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Accountable Health Organizations Enter Policy Spotlight

By John Reichard, CQ HealthBeat Editor

March 13, 2009 -- It's been a big week for the dryly named "accountable health organizations," the brainchild of perhaps the most influential thinker and health services researcher in health policy circles today. Proposed by Dartmouth College researcher Elliott S. Fisher to begin eliminating unnecessary medical services that analysts like White House budget director Peter R. Orszag say waste $700 billion a year, the organizations got top billing at different meetings this week by the prestigious Brookings Institution and the closely watched Medicare Payment Advisory Commission (MedPAC).

What's the lure? "ACOs" are meant to spur teamwork by providers to deliver efficient care in a system that many analysts believe is rife with duplication and medical procedures of uncertain value. Savings generated by that teamwork would be shared by big payers like the Medicare program and the doctors and hospitals involved in the organizations. ACOs would be paid more if they delivered efficient, high quality care—an attempt to end the current system in which doing more generates bigger revenues for providers with no clear payoff in higher quality and perhaps medical outcomes that are worse, not better, researchers like Fisher say.

Affiliations of providers such as hospitals and physician practices are nothing new, but the ACOs concept is supposed to go hand in hand with newer systems of payment meant to encourage coordination. "The approach is practical and feasible," Fisher said in an analysis co-written by Mark B. McClellan, former administrator of the Centers for Medicare and Medicaid Services and now director of the Engleberg Center for Health Care Reform at the Brookings Institution. Other co-authors include John M. Bertko, a former executive with the insurer Humana, Inc.

The approach also is "voluntary for providers, builds on current referral patterns, requires no change in benefits or lock-in for beneficiaries, and offers the possibility of sustained provider incomes even as total costs are constrained," said the analysis, recently posted on the Web site of the policy journal Health Affairs.

The authors said that simulations they performed show that "it is feasible to provide clear and specific spending benchmarks for provider groups willing to integrate, that the potential shared savings payments to ACOs that perform well could be sizable, and that real savings to the Medicare program would occur within five years with only modest changes in providers' spending behavior."

ACOs would be accountable for the overall quality and cost of care for the populations they serve. "With accountability for overall costs and quality, providers' incomes can begin to be decoupled from the volume and intensity of the services they provide," the authors said. "Innovations that improve quality while reducing overall utilization...can be rewarded or at least not penalized." The study proposed a system in which ACOs would be responsible for 5,000 Medicare beneficiaries apiece. It found that "most physicians already practice within natural referral networks that provide a substantial amount of care for at least 5,000 Medicare beneficiaries."

At the March 11 Brookings forum, jointly sponsored by the Dartmouth Institute for Health Policy & Clinical Practice, McClellan and Fisher announced a new collaborative to begin implementing the ACO model across the country. "Several potential pilot sites around the country have already expressed a strong interest in the collaborative," the forum sponsors said.

Meanwhile, MedPAC commissioners at a March 12 meeting wrestled with the complexity of developing a policy recommendation on ACOs, including such questions as whether they should be voluntary or mandatory, how they could be established in rural areas, and what types of entities could be designated as ACOs, and how to encourage beneficiaries to remain in given ACOs.

It's clear that ACOs won't be arriving overnight. "We do not underestimate the complexity of the political and social challenges that remain," the authors of the Health Affairs piece noted.

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