Accountable Care Organizations: Their Structure, Advantages and Disadvantages

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Structure of Accountable Care Organizations

Accountable Care Organizations (ACOs) are the direct result of the Affordable Care Act (ACA—often termed ObamaCare) proposed and promoted by President Obama and signed into law in 2010. The purpose of ACOs is to provide health care that is much more integrated than was possible prior to their establishment. In particular, ACOs are (and will be) structured to enable health care providers as well as hospitals to work closely with the Center for Medicare and Medicaid Services (CMS) to provide Medicare patients with services in a more cost-efficient manner. Therefore, all ACOs rely on a global budgeting system that contains costs while, at the same time, encouraging the provision of higher quality care.

All ACOs are characterized by the following structure: health care providers partnering to provide care; and specific reimbursement models developed by the Multipurpose Senior Service Program (MSSP). Thus, an ACO is defined as,

[A] legal entity that is recognized and authorized under applicable state law…and comprised of an eligible group…of ACO participants that work together to manage and coordinate care for Medicare FFS beneficiaries and have established a mechanism for shared governance that provides all ACO participants with an appropriate proportionate control over the ACO’s decision-making process. (Federal Register, 2011, p. 19537)

Additionally, according to Fisher et al. (2009), every ACO is based on the following three principles: (1) the organization is led by providers who are cooperatively accountable for the entire range of care for patients, including overall costs; (2) Based on payment reforms, quality of care and controlling costs are rewarded which also limits the financial risks for the ACO; and (3) performance is measured and reported in order to assure the public that quality of care is maintained while costs are controlled.

The ACA established a program that allows ACOs to voluntarily obtain certification from the Secretary of Health and Human Services (HHS) to take part in a Medicare Shared Savings Program (Patient Protection and Affordable Care Act, 2010). The law also provides for ACOs that focus on pediatric care as well as those located in rural areas. This is beneficial for many rural providers of care since they are typically unable to benefit from programs due to their small size and remote location (Patient Protection and Affordable Care Act, 2010). In effect, the ACA tried to account for the needs of various groups that may benefit from the establishment of an ACO.

Simply described, ACOs are classified as groups of providers that are legally structured to receive payments and distribute payments to the providers within the group. They also are able to coordinate care, develop the necessary infrastructure to provide patient-centered care and receive rewards for providing high levels of quality care and controlling costs (Shortell, Casalino & Fisher, 2010a). The structure of ACOs is also dependent on the type of payment model selected by the organization (these models are discussed in detail in the next section). At any rate, all ACOs are subject to meeting specific quality targets that are established by the Secretary of HHS as a requirement for participation as an ACO. It is likely that, as ACOs mature, successful structures and activities will be recognized and used as templates for future ACOs.

Additionally, while a specific legal structure is required for acceptance as an ACO, there are other requirements in place as well. For example, each ACO must have a management structure including administrative and clinical systems, especially the utilization of technology (such as electronic medical records) that promotes coordination of patient care (Federal Register, 2011). Also, while ACOs may range widely in size, there are minimum requirements, since an ACO must include enough primary care physicians to provide services to 5,000 patients at least. A governance board must also be established for each ACO with the responsibility of monitoring the established requirements for both care and cost controls. While the board is appointed by the ACO, it must be controlled by providers (Federal Register, 2011). Finally, in order to take part as an ACO, a commitment must be made to participate for a minimum of three years. Additionally, providers must clearly describe how they intend to promote engagement with clients (patients), coordinate care, and control costs in order to accomplish the goal of a patient-centered focus of care. In fact, these requirements are not merely suggestions, since an executive of the governance board of all new ACOs is required to sign a legal contract with HHS to ensure that they will meet the goals established for ACOs (Federal Register, 2011). Furthermore, a number of guidelines are in place to ensure that ACOs maintain organizational integrity.

There are a variety of configurations possible for ACOs based on the type of providers making up the organization. For example, an ACO may consist solely of primary care physicians or medical groups or it may systems centered on hospitals working with a network of physicians (McClellan et al., 2010). While much of the focus of ACOs is on primary care physicians, there is also a need for hospitals to participate, especially in light of the level of the financial burden that is often placed on patients related to hospital stays or even out-patient services. However, part of the benefit of ACOs is that their structure is left to the discretion of the providers who make up the organization. The goal of the ACA was to permit broad participation, which is why the structure of each ACO will vary depending on local circumstances and provider preference.

One feature that all ACOs share, regardless of size, is accountability for 100 percent of expenditures and health care for the defined population the ACO serves. This is true whether the ACO is simply made up of primary care physicians, specialists, or hospitals or groups of hospitals. Whatever its structure, every ACO concentrates on the following three issues, according to Keckley (2010): “1) Organization of all activities and accountability at the local level; 2) Measurement of longitudinal outcomes and costs; 3) Distribution of cost savings to ACO members” (p. 7).

By design, there is no single structure for ACOs, as they were specifically proposed with the intention of allowing maximum flexibility and functionality. At the same time, there are certain capabilities that all ACOs must meet in order to be recognized and function as an ACO. The following seven capabilities were outlined by Keckley:

1. Define processes to promote care quality, report on costs and coordinate care.

2. Develop a management and leadership structure for decision making.

3. Develop a formal legal structure that allows the organization to receive/distribute bonuses to participating providers.

4. Include the PCPs of at least 5,000 Medicare beneficiaries

5. Provide CMS with a list of participating PCPs and specialists.

6. Have contracts in place with a core group of specialist physicians.

7. Participate for a minimum of three years. (2010, p. 9)

Furthermore, ACOs also share two critical features according to Gold (2010). Firstly, an ACO is a collective that provides coordinated care for the patients it is responsible for. The first necessary step for a new ACO is to establish who it is responsible for. This may be accomplished through utilizing existing structures that identify patients or the ACO providers may decide to examine claims to determine relationships between patients in the targeted area and physicians in the ACO.

