Accountable care organization
|Health care in the United States|
|Government Health Programs|
|Private health coverage|
|Health care reform law|
|State level reform|
|Municipal health coverage|
An accountable care organization (ACO) is a healthcare organization characterized by a payment and care delivery model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. A group of coordinated health care providers forms an ACO, which then provides care to a group of patients. The ACO may use a range of payment models (capitation, fee-for-service with asymmetric or symmetric shared savings, etc.). The ACO is accountable to the patients and the third-party payer for the quality, appropriateness and efficiency of the health care provided. According to the Centers for Medicare and Medicaid Services (CMS), an ACO is "an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it."
The term "Accountable Care Organization" was first used by Elliott Fisher – Director of The Dartmouth Institute for Health Policy and Clinical Practice – in 2006 during a discussion at a public meeting of the Medicare Payment Advisory Commission. The term quickly became widespread, reaching its pinnacle in 2009, when it was included in the federal Patient Protection and Affordable Care Act. Although the term ACO was not coined until 2006, it bears resemblance to the definition of the Health Maintenance Organization (HMO), which rose to prominence in the 1970s. Like the HMO, the ACO is "an entity that will be 'held accountable' for providing comprehensive health services to a population." The ACO-model builds on the Medicare Physician Group Practice Demonstration and the Medicare Health Care Quality Demonstration, established by the 2003 Medicare Prescription Drug, Improvement, and Modernization Act. However, a recent study by the Medical Group Management Association (MGMA) has shown that the implementation of ACOs is one of the toughest challenges facing the MGMA members today.
While the ACO model is designed to be flexible, Mark McClellan, Elliott Fisher and others defined three core principles for all ACOs:
- Provider-led organizations with a strong base of primary care that are collectively accountable for quality and total per capita costs across the full continuum of care for a population of patients;
- Payments linked to quality improvements that also reduce overall costs; and,
- Reliable and progressively more sophisticated performance measurement, to support improvement and provide confidence that savings are achieved through improvements in care.
The ACO places a degree of financial responsibility on the providers in hopes of improving care management and limiting unnecessary expenditures while continuing to provide patients freedom to select their medical services. The success of the ACO model in fostering clinical excellence while simultaneously controlling costs depends on its ability to "incentivize hospitals, physicians, post-acute care facilities, and other providers involved to form linkages and facilitate coordination of care delivery." By increasing care coordination, ACOs can help reduce unnecessary medical care and improve health outcomes, leading to a decrease in utilization of acute care services. According to CMS estimates, ACO implementation as described in the Affordable Care Act is estimated to lead to an estimated median savings of $470 million from 2012–2015.
Pioneer ACO Savings
CMS issued a press release on July 07, 2013 on the cost savings of the Pioneer ACO demonstration. According to CMS, costs for more than 669,000 beneficiaries aligned to the Pioneer ACOs grew by 0.3 percent in 2012. Costs for similar beneficiaries grew by 0.8 percent in the same period. CMS states that 13 out of the 32 pioneer ACOs produced shared savings with CMS. The Pioneer ACO models earned an estimated $76 million by providing coordinated, quality care. 2 Pioneer ACOs generated losses totaling an estimated $4 million. According to CMS the savings were due, in part, by reduction in hospital admissions and readmissions.
In the Affordable Care Act
The US Department of Health and Human Services (DHHS) proposed the initial set of guidelines for establishment of ACOs under the Medicare Shared Savings Program (Section 3022 of the PPACA) on March 31, 2011. These guidelines stipulate the necessary steps that voluntary groups of physicians, hospitals and other health care providers must complete in order to partake in ACOs. Section 3022 of the Patient Protection and Affordable Care Act (ACA) authorizes Center for Medicare and Medicaid Services (CMS) to create the Medicare Shared Savings program (MSSP), which allows for the establishment of ACO contracts with Medicare by January 2012. According to the ACA, the MSSP "promotes accountability for a patient population and coordinates items and services under part A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery." The existence of the Medicare Shared Savings Program ensures that ACOs are a permanent option under Medicare. However, the specifics of ACO contracts are left to the discretion of the Secretary of the Department of Health and Human Services, which allows the ACO design to evolve or devolve over time.
