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On the Road to Better Value: State Roles in Promoting Accountable Care Organizations

Lack of care coordination and wide disparities in the cost and quality of care are pervasive problems in the U.S. health care system, perpetuated by the prevailing fee-for-service payment method. With the passage of the Affordable Care Act in 2010 and the enormous opportunities available to states to transform the health care delivery system, the accountable care organization (ACO) model is receiving increased attention for its potential to promote better value in health care spending without some of the perceived problems of past approaches. ACOs provide incentives to manage utilization, improve quality, and harness cost growth using a shared-savings model.

ACOs can take a variety of forms. Chief principles and prerequisites of the model include:

  • payment reform that promotes value, including a shared-savings model based on targeted savings using a global, prospective budget;
  • performance measurement using timely and accurate data that allows organizations to be accountable for quality and cost for a defined population; and
  • delivery system changes that promote integrated, organized processes for improving quality and controlling costs.
  • In this report, the National Academy for State Health Policy (NASHP) conducted structured interviews with national experts, including providers and state leaders, to provide a variety of perspectives on state roles in developing ACOs. Seven states—Colorado, Massachusetts, Minnesota, North Carolina, Oregon, Vermont, and Washington—are profiled. The report is intended to provide state and national policymakers with information that can stimulate further exploration. States should consider using the ACO model within their own context and resources, while national policymakers should collaborate with states and delivery system leaders to coordinate initiatives to have a farther-reaching effect. \

State Roles in Developing the Accountable Care Model
States have an important role to play in the development of the model. States are highly motivated to work on value, and at the same time, have significant infrastructure, unique levers, and extensive expertise to bring to the discussion. NASHP research indicates that state activity correlates roughly with five key components of the ACO model, as follows:

  • data;
  • designing and promoting new payment methods;
  • accountability measures;
  • identifying and promoting systems of care; and
  • supporting a continuum of care and the medical home model.

Data. States are providing leadership and specific funding to develop new data capabilities. In particular, states are developing multipayer databases to assist in the collection and analysis of health care data across payers. With recent funding the American Recovery and Reinvestment Act of 2009 (ARRA), states are at the forefront of health information technology (health IT) and health information exchange (HIE) development. States are leaders in building new infrastructure to collect and exchange data. This data infrastructure can be leveraged to support accountability and payment reform.

Designing and promoting new payment methods. States have an essential and unique role in convening stakeholders to talk about ACO development. Critical discussions among providers and payers in forming an ACO may run afoul of antitrust law. States are uniquely positioned to bring groups of providers and payers together under the “State Actions” doctrine to facilitate these discussions. In addition, pilot testing and other funding initiatives by states promote ACO payment innovation. States have enacted legislation and provided some funding for pilots that explore a variety of ACO payment models. Others are designing pilots as part of a broader health reform strategy already under way.

States are leveraging their health care purchasing power, including coverage for Medicaid members and state employees, to support new ACO payment and contracting models. And importantly, states can bring Medicare to the table. Through existing waivers and new opportunities in the Affordable Care Act, states can join with Medicare in their ACO development efforts. One state, Vermont, has already covered the Medicare portion of funding in a medical home initiative and will be able to expand beyond a pilot phase with Medicare’s participation.

Accountability measures. Through the adoption of statewide reporting requirements, states can lead in the design of accountability measures. States have provided leadership to enact systems for tracking and comparing cost and quality, a critical component of ACOs. Similarly, by using their significant health care purchasing power, states can promote accountability measures. By leveraging this purchasing power, states can develop performance-based contracts for ACOs and include population-based health care goals in these agreements. States are also using their convening role to bring together stakeholders to develop consensus on statewide health care standards. Finally, by tying standards to funding, states can promote accountability. States are requiring certain competencies and national certifications (such as National Committee for Quality Assurance medical home standards) for providers that participate in ACO and related medical home pilots.

Identifying and promoting systems of care. Providers seeking to form an ACO must address a variety of issues, such as retaining the critical mass of covered lives to function successfully and designing an attribution model. States can be useful partners here, as well. States are taking various approaches in promoting systems, by shaping regional systems of care through contracts and also by convening and educating local groups of providers to facilitate ACO development.

Supporting a continuum of care and the role of medical homes. States agree that strong primary care is critical to the ACO model, but they may take different approaches in promoting the patient-centered medical home (PCMH) within the ACO model. Some are building explicitly from their medical home pilots, while others are looking to the provider community to propose new configurations. Importantly, accountable care seeks to create “systemness” beyond the medical home. ACOs can provide a unifying force to a community or defined region—providers across the continuum of care, including specialists and hospitals, can be integrated through aligned cost and quality measures. Furthermore, the ACO model provides a budgeting methodology that allows some savings to remain in the community for reinvestment or expansion of services.

PCMHs and ACOs are mutually beneficial, synergistic models, although ACOs can function without a PCMH and medical homes can exist without an accountable care model. States recognize that the benefits of the patient-centered medical home can be enhanced through an ACO model, which can incentivize the broader service system to coordinate and improve care. Likewise, the ACO model will be more successful in delivering value if built around an evidence-based, high-performing, patient-centered medical home.

