “prevention”-focused system.⁵

And, in some areas of the country, including parts of California, large multispecialty physician groups are looking to become an ACO on their own by networking with neighboring hospitals. ³

Are There Examples to Learn From?

According to Dr. Fisher, there have already been a number of pilots run by Medicare over the last five years, which are part of the Physician Group Practice Demonstration. These pilots are essentially the ACO model with a slightly different benchmarking approach. One of the pilots is Norton Healthcare, which in partnership with Humana has signed an ACO contract for its under-65 population. “The physicians at Norton are working hard with the hospital to pull themselves together, reorganize care, figure out how to work with Humana to get really useful, timely data that helps them know how their patients are doing and how to improve their care,” says Fisher. “So, there is actually quite an elegant partnership between the payer and the provider.Instead of dickering over prices, they are trying to work together to say, ‘How can we jointly improve care?’”⁴

But, Dr. Gail Wilensky, an economist and senior fellow at Project Hope, who served in a variety of roles relevant to this topic, including administrator of the Health Care Financing Administration and chair of MedPAC, and who also participated in the NEJM roundtable, says she is dubious about ACOs precisely because of what is happening with the Physician Group Practice Demonstration. “These were 10 set-up cases, in the sense that if anybody should be able to produce savings with quality, it ought to have been the 10 groups that came into this demo,” says Wilensky. “What to me was the most impressive is that while all of them were able to meet the quality goals, in the initial year only two of them were able to produce savings at a level that would allow them to share some savings. And, even after three years, only five of them have been able to do that.” However, Wilensky does add that in no way is she saying she doesn’t want to see ACOs go forward because “we’ve got to get away from where we are, which is a reimbursement system that rewards for more and more complex, that’s fragmented, that’s stovepipe.”⁴

Despite the skepticism by some, there are some quantifiable success stories. In February, members of the Healthcare Leadership Council (HLC), a coalition of chief executives from the nation’s premier healthcare companies and organizations, presented the HLC Value Compendium to CMS Administrator Dr. Donald Berwick. The publication offers 26 current examples, with supporting metrics, of ways in which the private sector is currently improving healthcare quality, efficiency and safety. In producing the document, HLC leaders said they wanted to provide case studies that could help jump-start federal efforts to improve healthcare delivery.

In the publication, there are examples of significant strides in improving U.S. healthcare from hospitals, integrated delivery systems, pharmaceutical companies, medical device manufacturers, group purchasing organizations, insurers, distributors and other key players in the healthcare continuum. In addition, it highlights successes with innovative payment methods, beneficiary engagement models, visionary use of health information technology, cutting-edge medical devices that optimize care, and new service-delivery approaches.

There is also a study published in January in the Journal of Ambulatory Care Management that concluded that a San Antonio ACO with a network of patient-centered medical home clinics, but no hospital, is providing comprehensive, high-quality and efficient healthcare services that improve patient care and outcomes.

Titled “Case Study of a Primary Care-Based Accountable Care System Approach to Medical Home Transformation,” conducted at the Robert Graham Center for Policy Studies, the study looked at the organization and services provided between 2000 and 2008 by WellMed Medical Group, which has more than 87,000 patients and plan members. Researchers focused on Medicare Advantage patients, many of whom have complex health conditions, such as diabetes, congestive heart failure, ischemic heart disease, chronic obstructive pulmonary disease and asthma, who were receiving care at 21 WellMed Group practices in San Antonio. Over the past 20 years, WellMed developed a care model that meets 97 of the 100 elements that define a patient-centered medical home, according to the National Committee for Quality Assurance guidelines. It also has well-developed disease and complex care management programs, health coaches and close monitoring of quality.

The study found that “WellMed improved preventive care for the conditions that we measured and achieved remarkably high guideline compliance for diabetes and blood pressure. Their mortality rates remain well below the state average.”⁹

Only Time Will Tell

For ACOs to work, they will need to seamlessly share information. And, this will require a great deal of planning and investment. According to Lieberman, “ACO has become the three-letter health acronym of the year, if not the decade.” Unfortunately, he says, the health industry tends to operate with a “kind of a herd behavior,” rushing to implement an idea “without working through the detailed business questions of how they’ll work.”³

Only time will tell. But, our current fragmented system incentivizes providers to offer neither cost-effective nor coordinated care.² “Given the state of the U.S. healthcare system, the risk of inaction — perpetuating year-over-year increases in cost coupled with incremental improvements in quality — is the greatest risk a provider faces. ACOs offer one potential solution to these challenges.”⁵