Secondly, an ACO will receive supplemental payments (including shared savings) based on its ability to meet the requirements for improved quality of care as well as to attain the level of cost savings expected for that particular ACO. As described by Gold (2010), such payments are made once it is determined that the ACO has met or exceeded its targeted goals. Importantly, the supplemental payments for cost savings and quality of care are mutually exclusive of each other, meaning an ACO may meet its care goals but miss the goals related to cost containment or vice versa.

Since ACOs were designed to provide coordinated American healthcare while, at the same time, controlling the cost of health care services, the structure of ACOs and the requirements placed upon them are all focused on those overriding goals. Both the purpose and the structure of ACOs are very different from the traditional systems of managed care (Emanuel, 2012). Specifically, according to Vujicic and Nasseh (2013), ACOs consist of designated accountable providers who share responsibility for providing coordinated quality care to patients, and providers are reimbursed based on redesigned mechanisms that are triggered based on specific performance measurements. Structures may be modified as needed as ACOs mature and a track record of success or failure is accumulated over time.

There is good reason to set the minimum number of beneficiaries within an ACO at 5,000, as mentioned previously. Simply put, it is very difficult, if not impossible, to make accurate estimates of improvement in care in a primary care physician set due to the relatively low number of patients involved. For example, one study reported that most physicians had a caseload of just 260 Medicare patients each year (Nyweide et al., 2009). That number is also broken down into smaller categories of patients with specific treatment needs, such as diabetes or mammography. Logically, these low numbers prevent a primary care physician from accurately identifying a significant level of improvement (i.e., 10 percent) in preventative care measures, mainly in disease prevention (as expected under an ACO) (Nyweide et al., 2009). Consequently, under the traditional system, it is unclear whether improvements in quality are the result of concrete measures taken or simply the result of chance. Consequently, as explained by Fisher et al. (2009), setting a minimum requirement of 5,000 beneficiaries enables accurate tracking and evaluation of performance measures. Indeed, this requirement is perhaps one of the most important elements of the structure of any ACO.

Based on this understanding of the importance of size (at least a minimum size), it may appear possible to determine the optimal size of an effective ACO. However, according to what is already known about ACOs and their functioning in a real-world environment, this is not the case. In fact, evidence indicates that making ACOs too large creates problems that rival those exhibited in health care organizations that are too small (Frandsen & Rebitzer, 2013). This fact was reported by Frandsen and Rebitzer based on a model that mimicked the types of incentives that primary care physicians receive under the ACO model. The benefit of ACOs is the ability to adopt incentives that are non-linear, in contrast to the traditional systems of reimbursement. This process inspires providers to improve the quality of patient services as well as meeting targeted cost savings.

Payment reform in health care has always been problematic, but the unique features of ACOs enable these organizations to overcome previous problems (see, e.g., Burns & Pauly, 2012; Crosson, 2009, 2011; Meyer, 2012; Shields, Patel, Manning, & Sacks, 2011; Shortell & Casalino, 2010; Singer & Shortell, 2011; Song et al., 2011). Perhaps the most important element of the structure of ACOs is the ability for Medicare to move away from fee-for-service, which has long been the Medicare reimbursement method of choice. As a legal entity with the ability to gain rewards based on efficient and effective patient care, ACOs are structured to succeed (Ginsburg, 2011; Meyer, 2012). The guidelines that must be met for ACOs to obtain the desired maximum reimbursement are fairly stringent, meaning that an ACO will need to put forth concerted effort to reach its targets for patient care and cost containment.

The structure of ACOs is unique from the standpoint of cost economics and the transaction process. For example, an ACO is not allowed to limit the access of patients it serves to any particular group of physicians. In addition, ACOs are different from traditional organizations inasmuch as, according to the law establishing them, physicians are not viewed as owners or employees in the sense that they bear risks or own capital equipment (Shortell et al., 2010a). Rather, the structure of ACOs seems to be based on a number of different practice arrangements: “integrated delivery systems that combine insurance, hospitals, and physicians; multi-specialty group practices; physician-hospital organizations; independent practice associations, and virtual physician organizations” (Frandsen & Rebitzer, 2013, p. 7). This unique structure of ACOs creates both opportunities for incentives as well as potential problems. Meyer (2012) observed that “of the 114 provider groups in Medicare Shared Savings ACO Programs, nearly half are physician-driven organizations serving fewer than 10,000 beneficiaries. In addition, 32 larger provider groups with experience in coordinated care started Medicare Pioneer ACOs” (cited in Frandsen, & Rebitzer, 2013, p. 7). Thus, there are ample opportunities to observe how these various ACOs carry out their responsibilities in order to determine which structures are most effective if indeed there are major differences to be observed.

In light of the broad nature of ACOs and the flexibility of structures available, it must be kept in mind that the sole requisite for establishing an ACO is the ability to conform to the capabilities mentioned in this section. Indeed, organizations that are intimately concerned with these organizations, including “the American Association of Family Practitioners, the American Medical Association, the Urban Institute, the Brookings Institute, and the Robert Wood Johnson Foundation describe a diverse set of provider organizations that can become an ACO. These include academic medical centers, Hospital Medical Staff Organization (HMSOs), and proposed collaborations between health plans and providers (HPPNs)” (Devers & Berenson, 2009). Details of these various models are discussed in more detail in the following section.

The traditional method of health care in the country is based on patients’ relationships with physicians (either in private practice or part of a group of physicians) who also have privileges at nearby hospitals. This diversity is basically within the context of four different practice models that are adaptable to the ACO model (Crosson & Tollen, 2010). These four models “are the integrated delivery system (IDS), the multi-specialty group practice (MSGP), the physician-hospital organization (PHO), and the independent practice association (IPA) and its variations” (Crosson & Tollen, 2010, p. 53) (For additional details, see also Medicare Payment Advisory Commission, 2009; Shortell & Casalino, 2008; Shortell et al., 2010a). Therefore, as experience with ACOs expands, there is a need to balance the necessarily strict guidelines for ACOs that encourage the necessary changes with avoidance of guidelines that are so strict that few practices are motivated to seek qualification as an ACO.

