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.
Rationale
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.
Policy Recommendations
The Affordable Care Act builds on innovations already under way across the country and contains a number of requirements for extending successful ACO payment concepts to qualifying organizations. CMS can further support the success and spread of high-performing ACOs through its regulations and practices. The objective is to achieve a high performance health system that is organized to attain better health, better care, and lower costs. To facilitate this process, the Commission makes the following recommendations (Exhibit ES-1):
1. Strong Primary Care Foundation
1a. CMS should ensure that all ACOs have a strong primary care foundation that builds on the concept of the patient-centered medical home.
1b. Although CMS may require that ACOs have certain structural characteristics (e.g., electronic medical records and availability of after-hours care) or have certain processes in place (e.g., quality improvement programs), the availability and accessibility to patients of a regular source of care and the ability of that provider to coordinate care received from all sources should be paramount.
2. Accountability for Quality of Care, Patient Care Experiences, Population Outcomes, and Total Costs
2a. All participating ACOs should be required to agree to and be able to report measures of quality of care, patient care experiences, and outcomes, or have arrangements in place to enable such reporting.
2b. Shared savings should be distributed contingent on high quality and positive patient experiences.
2c. CMS (along with other participating payers) should work with each ACO to ensure that incentives for providers within the ACO are aligned and consistent with the aims of better health, better care, and lower costs.
2d. Regardless of which payers are involved in the ACO payment mechanism, the shared savings paid out by each payer or group of payers should, to the extent feasible, take into account the ability of the ACO to achieve overall savings on total costs, rather than just savings for individual payers.
3. Informed and Engaged Patients
3a. Providers should notify all of their patients that the providers belong to a given ACO, along with its characteristics and what that will mean for the care that patients will receive.
3b. ACOs should encourage providers and patients to specify expectations and responsibilities, and engage providers and patients as partners in ensuring the best care and outcomes.
3c. CMS should test different approaches for encouraging patients to designate an ACO as the principal source of their care by providing positive incentives to do so (such as enhanced benefits or lower cost-sharing responsibility). Patients should retain the right to seek care from the providers of their choice, including those not participating in the ACO, unless they explicitly agree to receive care exclusively from the ACO’s providers.
4. Commitment to Serving the Community
CMS should make an explicit commitment to serving its community, including low-income and uninsured patients, an integral part of qualifying as an ACO.
5. Criteria for Entry and Continued Participation That Emphasize Accountability and Performance
Entry criteria for ACOs should include, at a minimum, the availability of primary care and the capacity of the organization to ensure that patients have access to needed services across the continuum of care, as well as the ability to provide meaningful evidence of quality (including patient experiences and outcomes) and cost performance. Continued participation and financial rewards should be contingent on performance and accountability rather than structural characteristics. This should include public reporting of performance metrics.
6. Multipayer Alignment to Provide Appropriate and Consistent Incentives
CMS should actively work with providers and payers in each major market to develop multipayer ACO arrangements—including Medicare, Medicaid, and private payers—whenever possible. Such arrangements should be designed to align incentives among payers, give a clear and consistent message to ACOs, and enable them to focus on achieving higher quality of care, better patient care experiences, improved population health outcomes, and lower costs for all their patients, as well as simplifying administrative processes.
7. Payment That Reinforces and Rewards High Performance
7a. The threshold for attributing savings to ACOs should be set to reflect the predictability and reliability of each organization’s cost trend, to protect against shared-savings payments that are generated by random fluctuations in year-to-year costs, while ensuring that organizations are rewarded for achieving actual cost reductions.
7b. The determination and payment of shared savings should be accomplished so that the reward for reducing costs while improving quality is received with as little delay as possible from the behavior that generates it. This can be supported by prospectively determining the patients whose costs are to be used to calculate shared savings and prospectively setting the spending target for each ACO.
7c. CMS (along with other participating payers) should make upfront support, possibly as low-cost loans against future shared savings, available to organizations that, because of certain circumstances, need it to offset the infrastructure investment expense required to redesign care processes and make other changes so they can become successful ACOs. Determination of the availability and extent of upfront support and the basis on which it is provided (e.g., loans vs. grants) may differ by whether it is a safety-net institution serving underserved populations, as well as by other defining characteristics of the organization, subject to the organization’s potential for achieving the program’s goals and its proposed plan for doing so.
8. Innovative Payment Methods and Organizational Models
CMS should be prepared to apply different payment approaches that are suitable for different organizational configurations of ACOs in different geographic areas and different circumstances, as appropriate. These payment approaches could include primary care medical home fees or bundled acute case rates, along with shared savings, or risk-adjusted global fees with risk mitigation (e.g., stop-loss or reinsurance). All approaches should make payments contingent on reaching quality benchmarks.
9. Balanced Physician Compensation Incentives
For ACOs receiving payment for direct care as well as shared savings, compensation of clinicians within the ACO should include incentives to deliver evidence-based care but ensure that appropriate care is not withheld.
10. Timely Monitoring, Data Feedback, and Technical Support for Improvement
10a. CMS should provide baseline data as well as early and regular reports on total Medicare payments, utilization, and quality measures for the ACO patient population, and other data required to help ACOs be successful in achieving the aims of better health, better care, and lower costs; other payers should do the same. Trends should be tracked over time to assess the impact of alternative payment models and different configurations of ACOs and disseminate learning about the most effective strategies.
10b. CMS should work with other payers to develop robust information exchanges and standardized reports that can provide ACOs with timely feedback on comparative results, support rapid-cycle improvements in quality and cost performance, and develop new knowledge on effective and efficient clinical practices.
10c. The Department of Health and Human Services, through its Office of the National Coordinator for Health Information Technology, should provide technical assistance for implementing electronic information systems and exchanges to facilitate transfer of critical clinical information.
10d. CMS should create toolkits of interventions and practices that health care organizations have found effective in improving quality and lowering costs. All payers should collaborate to provide technical assistance to organizations to help them identify and adopt effective and efficient practices and to spread successful innovations in payment methods and organizational models.
10e. Every effort should be made by public and private payers, as well as providers, to ensure transparency of information and to minimize administrative complexity.
Conclusion
To meet population health needs now and in the future, the U.S. health care delivery system has to become accountable for three things: delivering high-quality, effective, and safe care that contributes to the best possible population health outcomes; configuring itself for the benefit of patients to provide excellent patient experiences with care; and using resources efficiently and prudently. Substantial evidence exists that it is possible to improve the way health care is organized and delivered to slow the growth of health care costs while improving outcomes and patient experiences. By adopting these objectives as core values and achieving increasingly stringent goals in each area, it will be possible to provide affordable health care into the future with access for all and care that helps to prevent illness, restore health for those with acute conditions, and maintain health and productivity for all, including the growing population of patients with one or more chronic conditions.
Holding the health care system accountable through new payment arrangements that support high value rather than high-volume care creates the promise of transforming the U.S. health system to achieve these aims. Yet, much work needs to be done to establish and spread ACOs and learn from innovative care systems. Success requires the development of trust among all the parties, as well as a willingness to test multiple approaches, measure results, and adapt rapidly to improve performance. Government leadership and flexibility are essential, as are activated and engaged clinicians and patients who embrace accountability for better care and health outcomes. If all this occurs, moving ACOs from concept to action can play an instrumental role in achieving a high performance U.S. health system over the coming decade.
