HHS Public Access Author manuscript Author Manuscript
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06. Published in final edited form as: J Clin Outcomes Manag. 2014 August 1; 21(8): 364–371.
Accountable Care Organizations in the U.S. Health Care System Zirui Song, M.D., Ph.D. Department of Medicine, Massachusetts General Hospital, Boston, MA. Harvard Medical School, Boston, MA
Author Manuscript
Introduction In recent years, the growth of health care spending has climbed to the top of the domestic policy agenda. Medicare spending growth is now recognized as the biggest driver of the federal debt.1,2 Medicaid spending growth puts similar pressure on states. In the private sector, employee health care costs increasingly weigh on company balance sheets, affecting business operations and employee wages. All the while, individuals and families face insurance premium growth that far outpaces real income growth.
Author Manuscript
Out of this recent history emerged a broad recognition that health care spending growth is unsustainable at current rates. If Medicare spending continues to exceed gross domestic product (GDP) by 2.5 percentage points per year—the traditional gap over the past 4 decades—a greater than 160 percent increase in individual income taxes would be needed to pay for it.3 Even if the gap were 1 percentage point, the increase in income taxes needed would still be over 70 percent, with consequent contraction in GDP of 3 to 16 percent by 2015.4,5 Other consequences, such as significant cuts in Medicare benefits or shifting of costs onto patients, are equally undesirable.6,7
Author Manuscript
Policy options for slowing health care spending are varied. Some focus on changing the provider’s incentives, while others focus on changing the patient’s incentives. Some are based on federal solutions,8 while others are based on market solutions.9 In the current policy landscape, payment reform for physicians and hospitals has emerged as a leading candidate for addressing health care spending. Public and private payers are increasingly changing the way that providers are paid, moving away from fee-for-service towards bundled or global payments for populations of patients. Physicians and hospitals are in turn forming integrated provider organizations to take on these new payment systems. The pace of this change has been rising. Since January, 2012, an estimated 360 provider organizations have began contracts with the Centers for Medicare and Medicaid Services (CMS) as accountable care organizations in four cohorts, responsible for the spending and quality of over 5.3 million beneficiaries (Figure 1).10 A similar growth in private-sector ACO contracts among commercial insurers has boosted the total number of covered lives in the country under ACO arrangements to over 18 million.11,12
Correspondence: Zirui Song, M.D., Ph.D., Department of Medicine, Massachusetts General Hospital, 55 Fruit Street, Boston, MA 02114; [email protected].
Song
Page 2
Author Manuscript
Key Features of the ACO Concept An accountable care organization (ACO) is a group of providers—that can include both physicians and hospitals—that accepts joint responsibility for health care spending and quality for a defined population of patients. The ACO concept can be considered an extension of the staff model health maintenance organization (HMO).13,14 It also shares features with the patient centered medical home (PCMH) model in its focus on a robust primary care nexus that serves to coordinate a patient’s care.15,16 Three key characteristics are embedded in this definition.
Author Manuscript
First is joint accountability. In an ACO contract, incentives for providers are agreed upon at the organizational level. Physicians and hospitals bear the financial risks and rewards of the ACO contract together. Shared savings, quality bonuses, and other incentives are determined by how the organization performs as a whole, rather than any an individual physician, practice, or hospital. In this way, physicians across specialties and care settings are incentivized to approach patient care collectively and coordinate care more effectively.
Author Manuscript
Second, an ACO takes on accountability for both spending and quality. Accountability for spending is manifested through a spending target (Figure 2). Going into an ACO contract, the organization typically assumes a spending target for the upcoming year, which usually takes into account its historical cost trends and the burden of morbidity among its patients. If spending for its patient population ends up below the target by at least a minimum amount (2 percent in the current contract model), the organization receives a share of the savings. If spending exceeds the target by 2 percent or more, the organization may not be reimbursed a portion of the difference (often referred to as “downside” risk). In a so-called one-sided ACO contract—the majority of those in the Medicare Shared Savings Program— organizations face only shared savings but do not face shared risk. In two-sided contracts, such as those in the Medicare Pioneer ACO Program and many commercial ACO contracts, organizations face both shared savings and shared risk. In the latter scenario, the spending target can be appropriated called a global “budget.”
