Accountable care organizations: A new idea for managing Medicare

The goal of ACOs is to encourage physicians and hospitals to integrate care by holding them jointly responsible for Medicare quality and costs.

By — Posted Aug. 31, 2009

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Many physicians who are tuned into the health system reform debate have already heard of several of the methods being discussed for changing the way the federal government delivers care. But one Medicare delivery reform term that has recently caught the attention of Congress may be a new one to most.

The accountable care organization is one of the latest designs for managing Medicare that is gaining traction among policymakers desperate to control costs and boost quality in the system. Proponents of the concept want to see it tested along with such alternatives as patient-centered medical homes, pay-for-performance and payment bundling.

A typical Medicare ACO would include a hospital, primary care physicians, specialists and potentially other medical professionals. Services would still be billed under fee-for-service, but the organization's members would coordinate care for their shared Medicare patients with the goal of meeting and improving on quality benchmarks. Because ACO members are held jointly accountable for this care, they would share in any cost savings that stem from the quality gains.

The Medicare Payment Advisory Commission dedicated a chapter of its June report to Congress to the concept, and lawmakers have taken note. The health reform bill pending before the House includes plans for a Medicare ACO pilot program that could become permanent nationwide. Although the Senate Finance Committee has yet to unveil a bill, committee chair Max Baucus (D, Mont.) also has said the concept should be tested.

Meanwhile, the Dartmouth Institute for Health Policy and Clinical Practice and the Engelberg Center for Health Care Reform at Brookings Institution -- two leaders behind the ACO concept -- are forging ahead with their own pilot project designed to test the design in the private sector, with the hopes of adding Medicare to the mix early next year.

"This is the most likely way my colleagues and I have been able to figure out to help address variations in spending. It's much better than simply cutting prices in high-cost regions," said Elliott Fisher, MD, MPH, the Dartmouth Institute's director of population health and policy. "The ACOs are really intended to help physicians get back in the driver's seat."

An adaptable model

Medicare spends three times more per beneficiary in some regions than it does in others, with no clear evidence that the additional dollars result in higher quality of care or better outcomes, according to the Engelberg Center. The system also tends to promote high-volume and high-intensity health services, regardless of the quality of care provided and whether that care is coordinated.

The accountable care organization attempts to address these issues by linking payments to the quality and utilization of health services. Although it is a relatively new concept, it incorporates and builds on ideas from several other reform models that have been discussed for years.

Although the idea has some basic themes, the details still need to be worked out, said Robert Berenson, MD, a fellow at the Urban Institute in Washington, D.C. For example, some ACO models include hospitals; some don't.

Many existing groups, such as physician-hospital organizations, integrated delivery systems and independent provider associations, already give clues as to how an ACO could be structured, Dr. Fisher explained. "The goal is to be as adaptable as possible to the local circumstances of physicians."

An ACO needs to be big enough so that any cost savings can be tied to quality improvements and not year-to-year fluctuations in care, he said. That means it should have a population of at least 5,000 Medicare beneficiaries or 15,000 beneficiaries with private insurance.

Patients would retain the right to choose their physicians, so the ACO relies on patients' natural physician-selection patterns, Dr. Fisher said. Research has shown that more than 80% of patients assigned to a physician affiliated with a theoretical ACO would still be with members of that same organization a year later.

The ACO also would need a designated administrator and a formal organization that could serve as a point of contact, work with payers, monitor performance and collect any shared savings. The physicians, hospital and other ACO members would need to agree on how to divide any earned bonuses.

The division of savings issue makes some physicians uncomfortable with ACOs, said Ted Epperly, MD, president of the American Academy of Family Physicians. "We get nervous, quite frankly, with money that could potentially go through a hospital's structure and then not trickle down sufficiently to where the care is actually happening, and that's with the patient-physician relationship."

Dr. Fisher acknowledged that physicians and hospitals in some regions of the country work together on such issues much better than in other regions. In some instances, doctors and hospitals are competitors rather than collaborators.

The money that everyone could save by delivering care more efficiently could overcome this instinct, Dr. Fisher said. "The benefits from collaboration may outweigh the 'fight over the pie mentality' with which some may approach this."

Play or pay

Physicians would be better served being active participants in any proposed delivery system reforms, said Jim Hester. He's director of the Health Care Reform Commission for the Vermont State Legislature, which is working on its own accountable care organization initiative. "Something is going to change, and the ACO is a very powerful framework for trying to manage change and benefit from it instead of being punished by it."

