Accountable Care Organizations (ACOs)
An accountable care organization (ACO) is a new type of a health care delivery system. An ACO is composed of a network of providers – e.g. physicians, hospitals, and nurses – that assume accountability for the cost and quality of care for a defined population of patients.
An ACO should manage all of patients’ health care needs by coordinating services rendered by its providers (e.g. among primary care physicians and specialists) in various healthcare settings (e.g. hospitals and home health care).
Any provider can participate in an ACO by partnering with other providers eligible to create an ACO. Providers that can create and ACO include:
- Physician groups and networks of individual practices
- Joint venture arrangements between hospitals and professionals as well as hospitals employing professionals – Hospitals have more capital to pay for the up–front investments in care innovations. Some hospital systems are buying physician practices with intent of becoming an ACO directly hiring physicians. There remain legal limits on the relationships between hospitals and physicians, and also on the market share such an arrangement may represent.
- Private insurers –For example, Humana, United Healthcare, and Cigna have created or plan to create an ACO or ACO–like organization. Private insurers are in a good position to succeed because they already collect data on patients which is critical for making decisions about cost targets and quality achieved.
- Under the MSSP program, a subset of critical access hospitals (CAHs), rural health clinics (RHCs) and federally qualified health clinics (FQHCs).
Medicare has two distinct ACO initiatives: a Pioneer ACO model and a Medicare Shared Saving Program (MSSP). The Pioneered ACOs initiative is for organizations that are already experienced in care coordination, and MSSP is for groups of providers that are structured to begin functioning as an ACO for their Medicare population.
Pioneer ACOs are designed to test the effectiveness of a population based payment model. Population–based payment is a risk–adjusted per–beneficiary per month payment amount intended to replace some or all of the ACO’s fee–for–service (FFS) payments with a prospective monthly payment. Those Pioneer ACOs that have shown savings over the first two years of the program will be eligible to move to a population–based payment model in the year three of the program. The program began in January, 2012. Currently, 32 organizations are participating in the Pioneer ACO Model. Read more about the Pioneer ACO model.
The Medicare Shared Savings Program (MSSP) is a pathway for a group of providers to begin functioning as an ACO. The MSSP has been mandated by the Affordable Care Act (P.L.11–148; Sec. 3022 Subtitle A) in order to improve the quality of care and reduce costs of care delivered to Medicare beneficiaries.
ACOs that participate in the Shared Savings Program must deliver care to a minimum of 5, 000 Medicare beneficiaries for a three year period. The program has two payment model tracks. Under track 1, an ACO would receive bonus payments (specifically, 50% of achieved savings) from CMS if the ACO reduced Medicare expenditures below target amounts. Under track 2, an ACO would receive 60% of achieved savings from CMS but would also share in payment of negative costs if spending targets were not achieved.
As a complement to MSSP, CMS created Advance Payment ACO Model to facilitate participation in the MSSP for entities that do not have the capital required to begin an ACO. This up–front payment will be repaid by the ACO from their shared savings. In addition, ACOs that participate in the MSSP are protected by limited fraud and abuse waivers against application of the federal anti–kickback statue and the physician self–referral law (known as the Stark law).
Beginning in 2012, new ACO applications will be accepted annually. The application period for organizations that wish to participate in the Shared Savings Program beginning January 2013 is from August 1 through September 6, 2012. More information, including application requirements, is available at http://www.cms.gov/Medicare/Medicare-Fee-for-Service-Payment/sharedsavingsprogram/Application.html
Currently, ACOs are paid in a traditional fee–for–service mode with incentives to improve coordination of care and lower costs. CMS is testing three distinct payment options:
- Fee–for–service plus a bonus for achieved savings.
- Fee–for–service plus sharing risks: a bonus for achieved savings or a penalty if the actual cost of care is higher than estimated future costs.
- Fee–for–service, sharing risks, and transitioning to a partial capitation, a flat fee for care delivered during a defined period of time. This option is only available to those organizations that would be able to bear more risk.
ACOs make providers accountable for the care their deliver. This means that ACOs shift some financial risks to physicians via incentives. For example, sharing savings rewards coordination of care because savings result from joint rather than individual decision making. However, providers are put in a situation where the amount of payment they receive depends on the cost of care delivered by their counterparts.
This new way of aligning incentives will hopefully change physicians’ behavior and decision making in a way that would limit unnecessary services and procedures. In short, ACOs initiative will lower health care costs by rewarding those organizations where providers take responsibility for the cost and quality of care they deliver.
Health maintenance organizations (HMOs) prominent during 1990s were successful in limiting costs but became unpopular with patients due to restrictions to certain services and providers. Some HMOs were or still are “closed panel” where patients can only see physicians within the network. In addition, the initial HMO models negatively incentivized caring for the sickest patients because the PMPM payments were not risk adjusted.
In the current MSSP model ACOs, patients do not have to see only physicians within the network. In other words, patients are free to visit a specialist that is not in the same network as their primary care physician. This may not be the case for ACOs formed outside the MSSP. As ACOs move to global payments, these payments will be risk–adjusted to be sure the sickest patients are not excluded. In fact, the improvement in coordination and quality of care of these sickest patients is a great potential source of shared savings.
Also, ACOs are accountable for the quality of care they deliver. They have to report on numerous quality metrics and establish/maintain quality assurance program in order to participate in shared savings incentive.
- Not everyone can create an ACO but any provider can participate in the program by partnering with an eligible provider.
- An MSSP ACO’s patient does not have to stay in the network. Patients are free to visit a specialist that is not in the same ACO as patients’ primary care physician. However, it could be expected that primary care physicians will prefer to refer their patients to specialists that are in their ACO as it would benefit cost containment. On the other hand, a specialist that can demonstrate that their care is of high quality and is cost efficient may still fare well even outside an MSSP ACO.
- EHR’s will be necessary for participation in most future ACO’s in order to provide the huge amount of data required for demonstrating cost and quality, and also to be able to assess the adequacy of reimbursement within the system.
- Under the MSSP, CMS requires ACOs to report on 33 quality measures.
- You will be held accountable not only for quality of care but also for cost. Therefore, you have to know your baseline costs and patient mix. For example, if you were to participate in MSSP, you would have to estimate your baseline expenditures to project spending benchmarks that would be used to determine your potential shared savings.
- In some future ACOs, physicians who are employed by hospitals may not receive salaries but incentive–driven compensation calculated based on their performance. The base compensation might be smaller than their current salary. Read Hospitals’ Race to Employ Physicians — The Logic behind a Money–Losing Proposition.