As noted in this section, there are a variety of structures currently available for ACOs. In addition, the basis for an ACOs structure is still very broad and there are numerous competing ideas regarding what the structure should be based. According to Ward, the possibilities for determining the basis for organizational structure include:

1) Geography: Regions of the country, or regions within one metropolitan area, or urban vs. rural, or international; 2) Professionals vs. Facility vs. Insurers; 3) Primary Care vs. Specialty Care; 4) Academic vs. Community; 5) Ambulatory Care vs. Inpatient Care; 6) Professional Credentials: Doctors vs. Administrators vs. Lawyers; 7) Clinical Department; 8) Service Lines; 9) Payer type: Fee-for-Service vs. Capitated/Managed Care, or Commercial vs. Government, etc. (2011)

Obviously, the structure of an ACO cannot include all of these elements concurrently. Therefore, it is incumbent upon the administrators of an ACO to determine what structure will work best for their local market. In fact, ACOs exhibit a wide range of different structures and it is likely that these will change even more as the evaluative data regarding ACOs increases.

Models of Accountable Care Organizations

Accountable care organizations are represented by a variety of models. In addition, these models represent not only the various types of groups or entities that can form ACOs, but also how particular ACOs are organized financially. In reality, while every ACO is designed to provide a higher level of care while controlling costs, there is still a range of incentives and strategies utilized to accomplish that overall goal. According to Petersen, Muhlestein, and Gardner, there are basically four models of ACOs insofar as control is concerned: “1) those formed by smaller physician groups; 2) those formed by large hospitals; 3) those which integrate hospitals and physician groups; and 4) those formed by states for Medicaid populations” (2013, p. 7). As the rest of this section will show, there are many variations of these four models, but this list provides a simple and straightforward way to identify the formation of the majority of ACOs. Briefly, each of the four is explained in the following paragraphs and one tangible example of each model is provided.

The first model mentioned—an ACO formed by a small group of physicians—is, as the description implies, naturally responsible for a much smaller number of individuals than is the case with the larger models, such as those formed by large hospitals or states. Consequently, this type of ACO is appealing to many because of its tendency to provide a higher level of engagement with all patients in addition to more efficient coordination of care. Since these ACOs are so small, the administration is handled by the physicians, thus effectively integrating administrative and clinical responsibilities (Peterson et al., 2013). Technology that allows larger ACOs to function more effectively is often impractical or not financially viable for these small models due to a lack of resources.

One specific ACO that fits this model is located in Florida and called Primary Partners. This ACO was formed by 55 individual physicians and is responsible for approximately 7,500 patients in central Florida (Jakob, 2012). Primary Partners is a shared savings ACO (This is one of three financial models used by ACOs: Shared Savings; Advanced Payment; and Pioneer. These are discussed later in this section). According to Jakob (2012), Primary Partners were not able to afford ACO-specific technology for use in tracking patient data. However, the group utilizes AMC Telehealth, which is an effective program that allows consistent and efficient reporting as well as engagement with the patients.

This physician group is also called the “primary care-based ACO” model. Under this model, the ACO population served is simply all the patients that the participating physicians are responsible for. Although the Medicare Shared Savings Plan, in establishing an overall description of ACOs, included all patients in coverage, the reality is that only Medicare patients are actually included in ACOs (Ward, 2011). According to Ward, this model of ACO has “an easier time achieving critical mass and avoiding free-rider problems with their investments in practice-based care managers, clinical information technology, and practice transformation coaching” (2011). Patients in this model will still, of course, need to utilize the services of hospitals and medical specialists from time to time. However, these function as cost centers and are therefore considered to be outside the parameters of this ACO model rather than operating as a central element. This model is illustrated in Figure 1 (Integrated Delivery System Model) which also shows the co-managed services on the periphery.

(Figure 1 omitted for preview. Available via download)

As this model continues to evolve and mature, various specialists will likely become more involved with primary care-based ACOs and this may create a slight variation of the model. In particular, what Ward (2011) described as the “patient-centered medical home” (PCMH) model may become more popular, especially in light of the anticipated shortage of primary care physicians to develop and manage ACOs. In other words, while the concept of the primary care-based ACO is sound and expected to be very beneficial, the reality is that the need to treat chronic diseases in the Medicare population will likely require expansion of the model (or a subset of the model to be developed). Ward (2011) observed that many leaders in the specialist community are already advocating to have a larger role in the primary care-based model. The process for this to occur, however, is not straightforward, since the rules of the Medicare Shared Savings Program (MSSP) did not originally include specialists.

Other ACO models are progressively larger. The second model mentioned by Peterson et al. (2013), a large hospital, is equipped to provide levels of services and care that are much more comprehensive and multifaceted then is possible for a smaller ACO. Large hospitals are responsible for many more lives than small physician groups and typically utilize advanced technology such as EMRs, which smaller models cannot afford. Of course, large hospitals are quite capable of handling the financial commitment required for such technology. In most cases, hospitals conform to accepted practices followed by other entities in the health care system while also incorporating guidelines specifically applicable to ACOs.

Numerous hospitals are currently operating as ACOs across the country. One such example is Abington Health (consisting of two hospitals), located in Eastern Pennsylvania (Abington Health, 2014). This ACO serves a minimum of 30,000 patients and is partnered with Blue Cross. According to its website, Abington Health utilizes the latest technology to carry out its mission and is especially supported by Lumeris with ACO-specific service solutions.

The third ACO model mentioned by Peterson et al. (2013) consists of physicians groups combining with one or multiple hospitals. This type of ACO is very large, often comprising tens of thousands of patients as well as hundreds of physicians. These groups require the installation of software and technology to utilize electronic health records (EHR) which allow patients to receive consistent care at multiple and physically separated locations. The governance of this type of ACO is more complex and consists of representatives of each provider.