Author Manuscript
Accountability for quality is operationalized through quality measurement and reporting. Using the traditional pay-for-performance framework, organizations receive bonus payments for various quality measures. In the Medicare ACO programs, for example, measures are grouped into 4 domains: (1) patient and caregiver experience, such as patients’ ratings of doctors; (2) care coordination and patient safety, such as all-cause readmission rates; (3) preventive health, such as influenza and pneumococcal vaccinations; and (4) specific measures for at-risk populations, such as hemoglobin A1c levels below 8 percent for patients with diabetes and beta-blockers for patients with left ventricular systolic dysfunction.17 Accountability for quality and spending can be linked. For example, organizations may only be eligible for shared savings after they achieve a certain minimum quality performance (as in Medicare ACOs), or their shared savings and risk percentages may be tied to the level of quality (some commercial ACOs). Third, an ACO is responsible for the care of a population of people. Each year, spending and quality are measured for the population attributed, or assigned, to the ACO. Attribution of
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 3
Author Manuscript
patients to organizations can take place in two ways. It can be prospective, meaning that before the start of a contract year, the ACO knows exactly the patients whose spending and quality it is responsible for. This is typically more feasible in commercial ACO contracts, especially in the HMO population, where patients designate a primary care physician at the beginning of the year. Otherwise, attribution is typically retrospective, such as in the Medicare ACO programs, where beneficiaries are assigned to organizations at the end of a contract year based on the organization which accounted for the plurality of a patient’s medical spending or primary care spending.
Evidence to Date
Author Manuscript
While formal results from most ACOs today are not yet available, several notable ACO experiments have been evaluated. These include early results from the Medicare ACO programs, previous evaluations of the Medicare Physician Group Practice Demonstration (a predecessor of today’s ACO contracting model), and early results from commercial ACO contracts, such as the Blue Cross Blue Shield of Massachusetts global budget contract.
Author Manuscript
In interpreting lessons from these evaluations, several questions are worth keeping in mind. If a new payment system is correlated with changes in medical spending, is this explained by underlying changes in prices or in quantities? Since medical spending is the product of prices of services and quantities (volume) of services, an intervention that affects spending must affect either the prices or the volume of care. In the Medicare program, where prices are standardized, a global budget contract that works off of the underlying physician fee schedule would only affect spending through volume. In the private insurance sector, however, an ACO contract may affect spending through both volume and prices, since variations in prices across providers creates an opportunity for savings if care is obtained through a less expensive provider. Separate from its relationship to medical spending, which is measured through the claims submitted by providers, what is the connection between a new payment system and total payouts from the insurer to the provider? An ACO contract contains a variety of incentives to providers that may generate additional payments from the insurer (most notably shared savings and quality bonuses). These non-claims payments may partially or entirely offset savings obtained through medical claims, making them an important dimension in the evaluation of the contract. Yet they, are also different from medical claim dollars in a meaningful way. Changes in medical spending reflect underlying physician (or patient) behavior—what care is delivered and how much of it is delivered—whereas non-claims payments reflect the incentive structure of the contract.
