How The Center For Medicare And Medicaid Innovation Should Test Accountable Care Organizations

By Stephen M. Shortell, Lawrence P. Casalino and Elliott S. Fisher
Health Affairs
July 2010

The Patient Protection and Affordable Care Act of 2010 directs the Centers for Medicare and Medicaid Services (CMS) to create a national voluntary program for accountable care organizations (ACOs) by January 2012. ACOs are provider groups that accept responsibility for the cost and quality of care delivered to a specific population of patients cared for by the groups’ clinicians.

Accountable Care Models

Accountable care organizations will be largely based on physician practices that, in turn, may be organized as patient-centered medical homes. Many ACOs will also include hospitals, home health agencies, nursing homes, and perhaps other delivery organizations. There are at least five different types of practice arrangements that could serve as ACOs. These are the integrated or organized delivery system, multispecialty group practices, physician-hospital organizations, independent practice associations, and “virtual” physician organizations, all described below.

1. Integrated Delivery Systems

Integrated delivery systems involve a common ownership of hospitals, physician practices, and—in some cases—an insurance plan. Some examples are Kaiser Permanente, Group Health Cooperative of Puget Sound, and Geisinger Health System. These systems typically have aligned financial incentives, electronic health records, team-based care, and resources to support cost-effective care.

2. Multispecialty Group Practices

Multispecialty group practices usually own or have a strong affiliation with a hospital. Examples of this type of arrangement include Mayo Clinic and Cleveland Clinic. They usually do not own a health plan but, rather, have contracts with multiple health plans in their areas. Most have a long history of physician leadership and highly developed mechanisms for providing coordinated clinical care.

3. Physician-Hospital Organizations

These organizations are a subset of the hospital’s medical staff. One example is Advocate Health in Chicago. Most were formed in the 1990s in response to managed care pressures to negotiate with health plans. Some function like multispecialty group practices, focusing on reorganizing the delivery of care to achieve more cost-effective coordination. Although they may be less well suited than integrated delivery systems or multispecialty practices to qualify as ACOs, many could structure themselves to meet the criteria for that type of organization.

4. Independent Practice Associations

Independent practice associations consist of individual physician practices that came together largely for purposes of contracting with health plans. Over time, however, many of these have evolved into more-organized networks of practices that are actively engaged in practice redesign, quality improvement initiatives, and implementation of electronic health records. One example is Hill Physicians Group, in Northern California. Such organizations could qualify as ACOs, and that might encourage other independent practice associations to evolve similarly, given sufficiently strong financial incentives and technical assistance.

5. Virtual Physician Organizations

Finally, a number of small, independent physician practices, many located in rural areas, can organize to become “virtual” physician organizations, such as Community Care of North Carolina. This process can be led by individual physicians in rural areas or by a local medical foundation, state Medicaid agency, or similar organization that can provide the leadership, infrastructure, and resources to help small practices develop disease registries; implement electronic health records; share information; and provide better-coordinated, cost-effective care. These virtual networks could qualify as ACOs and serve as models for other groups of small practices.

Physicians can choose one or more of the above models, depending on what best fits their needs and local circumstances. But because there are so many options, the payment systems that the CMS creates for ACOs should evolve with the models chosen. Specifically, the more-integrated forms of accountable care, such as integrated delivery systems and multispecialty group practices, are capable of assuming the greatest risk. This would make them natural candidates for capitation or bundled payments, in which providers assume a relatively greater share of risk.

In contrast, less structurally integrated forms of ACOs, such as virtual physician organizations and more loosely organized independent practice associations, are best suited—at least initially—to low degrees of risk. For them, a form of limited, partial capitation for selected illnesses may be most appropriate.

To facilitate delivery system transformation and focus attention on desired health outcomes, payment systems need to change. Payment based on outcomes achieved, rather than on volume of services provided, will be the motivation for providers to focus their attention on improving the underlying systems of care.

Considerable technical assistance will be needed to implement the learning system for the development of ACOs. This will be particularly true for loosely organized independent practice associations and virtual physician networks, which currently lack the size and resources to become ACOs.


Analyzing Shifts In Economic Risks To Providers In Proposed Payment And Delivery System Reforms

By Jeff Goldsmith
Health Affairs
July 2010


These innovative payment methods all share the assumption of broader responsibility — either formally or informally — by hospitals or physicians for reducing Medicare expense through better coordination and management of care. Sadly, these diverse approaches do not appear to fit together seamlessly to encompass the entire continuum of health care.

Policy makers are unlikely to find a single “silver bullet” they can use to replace Medicare fee-for-service payment. They might have to tolerate multiple, overlapping, and partial solutions, and substantial regional variation in the mechanisms that are feasible.

Nonetheless, for better or worse, hospitals are going to play a much larger role in organizing or reorganizing care in their communities. The most promising innovations are those that build on hospitals’ existing information technology and organizational infrastructure. The key to successful innovation will be extending risk assumption to follow suit.

“Accountable care organization” (ACO) is an abstract concept of organizing health care providers into single entities that are responsible for delivering a broad continuum of care for specific patients, while bearing financial risk for the care provided. Moving beyond that abstraction, there really isn’t much new on the policy front.

Most of the types of entities that might actually be able to serve as ACOs already exist, ranging from independent practice associations to fully integrated delivery systems. Even the concept of bundling payments already has applications ranging from Medicare’s DRG prospective payments (diagnosis related groups) to capitation payments for comprehensive health care services.

So what is new? Would payment systems be designed to require that all reimbursement be provided through ACOs? If so, what would happen to the sector of the health care delivery system that would be excluded from the ACOs that controlled the health care delivery in a given region? Would those providers simply become bankrupt and shut down? Could we afford to lose them, especially with the existing deficiencies in our primary care infrastructure?

Shortell, Casalino and Fisher suggest that the establishment of “virtual physician organizations” would address that concern, but here “virtual” seems to refer to the computer term of “not physically existing as such but made by software to appear to do so.” Of course, the providers would actually exist, but they would never function as a unified ACO providing the full range of services, including hospital services, for a given population requiring at least 5000 patients with accountable care protocols for each clinical entity.

Basically, the concept of the accountable care organization is merely a relabeling of various existing policy efforts to try to control inappropriate spending in our dysfunctional health care system. Since our goal is to provide health care for everyone while slowing the growth in spending to sustainable levels, clearly these policies have failed us.

Let’s go with a system that actually works to achieve the goal of affordable health care for everyone – a single payer national health program.