One ACO that adopted this model is located in Peoria Illinois. This ACO, called OSF Healthcare System, is a network of eight hospitals and more than 700 physicians (OFS, 2014). From a financial perspective, OSF Healthcare adopted the pioneer program (explained later) and utilizes an EHR program provided by a company named Epic, in addition to SAP (enterprise software) for the balance of its business processes. Certainly, the sheer size of this ACO necessitates the use of advanced technology solutions in order to meet the needs of its patients and coordinate treatment across the system.

This model is also called an integrated delivery system ACO, and it provides some obvious advantages over the smaller, physician-based groups (see Figure 2). Unlike the primary care-based model, specialists are welcome to participate in this ACO design and so patients benefit from access not only to their primary physician but also to specialists and local hospitals. All of these work in a coordinated way to provide improved quality of care as well as a reduction in costs. At the same time, Ward (2011) noted a potential downside to this model.

(Figure 2 omitted for preview. Available via download)

One of the primary drawbacks of the integrated delivery system model is the fact that, in many communities, there is more than one hospital (or group of hospitals) as well as multiple physicians’ organizations. Once an ACO is formed, it must be accepted that not all physicians will be exclusive to that ACO or, as an alternative, an ACO must demand exclusivity of its physicians. This act, of itself, may limit the total number of physicians desiring to work with that particular ACO. Thus, in a city with multiple ACOs, complications are highly likely. Additionally, if the hospitals attempt to create one larger ACO to eliminate this potential dysfunction, Ward (2011) warned that such actions could warrant negative action from the Federal Trade Commission (FTC) regarding anti-trust violations. Clearly, these are issues that need to be resolved if ACOs in large cities are to function effectively. For the most part, however, this model is functioning well in areas where the aforementioned competitive factors are not observed. Another advantage of this model is the inclusion of care managers into the ACO rather than the traditional reliance on managers who are more focused on maintaining the health plan, often at the expense of necessary patient care.

Finally, several states have decided to form ACOs in order to better care for the large numbers of patients included in their state-managed health care populations (such as Medicare). Peterson et al. (2013) noted that Colorado, Oregon, and Utah are three states either moving toward creating ACOs or already operating one. According to Peterson et al. “Although the goals of Medicaid ACOs are similar to Medicare and many commercial ACOs, the Medicaid ACOs more often resemble managed care at the onset. It remains to be seen how these Medicaid ACOs will fare” (2013, p. 8).

The difference between this ACO model and others, other than its size, is that it is not formed by hospital or physician groups but by states to specifically focus on Medicaid recipients in the state. For example, in Colorado, such groups are called Regional Care Collaborative Organizations (RCCOs) which utilize community resources. According to Petersen et al. (2013), the ACO, Colorado Community Health Alliance (2014), “includes 260 physicians from Centura Health System, Physicians Health Partners, and Primary Physician Partners and serves beneficiaries in Boulder, Colorado and surrounding counties” (p. 8). Currently, this Coloradan ACO is handling payment for services in a traditional manner (fee-for-service) which is not a standard method for ACOs. However, it is anticipated that the RCCOs will eventually shift to a shared savings plan once enrollment reaches target numbers and coordination of care becomes even more efficient.

Just as there are several structural models of ACOs, there are also multiple payment models. In some cases, a choice is made to utilize an environment similar to pay-for-service inasmuch as the ACO does not plan on taking on financial risk but still expects to demonstrate cost savings (McClellan et al., 2010). Additionally, another option consists of …limited or substantial capitation arrangements, in which payments were unrelated to the volume of services provided, to the intensity of service use, or to the frequency of face-to-face meetings, and in which providers took on some financial risk for poor-quality results or failure to control costs. (Miller, 2009)

As mentioned earlier in this section, there are three specific revenue models for ACOs proposed by the Center for Medicare & Medicaid Innovation (CMMI)—Shared Savings, Advanced Payment, and Pioneer. These models were established for ACOs and went into effect in 2012 (Allison, 2012). These three models all have specific purposes and are designed for groups with certain needs and/or specialties.

First, the Medicare Shared-Savings ACO was the primary model designed under rules established by the Centers for Medicare & Medicaid Services (CMS). Therefore, it is viewed as the ‘standard’ ACO. According to the CMS (Allison, 2012), there are two available models that work under the broader Shared-Savings model. These standard ACOs can choose from two models: “One-Sided wherein the ACOs can share up to 50% of the savings with no downside risk; or, Two-Sided in which ACOs can share up to 60% of the savings but assume limited risk for losses in excess of the beneficiary per capita benchmark” (2012). Each ACO will select the revenue model that is expected to work best for its specific needs.

The Shared-Savings model was selected as the default for ACOs simply because it is expected to provide the potential for greatest benefits while minimizing risks. According to Meyer (2012), this type of ACO will receive financial bonuses if it is able to meet the targets set out for it under the CMS rules by keeping costs low while improving the quality of care. However, the downside of the model is that CMS will eventually expect to be reimbursed if an ACO fails to maintain its ability to meet spending and quality targets. One hybrid of the model is the ability for some ACOs (primarily smaller groups) to receive up-front payments for future savings to enable the ACO to purchase technology (or other necessary infrastructure) that it would otherwise be unable to afford. This is called the Advanced Payment model.

While these ACO models may seem new to untrained observers, the reality is that they are based in large part on successful initiatives introduced by Medicare over the last ten years. For example, in 2005, “the Physician Group Practice Demonstration engaged ten provider organizations and physician networks, ranging from freestanding physician group practices to integrated delivery systems, in a “shared savings” reform” (McClellan et al., 2010). The methods utilized in this group are very similar to those now included in the shared savings model ACO. While receiving payments as usual based on fee-per-service, the group also was rewarded with bonus financial compensation whenever it was able to demonstrate improved performance from a quality of care standpoint while also limiting costs. In addition, as is the case with the current ACOs, this test group was penalized (by means of reduced future bonus payments) if it engaged in excessive spending.