The MSSP is a three-year program in which ACOs accept responsibility for the overall quality, cost and care of a defined group of Medicare Fee-For-Services (FFS) beneficiaries. Under the program, ACOs are accountable for a minimum of 5,000 beneficiaries. The provider network is required to include sufficient primary care physicians to serve its beneficiary population. The ACO must define processes to promote evidence-based medicine and patient engagement, monitor and evaluate quality and cost measures, meet patient-centeredness criteria and coordinate care across the care continuum. Prior to applying to MSSP, an ACO must establish appropriate legal and governance structures, cooperative clinical and administrative systems and a defined shared savings distribution method. Finally, the ACO may not participate in other shared savings programs during the period it participates the MSSP. An ACO may include ACO professionals (e.g., Doctors of Medicine (M.D.) or Doctors of Osteopathic Medicine (D.O.), physician assistants, nurse practitioners, clinical nurse specialists) in group practice arrangements, networks of individual practices of ACO professionals, partnerships or joint venture arrangements between hospitals and ACO professionals, hospitals employing ACO professionals, or other Medicare providers and suppliers as determined by the Secretary of Health and Human Services."
ACO's financial incentive payments will be determined by comparing the organization's annual incurred costs relative to CMS-established benchmarks. These benchmarks will be based on an estimation of the total Fee-for-Service expenditures associated with management of a beneficiary based on fee-for-service payment in the absence of an ACO. CMS will update benchmarks by the projected absolute amount of growth in national per capita expenditures as well as by beneficiary characteristics. CMS will also establish a minimum savings rate (MSR) that will be calculated as a percentage of the benchmark (2%) that ACO savings must exceed in order to qualify for shared savings. The MSR will account for normal variation in health care spending.
While Medicare will continue to offer a Fee-For-Service program, ACOs can chose one of two payment models (one-sided or two-sided model) based on the degree of risk and potential savings they prefer. Initially, a one-sided model ACO shared in savings for the first two years and savings or losses during the third year. The maximum sharing percentage for this model is 50%. In a two-sided model, ACOs shared in savings and losses for all three years. In both cases, the ACO savings must exceed 2% in order to qualify for shared savings. The maximum sharing percentage for this model is 60%. In both models there is a shared loss cap of 5% in the first year, 7.5% in the second year, and 10% in the third year. Aspects regarding financial risk and shared savings would be altered in the final regulations.
After the initial set of regulations released in March, 2011, CMS received feedback regarding streamlining the governance and reporting burdens and improving the potential financial return for ACOs willing to make the necessary, and often substantial, investments to improve care. On October 20, 2011, the DHHS released the final regulations for the Medicare Shared Savings Program, which addressed many concerns raised in response to the draft regulations. The final regulations allow for broader ACO governance structures, reduce the number of required quality measures and create more opportunities for savings while delaying risk bearing.
Under the new regulations, providers' financial incentives were increased. Under the one-sided model, providers have the opportunity to engage in ACOs and any savings above 2% without any financial risk throughout the three years. Under the two-sided model, providers will assume some financial risk but will be able to share in any savings that occur (no 2% benchmark before provider savings accrue). In addition, the quality measures required was also reduced from 65 to 33, decreasing the monitoring that many providers say as overwhelming. Community health centers and rural health clinics were also allowed to lead ACOs.
Incorporating DHHS final regulation adjustments on October 20, 2011, Section 3022 outlines the following requirements for ACOs:
- The ACO shall be willing to become accountable for the quality, cost, and overall care of the Medicare fee-for-service beneficiaries assigned to it
- The ACO shall enter into an agreement with the Secretary to participate in the program for not less than a 3-year period
- The ACO shall have a formal legal structure that would allow the organization to receive and distribute payments for shared savings to participating providers of services and suppliers
- The ACO shall include primary care ACO professionals that are sufficient for the number of Medicare fee-for-service beneficiaries assigned to the ACO under subsection
- At a minimum, the ACO shall have at least 5,000 such beneficiaries assigned to it in order to be eligible to participate in the ACO program
- The ACO shall provide the Secretary with such information regarding ACO professionals participating in the ACO as the Secretary determines necessary to support the assignment of Medicare fee-for-service beneficiaries to an ACO, the implementation of quality and other reporting requirements under paragraph (3), and the determination of payments for shared savings under subsection (d)(2)
- The ACO shall have in place a leadership and management structure that includes clinical and administrative systems
- The ACO shall define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care, such as through the use of telehealth, remote patient monitoring, and other such enabling technologies
- The ACO shall demonstrate to the Secretary that it meets patient-centeredness criteria specified by the Secretary, such as the use of patient and caregiver assessments or the use of individualized care plans
- The ACO participant cannot participate in other Medicare shared savings programs 
- The ACO entity is responsible for distributing savings to participating entities
- The ACO must have a process for evaluating the health needs of the population it serves
ACO Payment Models
In an effort to lower healthcare costs, the CMS has introduced the one-sided and two-sided payment model, either of which the ACOs can choose to adopt. Under the March 2011 proposal, ACOs could choose the one-sided model, in which they would participate in shared savings for the first two years and assume shared losses in addition to the shared savings for the third year. In the two-sided model, ACOs would participate in both shared savings and losses for all three years. Although the ACO assumes less financial risk in the one-sided model compared to the two-sided model, ACOs have a maximum sharing rate of 50% in the one-sided model and a higher maximum sharing rate of 60% in the two-sided model, provided that the minimum shared savings rate threshold of 2% is reached. For both models, there is a shared loss cap that increases each year. However, initial feedback raised concerns regarding ACO's financial risk and possible cost savings. On October 20, 2011, DHHS released the final regulations that altered providers' financial incentives. Under the one-sided model, providers no longer assumed any financial risk throughout the three years and continued to have the opportunity to share in cost savings above 2%. Under the two-sided model, providers will assume some financial risk but will be able to share in any savings that occur (no 2% benchmark before provider savings accrue).
