Accountable Care Organizations: The Next Phase

Bethesda, MD -The Affordable Care Act created new "accountable care organizations" (ACOs) in Medicare, and an accompanying "shared savings" program, to improve the quality of care for Medicare beneficiaries and reduce unnecessary costs. Now, health systems across the country are building on the model by drawing up ACO-like contracts with private payers.  

The January issue of Health Affairs continues the journal's coverage of ACOs, with an in-depth look at how various organizations are developing ACOs and what federal authorities should do to promote rapid and cost-saving innovation. 

Three articles describe efforts already under way to form ACOs with potential for national replication and adaptation: 

  • Advocate Physician Partners, a joint venture of approximately 3,500 physicians with Advocate Health Care in Illinois, could serve as a model for a new type of accountable care organization, writes Mark C. Shields, senior medical director of Advocate Physician Partners, and colleagues. Advocate Physician Partners signed its first commercial accountable care organization contract effective Jan. 1, 2011, with the state's largest insurer, Blue Cross Blue Shield. Other commercial contracts are expected to follow. 

Advocate's model organizes physicians into partnerships with hospitals to improve care, cut costs, and be held accountable for the results.  Although payment from insurers is based on fee-for-service, the model also features a pay-for-performance component that addresses shortcomings of fee-for-service, such as failure to reimburse physicians adequately for chronic disease management, preventive counseling, and care coordination.  According to the authors, the approach has succeeded in improving quality and reducing costs in several areas, for example, by substantially reducing central-line infections among intensive care unit patients and using electronic claims submission to save millions of dollars for providers and insurers.  

  • A different take on the ACO is the so-called Alternative Quality Contract launched by Blue Cross Blue Shield of Massachusetts. As described by Michael Chernew of Harvard Medical School and co-authors, under the contract, the insurer and Massachusetts health care providers agreed on global budgets with annual spending growth limits, quality incentive payments, and technical support for participating medical groups. Although the model is based on global payments, it specifically addresses some flaws of older capitation methodologies, which placed providers at financial risk for health costs without granting them incentives to deliver higher-quality health care or encouraging primary care physicians to coordinate care for their patients.  
  • Premier health care alliance, which conducts group contracting for hospital products and services and shares clinical, insurance, and other knowledge so that hospitals can learn from each other, has organized a collaborative to support rapid shared learning and implementation of ACOs.  The collaborative, launched in May 2010, consists of 25 health systems with more than 80 hospitals in partnership with thousands of physicians serving an estimated 1.4 million patients.  The primary goals are to create common payment methods across an array of public and private payers, and to form networks that provide care across a continuum and that are accountable for cost, quality, patient satisfaction and population health.  Core components include medical or health homes, population health data management, and payer partnerships.   

Two articles in the January Health Affairs offer advice to federal regulators and others who will provide oversight to ACOs, and propose new modes of contracting as well as regulation:  

  • Accountable care organizations, as currently envisioned, may not succeed at their twin goals of lowering costs and improving quality for a population of patients, writes Jeff Goldsmith, president of Health Futures Inc. He contends that the model, if still based on fee-for-service payment, may still reward providers for increasing the volume of services. What's more, if ACOs result in hospital consolidation, more hospital ownership of physician practices and more concentrated provider markets overall, they have the potential to shift costs onto private insurers. Goldsmith thus proposes more flexible arrangements, under which payers and providers could sign contracts covering specific types of services, such as long-term, low-intensity primary care and unscheduled emergency services. That way, providers would take on more manageable areas of cost and levels of risk, rather than being held accountable "for the health costs of an entire population of patients for a year at a time."  
  • Steven Lieberman, of Lieberman Consulting Inc., and John M. Bertko, of the LMI Center for Health Reform, argue that regulators should permit a large degree of operational flexibility for accountable care organizations and the shared savings program, and should allow ACOs to make changes based on lessons learned. They recommend giving Centers for Medicare and Medicaid Services (CMS) the ability initially to limit the number-but not the types-of ACOs. They also propose that CMS create a general regulatory framework for ACOs, while also relying on notices and other guidance below the regulatory level to spell out specific requirements. 

One article demonstrates how hospitals can take new approaches to increase efficiency in the aftermath of health reform: 

  • With an estimated 32 million Americans gaining health insurance coverage under the Affordable Care Act by 2019, Eugene Litvak president and CEO of the Institute for Healthcare Optimization and Maureen Bisognano, president and CEO of the Institute for Healthcare Improvement, explore how hospitals can meet increased demand without adding expensive staff and beds, the traditional hospital response to increase in patient demand. Currently, they note, average hospital bed occupancy is about 65-67 percent, the lowest among all industrialized nations, yet U.S. hospitals are frequently overcrowded, their staff is overloaded and stressed resulting in an increase in medical errors. Surprisingly, the major causes of these periodic and unmanaged swings in hospital bed occupancy are unnecessary peaks and valleys in scheduled admissions rather than unexpected patient arrivals to emergency rooms. The solution, they say, is to revise admission schedules to reduce overcrowding and stress on personnel, thereby significantly decreasing emergency room delays, staff overloading and cost of care while improving its quality.  

Cincinnati Children's Hospital Medical Center, Palmetto Richland Hospital in South Carolina and Boston Medical Center are just a few examples of hospitals that by addressing the variability of patient admissions have significantly improved quality of care, efficiency and productivity.  Litvak and Bisognano claim that if U.S. hospitals achieved only 10 percent of the financial improvement of Cincinnati Children's Hospital Medical Center, there would be 57 billion dollars in avoided capital costs alone and note that federal incentives could spur hospitals to move in this direction. 

Abstracts for all studies in the October issue of Health Affairs can be accessed from January 6, 2011, at