The Advanced Payment ACO model is primarily designed for use by smaller physician groups or rural providers who are involved with the Medicare Shared-Savings Program. In this model, as mentioned earlier, the group is able to receive funding for resources needed to establish the ACO. According to Allison, there are only two types of groups qualified to benefit from the advanced payment model:

1) ACOs with no inpatient facilities and total annual revenue of less than $50 million; or, 2) ACOs with inpatient facilities limited to critical access hospitals (CAHs)/Medicare low-volume rural hospitals with total annual revenue of less than $80 million. There are 3 types of payments available: upfront fixed payment; upfront payment based upon historically-assigned beneficiaries; and Monthly payments based upon historically-assigned beneficiaries. (2012)

Additionally, qualifying groups hoping to take advantage of advanced payments were required to apply at the time they submitted an application to become an ACO. This took place either in April or July of 2012. A further restriction for inclusion on this model is that no health plan can have any ownership interest in the ACO.

Finally, the Pioneer ACO is basically a model that grandfathers an existing organization that coordinates care for a community of providers into the new concept of ACOs. In effect, this model is slightly different from the other models already discussed inasmuch as it is not subject to the rules established under the MSSP. The reason for including this model under the ACO umbrella is to allow systems that have a history of functioning efficiently to adapt to the new population-based payment model but still permit them to work in conjunction with private payers to improve quality and control costs (Delbanco et al., 2011). The Pioneer model is similar to the shared-savings model since it also improves the opportunity of receiving positive rewards for success and limiting the possibility of negative outcomes.

Overall, while there are some differences in ACOs as just discussed, every model is expected to improve the coordination of patient care (by becoming patient-centered) as well as minimizing costs to the extent possible. Since the ACO system was developed by those with experience in the managed care strategies of Medicare and Medicaid, it is natural that the ACO models currently being used are based largely on processes that have proven successful in the past. This process will continue as the use of ACOs continues to expand.

Several studies exist that attempted to determine the various models utilized and how they function in the real world. For example, Larson, Van Citters, et al. (2012) provided an in-depth overview of four ACOs that reveal the broadly diverse nature of these organizations. Specifically,

One is an independent practice association that employs 700 physicians and has 2400 affiliated; another is an integrated hospital delivery system that employs 475 doctors and owns five hospitals. The third is a loose independent practice association with 40 employed physicians and 2500 affiliated ones that has affiliations with 18 hospitals but owns none of its own. The fourth is a community hospital system that employs 16 physicians and has 800 affiliated and owns two hospitals. (p. 2395)

Thus, while much of the focus of ACOs is on primary care practice, it is clear that the ACO landscape consists of a broad cross-section of organizations in both structure and size.

The literature revealed that ACO models are, on one hand, fairly straightforward and easily defined while, on the other hand, there are a number of variations possible within any given basic model. Therefore, as acknowledged by Delbanco et al. (2011), it is too soon in the process to determine which payment model is (or will be) the most effective, especially in terms of providing the highest quality care while controlling costs. The two most popular (at least in terms of the most often used) models appear to be based on the traditional pay-for-service model but lean more toward adopting a shared risk approach (Delbanco et al., 2011). Moreover, it is anticipated that the future will include model adaptations that are more aggressive in sharing any potential risks. Clearly, ACOs are still in the very early stages of development and it will take a period of time (likely years) until every model can be accurately analyzed and measured against the goals established for ACOs.

A review conducted by Delbanco et al. (2011) sought to determine which specific models were currently most effective in accomplishing three ACO goals: limiting provider risk, improvement of patient services, and benefitting from incentives for quality. The research of Delbanco et al. (2011) concentrated on payment models with both advantages and disadvantages and they defined shared risk as “payment models in which providers share in a portion of the savings they achieve (upside) but are also at risk for a portion of spending that exceeds a target (downside)” (p. 2). In particular, the study was concerned with shared risk related to the payment structure of providers rather than the basic risk that comes from market forces, especially due to poor performance.

Regardless of the model selected by an ACO, it is advantageous, especially from a bottom-line perspective, for them to develop some type of training programs that will allow providers to utilize technology and health informatics more effectively. One area in which the ACO model may encourage a shift in thinking involves primary care physicians personally treating certain medical conditions rather than referring the patient to a specialist. For example, certain cases of acne or rash are more likely to be treated by the physician directly instead of sending the patient to a dermatologist (Becker & Murphy, 1992). This is not to imply that specialists will not be utilized, but simply that, as described by Garicano and Santos’ (2004), specialists will be used more efficiently. This, in turn, is likely to encourage the inclusion of specialists in many ACOs due to the ability to manage referrals in a more productive manner.

From the outset, studies have been ongoing to determine who forms ACOs as well as what models are selected. A study conducted by Higgins, Stewart, Dawson, and Bocchino (2011) investigated the “models developed by Aetna, Anthem/WellPoint, Blue Shield of California, Blue Cross Blue Shield of Illinois, Blue Cross Blue Shield of Minnesota, CIGNA, HealthPartners, and Horizon Blue Cross Blue Shield” (p. 1718). According to that study, these entities constituted nearly two-thirds of the ACOs functioning at that time. In a similar study, Delbanco et al., (2011) examined some of these same entities (that had relationships with ACOs) to determine the type of shared-risk model that was utilized. Figure 3 depicts these models.

(Figure 3 omitted for preview. Available via download)

Regardless of the specific model selected, each ACO has the same focus. Specifically, an ACO hopes to provide better health care, help develop healthier individuals and communities, and provide health care that is more affordable (Department of Health and Human Services, 2011). An ACO is designed to reduce redundancy or duplication of services in health care, which results in more stable costs. As described by Fisher (2008), the ACO model is based on patient-centered care, whether in a primary or specialist setting. All models can take advantage of incentives and structured arrangements over longer terms to control costs while improving care.