Federal Health Reform and State Opportunities for Accountable Care Organization Development
There are several opportunities for ACO development in the Affordable Care Act. The Medicare Shared Savings Program in Section 3022 offers an opportunity for providers to form ACOs and partake in shared savings with the Medicare program. Section 2706 provides Medicaid programs the opportunity to develop pediatric ACOs using the same incentive program described in Section 3022. Section 3021 establishes the Center for Medicare and Medicaid Innovation, to test innovative models for health care payment and delivery. In addition:

  • States can leverage the activities of interested providers. States can support interested providers by identifying and convening these organizations and thinking about how state health reform and ACO efforts can support their goals.
  • Exchanges provide opportunities for states. Leading states recognize that the large expansion of coverage afforded by the Affordable Care Act provides an imperative to reform delivery and payment to sustain coverage, and are designing quality and efficiency reforms as they plan for health insurance exchanges. As part of this planning, some states (such as those profiled in this report) are working on ACO pilots.
  • Health information technology and meaningful use can be tools for payment reform and quality. State policymakers are well-positioned to think strategically about HIE resources and how they can be used to advance long-standing goals of cost and quality.

Key Themes: State Roles in Accountable Care Organization Development

  • Build on the foundation of other state health reform initiatives. Rather than requiring a new direction or policy shift, states can build directly on their health reform efforts to promote ACOs.
  • Look for community-based and regional opportunities. Experts agree it is unwise to start an ACO from the top down. ACOs should start with provider-driven, locally developed discussions and opportunities. States can assist in identifying, convening, and supporting such opportunities.
  • Establish pilots to test new models and build a core. Pilot testing represents a key tool for states to use for introducing the model, gaining traction, and assessing provider readiness.
  • Legislation is an important tool. Although significant progress can be made with voluntary efforts, several states that have enacted legislation to develop ACO pilots or elements of the model, such as data collection and reporting systems, report that the time frames and funding in the legislation “hold their feet to the fire” in ways that voluntary efforts cannot.
  • Build stakeholder support. Because the ACO model touches on nearly all aspects of the health care system, states reiterated that bringing stakeholders into the process early and often—with a clear message—was crucial.
  • ACOs are not a “one-size-fits-all” model. State policymakers and experts noted that the ACO model can be adapted to fit various settings. While the basic elements of the model— payment reform, accountability, and a coordinated continuum of care— must be addressed and incorporated, how these components are actually implemented can vary widely.

The ACO model holds promise as a new and flexible structure for the promotion of value in health care systems. Supported by mature data systems and using a shared-savings model that recognizes the importance of health care outcomes, ACOs can incentivize what states want— controlled costs and better health outcomes—while addressing health care in a longitudinal and population-based way. States have an important role to play in the development of ACOs. They are using lessons from their own health reform efforts, including medical home initiatives and data capacity-building, as well as other projects, to promote the ACO model in innovative and timely ways.


Exhibit ES-1. Summary of State Activity to Foster Key Components
of the Accountable Care Organization Model



•       Developing statewide data and analytics organization

•       Developing regional community care organizations, an ACO model for Medicaid participants

•       Contracts will be performance-based and will incorporate public health and community-wide health goals

•       Established medical home initiative for all children enrolled in Medicaid and the Children’s Health Insurance Program; also, pilot testing medical homes for adults with chronic illnesses


•       e-Health Institute to support statewide use of electronic health records and the creation of an interoperable health exchange

•       Commission on Health Care Payment System recommended ACO development in health reform

•       Reforms include risk-sharing arrangements between ACOs and payers

•       Conducting multipayer patient-centered medical home (PCMH) effort involving all major commercial and Medicaid payers and a diverse group of primary care practices


•       Collecting multipayer data on specific measures of cost and quality

•       Passed legislation that supports quality measurement

•       Convening providers for discussion and review of ACO model

•       State Quality Improvement Institute engaging stakeholders in developing ACOs and cost-of-care payment methodologies

North Carolina

•       Using Medicaid data as feedback to Community Care of North Carolina networks and providers, adding third-party payer claims data in 10 rural counties

•       Passed legislation to explore shared-savings, risk-adjusted payment models in Medicaid

•       Stakeholders looking to additional opportunities for ACO development out of existing state demonstrations and initiatives, including the Community Care of North Carolina program, Beacon Communities, and the Medicare 646 Demonstration


•       Developing all-payer health care claims data reporting program

•       Recommending community-based accountable entities and focusing on support for “communities of care” in state health reform initiatives

•       Sponsoring a variety of community collaboration initiatives to promote cost-savings and health improvement activities at the local level

•       Consolidating state purchasing power under a single entity

•       Conducting two medical home pilots to collect cost and quality metrics, will serve as future model for ACOs


•       Utilizing all-payer claims database administered by a health data management contractor

•       Passed legislation that calls for the implementation of a “community-based payment reform” pilot to coincide with Medicare ACO pilots authorized by the Affordable Care Act

•       Conducted ACO feasibility study that recommended a strong PCMH as prerequisite for implementing ACO model

•       Using lessons learned from PCMH to determine standards for funding under ACO initiative

•       Mandating that commercial payers participate in enhanced PCMH payment reform

•       Envision more than one payment model, ranging from shared savings to partial capitation


•       Planning for all-payer claims database

•       Collaborating with the Puget Sound Health Alliance to coordinate reporting efforts

•       Passed legislation authorizing ACO pilots, will establish and test different payment models

•       Outlined the need for coordinated efforts with medical home pilots, work is currently under way to assess how to best integrate programs

•       Convening and educating providers on ACO model


Publication Details



K. Purington, A. Gauthier, S. Patel, and C. Miller, On the Road to Better Value: State Roles in Promoting Accountable Care Organizations, The Commonwealth Fund and the National Academy for State Health Policy, February 2011.