High Performance Accountable Care: Building on Success and Learning from Experience

April 14, 2011

Authors: Stuart Guterman, Stephen C. Schoenbaum, M.D., M.P.H., Karen Davis, Ph.D., Cathy Schoen, M.S., Anne-Marie J. Audet, M.D., M.Sc., Kristof Stremikis, M.P.P., and Mark A. Zezza, Ph.D.
Contact: Stuart Guterman, Vice President, Payment and System Reform, The Commonwealth Fund sxg@cmwf.org
Editor: Sarah Klein


A key provision of the Affordable Care Act is the establishment of the Medicare Shared Savings Program, which provides incentives for improved quality and efficiency to a new category of provider—the accountable care organization (ACO). The program, slated to begin in January 2012, rewards groups of providers who agree to collaborate to offer more accountable, effective, and efficient care with a share of the savings they achieve. While the prospect of participating in this initiative has generated a groundswell of interest and activity among providers, many issues need to be addressed about the methods that will be used to determine how that accountability is to be achieved, assessed, and rewarded. This report provides recommendations for ensuring the successful implementation and spread of ACOs to achieve the goals of a high performance health system.

Executive Summary

The Patient Protection and Affordable Care Act of 2010 (Affordable Care Act) establishes a new category of provider within the Medicare program—the accountable care organization (ACO)—with rules for provider participation and principles for sharing the savings that ensue from this new form of health care delivery. A broad framework is specified in the law and more details have been laid out in proposed rules released by the Centers for Medicare and Medicaid Services (CMS), but whether the promise of this new payment and delivery model is realized will depend both on the implementation decisions made over time by CMS and the willingness and ability of health care providers, other payers, and the general public to respond to this opportunity to improve the performance of the health care system.

This report by the Commonwealth Fund Commission on a High Performance Health System (Commission): 1) sets forth the rationale for creating ACOs; 2) describes several promising types of ACO models that should be considered and evaluated as part of an effort to facilitate adaptability and spread of accountability for quality and cost to as wide a segment of the U.S. health care delivery system as possible; and 3) concludes with a set of Commission recommendations on what ought to be expected from ACOs and how to ensure their successful implementation and spread, both immediately and over time. Although the Commission’s recommendations are addressed, for the most part, to CMS, the report also is intended to offer information and guidance to providers, payers, and patients who will be forming, and interacting with, ACOs.


Systematization and organization of care delivery would make it easier to provide the high-quality, coordinated care that the American public seeks and needs. Currently, even when individual services meet high standards of clinical quality, there is often insufficient coordination of care across settings and over time to meet the needs of patients. More highly developed primary care services, both in the United States and in other countries, are associated with better clinical outcomes and lower costs—which are major objectives of the Affordable Care Act. Indeed, nearly all patients—nine of 10—report that it is important to them to have one place or personal physician responsible for their primary care and for coordinating their care with other providers, that all physicians involved in their care have access to their medical information, and that they have a place—other than the emergency room—to go for care at night and on weekends.

Within the United States, we have evidence that reorganizing care around the patient with teams that are accountable to each other and to patients and are supported by information systems that guide and drive improvement, has the potential to eliminate waste, reduce medical errors, and improve outcomes—at lower total cost. Accomplishing this requires changing the incentives upon which the health care system is built. The fee-for-service payment that currently typifies the U.S. health system emphasizes the provision of health services by individual providers rather than coordinated teams of providers who collaborate to address patients’ needs. The current system also encourages the provision of more health services but not the achievement of better health outcomes, and tends to focus on acute care and complex services, rather than prevention, primary care, and serving the ongoing needs of the population.

Promising Organizational and Payment Models

Previous work by The Commonwealth Fund and this Commission has shown that organized and accountable health care delivery holds significant potential for transforming the U.S. health care system. In recognition of this potential, the Affordable Care Act provides incentives under the Medicare program for provider organizations to be accountable for the total care of patients, including population health outcomes, patient care experiences, and the cost per person. While CMS has substantial discretion to set the requirements for qualifying ACOs, the law establishes an ACO as a legally established provider organization that is directly responsible for providing many of the services covered by the Medicare program and can ensure that its patients have access to the rest. ACOs differ from health maintenance organizations in that they are explicitly health care delivery organizations, rather than insurers that contract with a network of providers.

Providers’ participation in an ACO is voluntary. The ACO is required to have sufficient primary care providers to care for Medicare beneficiaries and is held accountable for the quality and cost of care for the Medicare patients of those primary care providers. The law sets out several ACO models (including networks of individual practices, group practices, and hospitals partnering with providers or employing providers), and gives the secretary of Health and Human Services (HHS) further discretion to approve other groups of providers. The law also provides for Medicaid ACOs for pediatric patients, although that provision is not addressed in this report.

Many specific decisions about qualifying ACOs are left to the discretion of the secretary. In particular, the law does not restrict beneficiary choice of providers to those participating in or contracting with the ACO to which their primary care provider belongs. Nor is there a requirement that the ACO include or contract with all of the providers who care for the patient: the ACO could consist of a network of primary care physicians, multispecialty physician group practices without hospitals or the full panoply of specialists, or hospitals that employ physicians or partner with physician groups.

The law does specify that there will be a mechanism to distribute shared savings achieved by the ACO, but many of the related details are not completely specified. Providers might be paid directly by Medicare as they are now or Medicare might choose to use new provider payment models. Providers could assign their payments to the ACO, which then would receive all Medicare payments, both for direct care and for shared savings, with the ACO responsible for compensating providers through salaries or another internally set remuneration and/or incentive system. Alternatively, the ACO could elect to receive a partial capitation payment from Medicare that includes both shared savings (on the fee-for-service portion of the payment) and financial risk (on the per-patient portion), or a global fee (with full financial risk).

When patients receive services from providers outside the ACO, Medicare might continue to pay for those services (e.g., hospital care, home health care, or non-ACO specialists) as it does now, while adjusting the partial capitation payments or global fee to the ACO for any “out-of-organization” care. Alternatively, the ACO might be required to contract with and pay out-of-organization providers to ensure access to a full range of coordinated care.

This report addresses how CMS might make important decisions about payment and delivery system design. It describes three organizational models that could be promising for ACOs: advanced primary care practice networks with infrastructure support and associated specialist referral networks; multispecialty physician group practices; and health care organizations with functionally integrated ambulatory, inpatient, and postacute care services. Correspondingly, several alternative options could be used in the ACO context, including:

  • Primary care medical home fees, any of several methods for paying primary care providers that encourages them to coordinate their patients’ care. Blue Cross Blue Shield of Michigan and Community Care of North Carolina are two organizations that have used such payment methods with success.
  • Bundled acute case rates, which cover a range of services related to treatment for a patient during a specified time interval around an acute care event, like a hospital admission. Geisinger Health System in Pennsylvania uses this method.
  • Global fees, a payment rate that covers all the health care provided to an individual during a specified time interval. Examples of organizations using global fees include HealthPartners in Minnesota, Intermountain Healthcare in Utah, Blue Cross Blue Shield of Massachusetts, and Kaiser Permanente in eight regions around the country.

While ACOs receiving partial capitation or global fees share in both savings and financial risk, Medicare might mitigate the risk of being accountable for high-cost patients through reinsurance or stop-loss provisions, especially for cases in which the ACO does not directly provide the full range of services. This would be consistent with CMS’s proposed rule for the Medicare Shared Savings Program, which in the first two years would cap potential losses for ACOs that opt to both receive a share of any savings and be responsible for a share of excess spending; in the third year, potential losses would be capped for all ACOs, which will be required to share in savings and be responsible for a share of excess spending.