If physicians and hospitals cannot agree to work together, the decision could be made for them. Not all proposed forms of an ACO are voluntary, with physicians given the chance to earn bonuses without having to worry about being penalized for failing to meet financial goals.

The Medicare Payment Advisory Commission in its June report explored the concept of mandatory ACOs. Under such a model, physicians and Medicare patients would be assigned to a given hospital to form an ACO. Fee-for-service payments would still be made, but part of the money would be withheld. It would only be returned -- possibly with a bonus -- if the organization meets quality and cost targets.

But some argue the mandatory path isn't politically feasible. "I don't think that's a viable model," said Dr. Berenson, who is a MedPAC member but was speaking for himself.

Glenn Hackbarth, MedPAC's chair, said at the commission's April meeting that ACOs should be voluntary, particularly because relationships will need to be redefined among health care entities that may not have worked together before. Still, "a corollary of that is that there needs to be pressure on traditional Medicare as a complementary force, and that strengthens the incentives to participate and do well," he said. The commission suggested that some restraining of fee-for-service rates might be necessary to make the ACO bonuses large enough to encourage participation.

In its Medicare reform principles, the American Medical Association has said new payment models such as ACOs should be strictly voluntary for physicians and should not be dominated by hospitals. All such models also should be tested thoroughly in a variety of practice settings, geographic locations, and among different specialties and payment populations, the AMA said.

ACO pilot set to go

For some in the private sector, the concept of the accountable care organization is ready to go beyond the theoretical stage.

The Brookings-Dartmouth ACO pilot project plans to test the model using private payers and potentially Medicaid in a variety of geographic settings and among health care entities that are at different levels of integration across the delivery system. It is expected to begin in 2010.

"The ACO looks great in concept, but we really need to show physicians and Congress how it works," Dr. Fisher said. "I would hope as [ACOs] start to succeed that this would make it even more attractive for more physicians to join."

One group -- Carilion Clinic in Roanoke, Va. -- has been chosen to participate in the ACO pilot project, and four more are expected to be added to the demonstration soon.

Carilion Clinic, a multispecialty group practice with more than 500 physicians and seven hospitals, is excited about participating, said Don Lorton, Carilion's executive vice president and chief financial officer. The ACO builds on the organization's goal to be a physician-centered organization, as opposed to a hospital system that employs physicians.

Better coordination of care can result in reduced payments in a fee-for-service payment system, Lorton said. Also, primary care physicians bear the burden of managing the care, but fee-for-service doesn't adequately pay for their extra work. The ACO concept gives Carilion the opportunity to gain some of that revenue back, he said.

Some challenges the clinic faces in setting up the ACO include working with five insurance companies to set quality goals and cost-sharing targets. Because the ACO will change the way primary care physicians and specialists manage patients, Lorton said, it also will need to improve communication and care coordination between physicians.

ACO backers in Vermont hope that one of the state's medical groups will be chosen to participate in the Brookings-Dartmouth pilot, Hester said. He noted that the state's ongoing medical home demonstration project serves as a good base from which to launch an ACO.

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Health delivery reform concepts

Congress and other policymakers are considering several ways to reform the delivery of health care as part of the ongoing national health system reform debate. Some of the more popular ideas may be combined or overlap with one another.

Accountable care organization: A collection of primary care physicians, a hospital, specialists and potentially other health professionals accept joint responsibility for the quality and cost of care provided to its patients. If the ACO meets certain targets, its members receive a financial bonus.

Performance-based care coordination: Physicians earn a bonus for curtailing growth in the cost of health services by better managing treatment across care settings and by pursuing quality targets. A care-coordination model may be structured differently from an ACO and may also use different methods to calculate shared savings.

Payment bundling: Similar services are grouped together and are compensated using a single or global payment. Services could be grouped according to the care provided by a single doctor or multiple doctors.

Patient-centered medical home: Primary care physicians receive additional monthly payments for effectively using health information technology and other innovations to monitor, coordinate and manage care.

Gainsharing: Hospitals share with physicians any savings resulting from system changes that lead to lower costs.

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[download pdf]

Comparing the models

The Medicare Payment Advisory Commission in its June report to Congress compared the concept of accountable care organizations with the way Medicare delivers and pays for care now.

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