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Accountable Care Organizations

Understand main concepts about accountable care organizations (ACOs).

Considering an ACO? Read key questions before talking to the ACO. Want to learn more? Hear from Anup Patel, MD, on his experience with Nationwide Children's Hospital ACO.

Discover information about the types of ACOs available.

Definition of an ACO
An ACO is a new type of a health care delivery system. It is composed of a network of providers, such as physicians, hospitals, and nurses that assume accountability for the cost and quality of care for a defined population of patients.

An ACO manages all of patients' health care needs by coordinating services rendered by its providers in various healthcare settings. There are a variety of private and public ACOs and each might be structured differently.
Medicare ACO's

Medicare has two distinct ACO initiatives:

  • Pioneer ACO model
  • Medicare Shared Saving Program (MSSP)

Pioneer ACO model
The Pioneer ACOs initiative is for organizations that are already experienced in care coordination. 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  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. Initially, 32 organizations signed up for the initiative but several left leaving the program with 23 participating organizations.

Medicare Shared Savings Program (MSSP)

The MSSP is a pathway for a group of providers to become an ACO. The MSSP is a voluntary program 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 FFS beneficiaries. More than 320 Accountable Care Organizations have been established as of January 1, 2014. The MSSP accepts applications for participation on a yearly basis.

Creating an ACO

Any provider can participate in an ACO but not everyone can create an ACO. Providers eligible to create an 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 such as 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).
ACO Medicare Payments

Currently, ACOs are paid in a traditional fee for service mode with incentives to improve coordination of care and lower costs. Under the Pioneer ACO Model, organizations that are able to bear more risk will eventually transition to a partial capitation model with a flat fee for care delivered during a defined period of time. Under the MSSP, organizations may chose from two payment options:

  1. Shared savings only: payments are based on fee for service (FFS) plus a bonus for achieved savings.
  2. Shared savings and losses: payments are based on FFS plus sharing risks. This means that providers continue to receive FFS payments as usual but the ACO agrees to pay Medicare a penalty if the actual cost of care is higher than the agreed upon benchmark.
ACO and Lower Healthcare Costs
ACOs make providers accountable for the care they 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.

 Providers are put in a situation where the amount of incentive payment they receive depends on the cost of care delivered by their counterparts.

 This new way of aligning incentives is hoped to change physicians' behavior and decision making in a way that will limit unnecessary services and procedures.

 ACOs initiative will lower health care costs by rewarding those organizations where providers take responsibility for the cost and quality of care they deliver.
ACO vs. HMO
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. The initial HMO models negatively incentivized caring for the sickest patients because the per member per month payments were not risk adjusted.

In the current MSSP model, patients are not limited to seeing physicians within the network. 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 assure that 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.
ACO tips
  • Not everyone can create an ACO, but any provider can participate in the program by partnering with an eligible provider.
  • If approached by an ACO, make sure to carefully read the agreement before committing. Get as many details as possible regarding your obligations to the ACO. Negotiate your input into governance and how savings will be shared among ACO participants. Read more about Physician Employment Agreements Under ACOs .
  • MSSP participation is voluntary for providers.
  • 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.
  • There is alignment with the MSSP and other CMS programs (PQRS, Meaningful Use, and Value Based Payment Modifier) that may have implications for practices making the choice to join an MSSP ACO.
  • Electronic Health Records (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. 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.
  • See AMA Accountable Care Organizations Resources

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