Author Manuscript
On the quality dimension, it is worth noting whether a new payment system has similar effects on process and outcome measures. Process measures, which have been widely used by health plans, are operationally similar to additional items on a fee schedule, whereby the delivery of a service effectively generates a payment. Clinical outcome measures, such as blood pressure or cholesterol, and patient experience measures, on the other hand, cannot be fulfilled by simply checking off a box. Therefore, these measures may represent quality in a more meaningful way.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 4
Early Results from Medicare ACOs
Author Manuscript
Thirty-two provider organizations entered the Pioneer ACO program in 2012, with about 669,000 Medicare beneficiaries attributed to these organizations. According to CMS, medical spending growth for ACO beneficiaries was 0.3 percent in the first year, compared to 0.8 percent for similar beneficiaries outside of these organizations.18 This generated a gross savings of $87.6 million in 2012, of which $33 million were returned to the Medicare trust fund. These savings were driven by 13 ACOs, with another 17 ACOs not reporting statistically significant changes in spending and 2 ACOs garnering losses with spending above the target of about $4 million total. Lower rates of admissions and readmissions largely explained the savings. A separate analysis comparing these ACOs to their local markets estimated a higher year-1 savings of $147 million dollars, driven by 8 ACOs whose savings ranged from $396 to $1224 per beneficiary per year.19
Author Manuscript
Pioneer ACOs also earned over $76 million for quality. In the first year, quality bonuses were awarded for the reporting of quality measures rather than for performance, and all 32 ACOs successfully reported. According to CMS, Pioneer ACOs on average performed better than fee-for-service Medicare beneficiaries on 15 clinical quality measures for which comparison data were available, including blood pressure control and cholesterol control for diabetic patients. A complete analysis of quality performance is not yet available. In the Medicare Shared Savings Program, interim results from CMS for the first 2 cohorts of ACOs showed that 29 of the 114 organizations lower spending sufficiently enough to generate shared savings while 2 organizations had shared losses.20 This suggests that the great majority of ACOs spent close to their target. Final results on spending and quality are pending.
Author Manuscript
Results from the Medicare Physician Group Practice Demonstration Ten provider organizations entered one-sided ACO-type contracts with Medicare in 2005 via the Physician Group Practice Demonstration. In this contract, organizations shared in savings provided that their spending was at least 2 percent below target and they achieved threshold performance on certain quality measures, most of which were process metrics.
Author Manuscript
In year 1, only one organization decreased spending enough to earn a shared savings, but after 3 years, five organizations had generated shared savings, although half of the savings were awarded to one organization.21 An recent analysis showed that four organizations sustained shared savings by the end of the program, with savings concentrated in acute care, readmissions, and beneficiaries who are dually-eligible for Medicaid. Across the 10 organizations, financial performance ranged from average savings of $866 to increased spending of $749 per beneficiary per year.22 In total, about $78 million in savings were generated by this demonstration. Although a positive finding, this is a relatively small amount in the context of total Medicare expenditures.23,24 On quality, all organizations met threshold performance on at least 29 of the 32 measures by the end of 5 years.21 Most of these were process measures focused on coronary artery disease, diabetes, heart failure, hypertension, and preventive care.25
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 5
Early Results from Commercial ACO Contracts
Author Manuscript
One of the early commercial ACO contracts to be evaluated was the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract (AQC).26 Initially implemented in 2009, the AQC is a multi-year contract that pays provider organizations a risk-adjusted global budget for the entire continuum of care. Seven organizations in Massachusetts entered the contract in the first year, and four more entered in 2010. Enrollees in HMO plans were prospectively attributed to their ACO by their designation of a primary care physician. The AQC is a twosided contract that offered an additional 10 percent of an organization’s budget as a bonus for performance on 64 quality measures, half outpatient measures and half inpatient. Budget growth rates were tied to inflation and terms of its growth were negotiated with the organizations.27
Author Manuscript Author Manuscript
Over the first two years, the contract was associated with a decrease in medical spending of about $90 per enrollee per year, a −2.8 percent change (−1.9 percent in year 1 and −3.3 percent in year 2).28 These savings were concentrated in procedures, imaging, and tests in the outpatient facility setting, and were largely explained by lower prices achieved by referring patients to less expensive providers. They were also concentrated in organizations that entered the AQC from fee-for-service, rather than prior risk contracts, and driven by enrollees with the highest expected spending. Over the second year, decreases in volume for certain services, such as percutaneous coronary interventions, began to contribute more to the savings.29 However, medical savings in the first two years were exceeded by non-claims payments, including shared savings and quality bonuses.27,28 The AQC was also associated with improvements in outpatient quality, including chronic care management measures (3.7 percentage points increase per year), adult preventive measures (0.4 percentage points per year), and pediatric quality measures (1.3 percentage points per year). Outcome measures such as hemoglobin A1c, LDL cholesterol, and blood pressure also showed an upward trend in the early years.28 Inpatient quality measures have yet to be examined.