Other models adopt a hybrid concept that combines features of fee-for-service (which is the traditional health care model) with pay-for-performance. This approach separates these two elements to make sure that performance becomes the focus rather than simply providing services (Higgins et al., 2011). In these models, while the fee-for-service element may be given nearly equal weight in comparison to quality and cost-savings at the outset of the ACO, over time, it becomes less valued. In effect, reimbursements are eventually determined solely by how well the ACO performs rather than on how many patients are seen or how many procedures are performed. Additionally, while cost containment is one of the goals of the model, it is not the only goal. As Higgins and colleagues (2011) noted, if the focus is solely on costs while the quality of care is not likewise improved, reimbursements will never reach the maximum attainable. Thus, the goal of this model is a shift from guaranteed payments (a strict pay-for-service model) to earned payments that result from accountability and improved performance.

The legislation that created ACOs was designed to allow the development of a wide variety of payment models rather than limit the options of potential providers. The shared-savings model is one that benefits providers in multiple ways, especially from the perspective of bearing no risks if performance (cost or quality) falls below target levels (McClellan et al., 2010). On the other hand, a contrasting model allows providers to obtain significantly higher rewards for agreeing to commit to greater accountability—which is a two-sided payment model. The members of each organization need to determine which model they prefer and understand the advantages and disadvantages of each. In any case, providers do not enter into an ACO blind, but fully understand the requirements and goals that are expected.

Understandably, as ACOs develop over time and a greater understanding is obtained regarding how they function in the real world, newer models are likely to develop. Financial, as well as operational concerns, will likely be overcome as time goes on. In the meantime, other accountable care organization models are also about to come on line. The existence of the Pioneer ACO model indicates that adaptation is possible, including the incorporation of some elements of current or traditional health care practices (Center for Medicare and Medicaid Innovation, 2011; Meyer, 2011). Structural and payment models will be judged on the basis of their ability to meet or exceed the goals established by the ACA. While the models currently in place may be effective, there is always the possibility that newer models will be attempted based on studies of how well ACOs are accomplishing their mission (Shortell et al., 2010a). In spite of the fact that ACOs are expected to shift attention away from the traditional pay-for-service model, the reality is that income still needs to be generated by ACOs and this will determine in which direction future models may expand (Shields, Patel, Manning, & Sacks, 2011). This is just one negative side of Obamacare. Simply put, the ACO concept is still in its infancy and the scope of these organizations will continue to evolve, leaving room for significant innovation.

Advantages of Accountable Care Organizations

Supporters of ACOs, as well as some who study its potential, believe that they are able to provide lower costs as well as improved services, as long as they are structured and implemented effectively. The belief is that, if well-conceived and implemented, ACOs can contain and often lower costs in addition to providing quality improvements (Allison, 2012; Sunshine, 2008). This is possible because the delivery system gains nothing for simply providing services (regardless of outcome) but is successful only if those services benefit clients. For ACOs to produce advantages, therefore, they must be led by physicians and focused solely on patients and their care (Allison, 2012; Sunshine, 2008). As Sunshine also observed, there are other health care systems that operate very similar to ACOs, although not classified as such, especially systems in which hospitals and physicians have a cooperative relationship. Whereas these systems were relatively rare prior to the development of ACOs, the expansion of ACOs will increase the opportunity for improved services due, in part to a regulatory climate that is favorable to ACO development.

By all accounts, ACOs will evolve and improve over time, which is true for any new system of this magnitude. This growth and improvement are anticipated in light of the current regulatory environment in addition to the payment incentives that are integral to the ACO model. In many ways, the focus on ACOs is based on the belief that these new organizations possess the greatest potential for finally improving the quality of care while controlling costs at the same time (, 2013). Since the entire purpose of an ACO (regardless of whether it is physician-based, formed by hospitals and specialists, or developed by states) is to coordinate community health care at a high level of quality, ACOS appears to be primed for success. These organizations are also entrusted with taking care of the limited health care dollars available to most patients. Based on this framework, patients stand to benefit from the care provided by ACOs in numerous ways (Allison, 2012). This section lists and discusses some of the benefits and advantages of ACOs that are already observed or expected in the next ten years, as healthcare evolves and ACOs mature.

One of the foremost advantages of ACOs is its ability to provide increased access to care for many more patients. This is especially advantageous in light of the ongoing trend across the U.S. wherein patients (and potential patients) have diminished access to health care services they need, in many cases due to increasing costs (Berenson & Burton, 2011). By shifting the focus to patient-centered care, ACOs are able to increase the level and availability of care to patients in critical areas, including, “after-hours access; same/next day appointments; providing patients with a personal clinician; telephone appointments; secure electronic messaging and patient portals; and population management technology” (Greenway, 2013). Obviously, any reduction in the need for patients to use emergency room services in lieu of visiting a primary care physician will result in significant financial savings due to the high cost of emergency room access. By providing additional access to patients outside of traditional office hours, ACOs will create an environment of collaborative trust between physicians and patients while reducing the financial burden on health care users.

Moreover, improved communication and coordination is one of the goals of ACOs and this is an advantage to patients. Many patients, prior to ACOs, were required to obtain referrals to specialists or other doctors and that process could be time-consuming and complex. However, an ACO enables patients to receive highly coordinated care from the team that constitutes the ACO (Berenson & Burton, 2011). Since all of a patient’s providers are able to communicate seamlessly, health care needs are handled in a much more holistic manner. Lack of communication has long been a concern of many patients, so this advantage of ACOs will likely be quickly recognized by patients.

Another advantage of an ACO is the potential that there will be a minimal amount of medical tests required. The traditional health care system is based on fee-for-service, meaning that there was always a potential for physicians or other health care providers to order tests that were not really necessary or were duplicative (Berenson & Burton, 2011). Additionally, it is likely that the increased level of communication between all providers of health care within an ACO will also decrease the potential for unnecessary medical tests. Increased communication means sharing medical records, so everyone in the group will have access to necessary information on each patient in the ACO.

On advantage that is critical, but may receive less attention, is the likelihood that there will be less paperwork necessary within an ACO. In particular, ACOs are reliant in large part on technology that aids patient care and communication between providers, so each provider has similar access to a patient’s medical records and history (Berenson & Burton, 2011). Therefore, less time will be required for patients to fill out paperwork and for medical personnel to search through paperwork which will be more readily accessible due to EHS and other technology to assist patient care.