ACO Quality Measures
To address the goal of improving healthcare quality, CMS has established five domains in which to evaluate the quality of an ACO's performance. The five domains are "patient/caregiver experience, care coordination, patient safety, preventative health, and at-risk population/frail elderly health." 
As networks of providers, ACOs are composed mostly of hospitals, physicians, and other healthcare professionals. Depending on the level of integration and size of an ACO, providers may also include health departments, social security departments, safety net clinics, and home care services. The various providers within an ACO will need to work with one another to provide coordinated care to the beneficiary population, align incentives and lower overall healthcare costs. Although ACOs have been compared to health maintenance organizations (HMOs), ACOs are different in that they allow providers much freedom in developing the ACO infrastructure. Any provider or provider organization may assume the leadership role of running an ACO, as the ACA does not explicitly designate any provider to that role.
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The federal government, in the form of Medicare, will be the primary payer of an ACO. Other payers include private insurances, or employer-purchased insurance. Payers may play several roles in helping ACOs achieve higher quality care and lower expenditures. Payers may collaborate with one another to align incentives for ACOs and create financial incentives for providers to improve healthcare quality.
An ACO's patient population will primarily consist of Medicare beneficiaries. In larger and more integrated ACOs, the patient population may also include those who are homeless and uninsured. Patients may play a role in the healthcare they receive from their ACOs by participating in their ACO's decision-making processes.
ACO Pilots and Learning Networks
A range of ACO pilots are currently underway across the country with commercial insurers and state Medicaid programs (New Jersey, Vermont, Colorado, etc.) in advance of the Medicare Shared Savings Program. The Brookings Institution and Dartmouth Institute for Health Policy & Clinical Practice run the ACO Learning Network, a member-driven network of over 80 members from across the country that provides participating organizations the tools necessary to successfully implement accountable care. Led by Mark McClellan and Elliott Fisher, Brookings and Dartmouth have been working together since 2007 to foster the adoption of ACOs that will improve care quality and bend the cost curve. Premier runs an ACO Implementation Collaborative and Readiness Collaborative. And the American Medical Group Association(AMGA) also runs an ACO Development Collaborative and Implementation Collaborative. In 2010, Blue Shield of California, Dignity Health, and Hill Physicians Medical Group formed an ACO that covers 41,000 individuals in the California Public Employees Retirement System (CalPERS). In 2012, Hennepin County Medical Center partnered with NorthPoint Health and Wellness Center, Metropolitan Health Plan, and Hennepin County's Human Services and Public Health Department to form an ACO called Hennepin Health. By February 2013, Hennepin Health had enrolled 6,000 clients. Independent ACO-like initiatives are also taking place in Massachusetts, Illinois and California. Recently, the Brookings-Dartmouth ACO Learning Network published a publicly available comprehensive ACO implementation guide, the ACO Toolkit. The results for these pilot programs have been mixed: some organization's efforts have yielded financial benefits while others have experienced trouble balancing the costs of implementing ACOs with the savings gained.
The ACO has the potential to improve the quality of care while reducing healthcare spending in a nation with high health expenditures. However, several challenges to ACOs may affect the implementation and development of ACOs. First of all, there is a lack of specificity regarding how ACOs should be implemented. In addition, the American Hospital Association has estimated ACO formation to incur high startup costs as well as large annual expenses to maintain the system. Finally, ACOs risk being accused of violating antitrust laws if they are perceived to drive up costs through reducing healthcare competition while providing lower quality of care. To address the issue of antitrust violation, the U.S. Department of Justice has offered a voluntary antitrust review process for ACOs. There are also significant challenges to primary-care physicians who join an ACO through participation in a group practice, hospital-medical practice alignment, or another joint venture —such as an independent practice association (IPA). Physician groups will need a robust Electronic Health Record (EHR) system that is capable of advanced reporting, disease registries, and patient population care-management. Organizations that have achieved their Patient Centered Medical Home (PCMH) accreditation have already mastered these functions and are thus further along the road to meeting ACO metrics.
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