Author Manuscript
Elsewhere in the country, Cigna’s Collaborative Accountable Care model was rolled out in 2009 with provider organizations in New Hampshire, Texas, and Arizona. A one-sided shared savings contract, it features a care coordination fee that is counted towards a practice’s medical spending, helping fund registered nurses who work as care coordinators. Interim results in 2012 suggested cost savings and quality improvements, but were not statistically significant.30 A two-sided contract between Blue Shield of California and the California Public Employees’ Retirement System slowed medical costs by shortening admission and reducing readmissions.31 Most recently, an accountable care partnership between Anthem Blue Cross and HealthCare Partners physician group in California claimed $4.7 million in savings in the first half of 2013 for 55,000 patients in preferred provider organization (PPO) plans.32 These savings were driven by an 18 percent reduction in inpatient days, 4 percent reduction in overall admissions, and a 4 percent reduction in visits for radiology and lab tests, although specific price and volume contributions are yet unknown. Similar to the AQC, the Anthem contract is a 5-year agreement. Unlike the initial AQC contract, shared savings were tied to meeting a quality threshold and HealthCare Partners did not bear downside risk in year 1.33
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 6
Author Manuscript
Lessons Learned Strengths of the ACO Model Evidence to date points to both the potential of ACOs to slow spending and improve quality, but also the significant obstacles that they face. One of the encouraging lessons so far is that quality of care need not be threatened by a contract that rewards savings, provided that meaningful incentives for quality are in place. In both public and private two-sided contracts, process quality seemed to consistently improve. However, less is known about performance on outcome measures, which is ultimately the meaningful metric for patients.
Author Manuscript
Broadly speaking, ACO contracts may be able to induce changes in physician behavior that could lead to medical savings. The low hanging fruit in Medicare seems to be admissions and readmissions, while that in commercial contracts may be lower prices obtained by changing referral patterns. While these medical savings reveal changes in clinical decisionmaking, it is still poorly understood whether clinical choices geared towards higher value can extend to other areas of utilization where wasteful care may be concentrated. Little is also known about whether an ACO’s physicians and hospitals are in agreement over these changes in utilization or referral patterns, given their consequences for referral business and admissions. Moreover, there has yet to be evidence suggesting that medical savings can be larger than non-claims payments (rewards and bonuses to the ACOs) in a given year, generating net savings to the health care system. This may well take time to materialize given the initial investment costs and inducements for provider participation embedded in the early year incentives, but it is an important metric of success.
Author Manuscript
ACOs serve as a vehicle for payment reform and organizational reform among providers. They bring physicians across specialties and hospitals together under the same contractual roof, allowing the organization to determine how it allocates its resources under the spending target. Historically, policies aimed to slow health care spending have focused on either cutting prices (provider fees) or constraining volume (gatekeeping, prior authorization, and utilization review, etc.), but both types of strategies have been complicated by unintended consequences. Medicare fee cuts have traditionally been followed by compensatory increases in the volume or intensity of coding, offsetting the intended savings to a significant degree.34,35,36,37 Managed care techniques have met resistance from both physicians and patients.38,39 A spending target or budget takes an alternative approach; rather than controlling prices or quantities directly, it seeks to control total spending. Although the underlying fee schedule is retained for accounting, a spending target or especially a global budget pushes the organization to decide what care is high or low value.