One of the issues for complaint with traditional health care systems is the inability to have one person who can answer all questions. In contrast, the advantage of ACOs in this regard is having just one point of contact that will be able to answer any and all questions that a patient has. In many cases, it is not even necessary to meet face-to-face to have questions answered since online patient portals are available in most cases to simplify the process (Berenson & Burton, 2011). Access to one primary care provider who is part of a larger group of health care providers improves the ability of patients to obtain preventative care, lower health care costs, and improve patient satisfaction overall.

All of the various ACO models currently in place in the market, as well as the new concepts being developed, are focused on controlling medical care costs as a foremost goal. This seems likely to occur, especially in light of the Congressional Budget Office (CBO) projection that, “by 2019, the evolution of the ACO model is expected to lead to $5.3 billion in savings for the federal Medicare program and private market experiments” (Sunshine, 2008). Since the basic framework of ACOs is based on previously existing models that have proven successful, it is quite likely that they will accomplish what they set out to do—provide cost accountability while also improving patient care.

A study published in the Journal of the American Medical Association in 2012 scrutinized a test project that spanned 2005-2010 called the “Medicare Physician Group Practice Demonstration” (NAHU, 2012). This test project was, in effect, a forerunner of the current ACO model inasmuch as it featured a specific physician group that focused on meeting quality health care targets while, at the same time, lowering costs. As with ACOs, this group was also eligible for bonus payments as long as it met the pre-specified targets for care and savings. Significantly, and as a pattern for what is expected for most ACOs, that study indicated that “as a whole, medical spending for each “dual eligible” patient went down by an average of five percent once that patient’s physician joined the demonstration program” (NAHU, 2012). While traditional health care organizations are undoubtedly attempting to do the best they can to provide high-quality health care and at least attempt to control costs, ACOs have at least two basic advantages over existing organizations. First of all, the Affordable Care Act does not provide restrictive guidelines regarding how an ACO must be organized (Correia, 2011), which enables groups to adapt the organization to their specific needs and/or strengths. Additionally, since the sizes of ACOs vary widely, smaller ACOs can be developed relatively quickly and at lower costs, since fewer resources are required for organizations such as small physician groups.

Secondly, the method allowed by the ACA for payment to ACOs permits participation in what is termed “shared savings, which are defined as a percentage of the difference between a benchmark determined by the Secretary and the costs to Medicare for services provided to beneficiaries who are assigned to the ACO” (Correia, 2011, p. 561). Some may believe that this method of reimbursement is too similar to capitation, which is criticized as part of the problem with most traditional health care systems. However, the reimbursement involved with capitation pays one flat rate for every member of a plan regardless of whether they received treatment or not. Thus, providers are encouraged simply to compile additional enrollees regardless of the ability to provide care. In contrast, an ACO may potentially lose part of its reimbursement if the level of expenditure is evaluated as too high per beneficiary (Correia, 2011). Consequently, ACOs are obligated to make sure that all provided health care services are reasonable and necessary, which prevents them from simply stockpiling membership in order to obtain a maximum payout from Medicare. This is a distinct advantage over traditional health care systems and reveals how ACOs are aligned to change the landscape of health care delivery in the country.

Another advantage to consider is how ACOs overcome the potential conflicts—including fear of monopolies—that often result when disparate organizations or groups are consolidated. Unlike other organizations, ACOs have features that provide built-in transparency. In particular, since the focus and mandate of ACOs is for patient protection rather than amass wealth, “the transparent cost and quality measurement activities available through ACOs should help clarify whether consumers are receiving better care at a lower overall cost” (McClellan et al., 2010, p. 989). Furthermore, payers, as well as providers, will need to compete on value rather than on cost, which will ensure more consistent health care to consumers. It is therefore unlikely that ACOs will encounter antitrust issues.

One area that some critics of ACOs claim will be detrimental is actually an advantage. More precisely, it is claimed that the development of ACOs will eventually result in an increase in federal regulations to maintain tighter control of the organizations (Gottlieb, 2011; Krieger, 2011). However, there is nothing concrete that indicates this would happen. On the contrary, the only specific requirements currently in place for ACOs involve reporting quality measurements that each group needs to establish in order to maintain accountability as required by the Shared Savings Program draft regulations (sec. II E[3]) (Centers for Medicare and Medicaid Services, 2011). Indeed, rather than additional regulations, the structure and nature of ACOs are such that they are expected to be self-managed and able to establish their own internal standards. This type of self-management is identifiable in such groups as “the Permanente Medical Groups, Mayo Clinic, the Geisinger Clinic, the Virginia Mason Clinic, and the Henry Ford Health System in Detroit” (Crosson, 2011, p. 1251). In fact, many ACOs use such organizations as templates to identify what works and what does not regarding coordination of patient health care while also maintaining cost controls.

A reduction in regulation is much more likely than an increase, based on everything that is now known about the structure of ACOs. This is even more likely to be the case as ACOs mature and these organizations become more adept at fulfilling their mission (Crosson, 2011). One of the primary reasons why regulation is necessary is a lack of transparency on the part of various organizations. In contrast, the word ‘accountable’ is central to an ACO and this requires these organizations to be transparent both in regards to the health care process itself as well as its outcomes.

Another significant advantage of an ACO in contrast to reforms that target individual providers is the ability to measure performance directly due to the increased level of patient participation. In spite of this ability, and the likelihood that ACOs will carefully monitor their own activities in order to obtain maximum benefits, some fear that larger ACOs may undermine stated cost-containment objectives (Berenson, Ginsburg, & Kemper, 2010). However, the Medicare Payment Advisory Commission (MedPAC) reported that “the financial incentives in a large ACO for physicians to change their individual decisions affecting a single patient are likely to be small” (MedPAC, 2009, p. 51). In contrast to previous models, ACOs obtain savings directly from a proven ability to provide higher quality health care on a personalized basis to each member as well as maintaining strict cost controls. The whole point is to reduce Medicare spending through efficient and coordinated care (MedPAC, 2009). Unlike most other health care organizations that feature members demanding autonomy, the beauty of ACOs is the willingness of providers to submit to the decisions of the ACO in order to make sure that everyone—including the patients being treated—will achieve the best possible results.