Author Manuscript
A two-sided contract imposes stronger incentives on the ACO than a one-sided contract, which is both a strength and a weakness. While ACOs facing downside risk may respond earlier to the incentives, as some of the evidence thus far suggests, this risk may also propel ACOs to abandon this contracting model. In the Medicare Pioneer ACO program, for example, nine of the 32 organizations exited the contract after year 1, which was allowed given the voluntary nature of participation. Seven organizations opted for the one-sided Medicare Shared Savings Program in year 2 and two left the ACO programs altogether.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 7
Author Manuscript
Downside risk was thought to be a principal concern for these organizations.40 Massachusetts providers in the AQC have thus far remained in the contract, but the AQC was a multi-year agreement to begin with. Spillovers are another potential strength of the ACO model. Given that organizations care for patients across multiple payers, strong payment incentives in one payer population may affect care broadly. In the AQC, for example, recent evidence showed slowing of spending in Medicare beneficiaries associated with the contract in similar settings and categories of care as for the Blue Cross Blue Shield patients.41 Weaknesses of the ACO Model
Author Manuscript
Still in its nascent stages, the ACO paradigm faces a number of challenges. Some relate to inherent weaknesses of the model, while others relate to the institutions and economics of the broader health care economy. At a contractual level, a key challenge is setting the target growth rate. If too low, providers may be overly constrained; if too high, providers may not have enough incentive to change practice. In an extreme case, if the target is set above what spending would have been under the old arrangement, an ACO contract can in fact be cost increasing on claims spending alone. Financial rewards such as shared savings and quality bonuses can help offset the risk, but they also make it more difficult for the ACO contract to generate net savings.
Author Manuscript
Achieving the right balance of risks and rewards is difficult. As noted above, a one-sided contract may not be strong enough to induce behavior change,42,43 but a two-sided contract may be too risky, driving providers who are unable to align incentives and coordinate care to exit the model.44 Although the percent of shared risk borne by payer versus provider can be negotiated, putting financial risk on providers in a palatable way will be a key challenge. Financial risk can be more daunting if ACOs do not know in advance which patients they are responsible for, as in contracts with retrospective attribution rules and enrollees in unmanaged plans. A payer can help providers handle risk by sharing data on spending and identifying potential areas of overuse and low value care. Payers can help further by implementing risk corridors, providing reinsurance, or improving risk adjustment of the organization’s global budget. But with all that said, it remains to be seen whether providers around the country will be willing to bear substantive risk.
Author Manuscript
Within the ACO, a primary challenge is diving up risks and rewards among constituent providers. How much shared savings are given to the hospital, to primary care physicians, or to specialists? What share should each specialty receive? What about shared losses should spending exceed the target? In a two-sided ACO contract, these questions are particularly salient as global budgets change the business model for providers. Revenue centers under fee-for-service become cost centers. Organizations are confronted with difficult tradeoffs. The ability of providers across specialties to find common ground will be crucial, and leadership from providers will be key.45 Physicians have established themselves as leaders of the majority of ACOs today.46 It remains to be seen whether these organizations can keep providers together through the tradeoffs.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 8
Author Manuscript
Patient trust in the ACO model has yet to be established. The managed care backlash of the 1990s suggests that patient buy-in will be crucial for the sustainability of ACOs. ACOs can have similarities to the HMO that traditional produce negative associations, including downside risk, gatekeeping, or managed care techniques. To earn patients’ trust, ACOs will need to prove their value, such as through delivering better preventive care, less expensive care, more holistic care through stronger teams of providers, or smoother transitions of care across settings. The task of primary care medical homes to provide patient-centered care and coordinate across specialists effectively will be crucial. While today’s ACOs may be better positioned because of risk sharing, quality bonuses, risk adjustment, electronic medical records, or other innovations, the patient’s experience may ultimately be the arbiter. Broader Challenges
Author Manuscript
While clinical integration is a central tenet of ACOs, consolidation between providers is simultaneously a chief concern for policymakers. Consolidation generally reduces competition and drives up prices, which is at odds with the goals of cost containment.47,48 Across the nation, physicians are consolidating with hospitals and health systems at an increasing rate, with recent surveys reporting that the proportion of independent physicians has steadily declined to below 50 percent.49,50,51,52 Increasing the number of covered lives is a dominant growth strategy under risk contracts, and more covered lives also increases an ACO’s bargaining power during acquisitions of specialist practices, whose referrals are better protected by inclusion in the provider network. As this trend continues, its effect on commercial prices will likely be scrutinized.53,54
Author Manuscript
The ACO paradigm may also have significant effects on the physician labor market. Over the past 4 decades, the rate of physician specialization has grown dramatically.55 Fee-forservice incentives were aligned with specialization, but a rapid transition to alternative payment systems may disrupt the more gradually evolving physician labor market. Most medical school graduates today choose to specialize, as do most graduates of general medicine training programs,56,57 yet it is unclear to what degree the demand for specialists will continue to grow in the accountable care era. Specialty services tend to be higher cost than generalist services, and in some situations they are more likely to be lower value.58,59,60 Yet having specialists allows an organization to integrate services across the continuum of care, for which they are now financially responsible. As a new generation of specialists prepare to enter practice, whether the health care system will be able to support them and fulfill their expectations about their practice environment is in question.