The advantages of ACOs are experienced by everyone involved, including the patients, the physicians providing services, other specialists, hospitals (where applicable), and the payers. Considering the current need for health care services in the country, especially the increase in chronic diseases that need regular treatment, indicates the need for ACOs. In many cases, under the traditional system, some patients often visit seven or eight doctors or specialists that require traveling to multiple locations (Shortell, Casalino, & Fisher, 2010b). Such a lack of coordinated care results in numerous problems, such as unnecessary hospital readmissions, and inadequate observance of follow-up care and medication usage. These problems are addressed by ACOs inasmuch as providers are motivated to focus on more effective and efficient patient care and are, at the same time, penalized if they fail to provide it. Specific advantages of ACOs, according to Shortell et al., include bringing physicians and other clinicians together into teams that take responsibility for all of the patients’ care across the continuum; utilizing electronic health records and electronic visits (email and telephone appointments) to improve care management processes with patient involvement and facilitating communication among all parties; and promoting the performance measurement for the purposes of both external accountability to payers and the public, but also for internal continuous improvement. (2010b)

Not only are ACOs beneficial and advantageous for patients, but they are also ACOs that are highly useful for physicians, especially because they will—by nature—change the way that basic practice is carried out. Traditional methods of health care delivery are based on individual physicians or physician groups working independently to provide services and make money. In contrast, an ACO encourages working together as teams, either in a physicians’ group or with hospitals, and incentives are based on success in that format (Crosson, 2011). This environment is much more conducive to providing coordinated health care across multiple providers. Further, in light of the growing shortage of primary care physicians in the country, an organization that allows health care to be carried out more efficiently may actually reduce the impact of that shortage. Moreover, reducing the pressure on overworked physicians and other health care professionals may also serve to create a more affirmative work environment, while the types of payment incentives may encourage additional professionals to enter the field.

The advantages of ACOs are not restricted to physicians and physician groups since they also benefit hospitals by preventing unnecessary readmissions and limiting the need for initial admissions in many cases. In effect, the hospital business model changes completely under an ACO. Traditionally, hospitals depend on revenue collected on the in-patient margin only, but with an ACO, the focus is shifted to the total margin. Moreover, coordination of care between primary care physicians and hospital staff allows more effective treatment (Shortell et al., 2010b). Therefore, under the ACO model, hospitals have a greater incentive to work cooperatively with physicians than under the traditional system. In addition, one study indicated that “70% of hospital and medical leaders felt that their hospital could be a part of an ACO over the next five years” (Shortell, 2010, p. 16). It is unlikely that hospital administrators would be so willing to adopt ACOs if they were convinced that the current methods are more effective and/or beneficial.

In addition, ACOs also provide advantages to insurance plans as well as employers who provide insurance for their employees. For both groups, there are distinct incentives provided for restraining costs (Crosson, 2011). Of course, due to the nature of the provision of services, these groups must rely on provider networks to obtain actual rewards. Based on the traditional service arrangements, featuring fragmented relationships between a wide variety of physicians, specialists, and hospitals, neither employers nor insurers are typically able to achieve the goals they seek. Consequently, ACOs should be able to alleviate this problem by means of eliminating the fragmentation and replacing it with a coordinated effort to provide efficient health care services. This efficiency will thus bring benefits to insurers and employers and allow them to carry out their business operations more effectively.

Finally, ACOs will create an advantage that extends well beyond the austere financial calculations that are often at the heart of the development of health care organizations. In effect, ACOs should be able to increase the access of underrepresented patients and make health care available to many who previously were unable to obtain needed services (Greenway, 2013). This shift was noted by Karen Davis, president of The Commonwealth Fund, who stated: “I was really shocked at how much the racial and ethnic disparities in access to care, quality of care and preventive care were eliminated if patients were given care in a practice that met the characteristics of the patient-centered medical home” (Greenway, 2013). Eliminating, or greatly limiting, the disparity between minority access to health care and the access available to non-minorities is a significant advantage provided by ACOs.

Disadvantages of Accountable Care Organizations

Although ACOs have been in existence for a few years, there is still a need for additional research to determine precisely what the impact of these new organizations is. However, at least according to some available data (e.g., Colla at al., 2012), ACOs demonstrate mixed results in obtaining the cost savings they are supposed to achieve. While some ACOs have reported an ability to meet their goals for cost containment and quality improvement, others have failed to do so. One of the problems in tracking the performance of ACOs, according to Colla and colleagues (2012), is a perceived lack of quality data upon which to base conclusions. Furthermore, there appears to be a lack of reliable studies published by peer-reviewed journals that substantiate the anticipated quality improvements or cost savings.

Some of the studies they are available do not provide positive support for overall improvements as promoted by the supporters of ACOs. For example, one study determined that significant savings were only observed with so-called ‘dual-eligibles’ (Medicare and Medicaid) while it was inconclusive whether or not the benefits were the result of increased efficiency or simply the result of adjusted coding practices (Colla et al., 2012). Another issue is that many of the ACOs that reported success in providing improved levels of coordinated care (especially in the Pioneer programs) were already successful prior to becoming an ACO and the results were likely just a carry-over of their previous track record.

If ACOs are to become successful and function in a way that proponents expect, there is a need to address issues related to policy and technical details. One of the overriding problems facing the creation of ACOs is a lack of a unified understanding of precisely what it is and how it should be structured (McClellan et al., 2010). There is also a view held by many that the goals of ACOs—a patient-centered focus to obtain higher levels of performance—is possible outside these organizations, which are often viewed as unnecessarily complicated. At the very least, it is believed that organizational and policy reforms within health care are able to obtain similar results.