Looking into the Future Author Manuscript
The landscape of payment and organization in health care will likely continue to migrate towards the ACO concept.61,62 As the federal government, states, and individual payers move in similar directions, physicians and hospitals will face increasing pressures to change and adapt to new incentives surrounding cost and quality. Whether ACOs succeed in slowing spending while improving quality may have important ramifications for future stages of health care reform. For example, the growing debate in Washington, D.C. over the future of Medicare financing may be informed, in part, by whether ACOs succeed within the traditional Medicare program. Market-based reforms such as converting Medicare into a J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 9
Author Manuscript
premium support program, whereby private insurers compete to insure Medicare beneficiaries for a pre-defined contribution from the federal government, have been gaining momentum in recent years. Although not without concerns, such proposals would expect to gain consideration if the ACO model does not succeed.
Author Manuscript
Perhaps the most meaningful contribution of the ACO model is that it gives providers a reason to change the culture of medicine. It asks providers across specialties to work together and coordinate care in a way that was not rewarded under fee-for-service. It asks organizations to stitch the separate pieces of the patient’s care trajectory together through teamwork. In the long run, this may be the most intangible but substantive legacy that the ACO model provides. Under a single, collective contract at the organizational level, providers are quite literally in it together. If providers can break down silos, better care coordination, and manage population health with a collective vision towards keeping patients healthy, the ACO paradigm would be able to claim a profound achievement. Such changes, however, will take time and they are not guaranteed.
Acknowledgments Supported by a grant from the National Institute on Aging F30 AG039175.
References
Author Manuscript Author Manuscript
1. Orszag PR, Ellis P. The challenge of rising health care costs — a view from the Congressional Budget Office. N Engl J Med. 2007; 357:1793–5. [PubMed: 17978287] 2. Chernew ME, Hirth RA, Cutler DM. Increased spending on health care: long-term implications for the nation. Health Aff (Millwood). 2009; 28:1253–5. [PubMed: 19738238] 3. Congressional Budget Office. Financing projected spending in the long run. Washington, DC: Congressional Budget Office; 2007 Jul 9. 4. Financing projected spending in the long run: letter from Peter R. Orszag, director, Congressional Budget Office, to Senator Judd Gregg. Jul 9. 2007 5. Baicker K, Chernew ME. The economics of financing Medicare. N Engl J Med. 2011 Jul 28.365(4):e7. [PubMed: 21751901] 6. Chernew ME, Baicker K, Hsu J. The specter of financial armageddon — health care and federal debt in the United States. N Engl J Med. 2010; 362:1166–8. [PubMed: 20237338] 7. Newhouse JP. Assessing health reform’s impact on four key groups of Americans. Health Aff (Millwood). 2010 Sep; 29(9):1714–24. [PubMed: 20651002] 8. Emanuel E, Tanden N, Altman S, Armstrong S, Berwick D, de Brantes F, Calsyn M, Chernew M, Colmers J, Cutler D, Daschle T, Egerman P, Kocher B, Milstein A, Oshima Lee E, Podesta JD, Reinhardt U, Rosenthal M, Sharfstein J, Shortell S, Stern A, Orszag PR, Spiro T. A systemic approach to containing health care spending. N Engl J Med. 2012 Sep 6; 367(10):949–54. [PubMed: 22852883] 9. Antos JR, Pauly MV, Wilensky GR. Bending the cost curve through market-based incentives. N Engl J Med. 2012 Sep 6; 367(10):954–8. [PubMed: 22852881] 10. Centers for Medicare and Medicaid Services. More partnerships between doctors and hospitals strengthen coordinated care for Medicare beneficiaries. 2013 Dec 23. 11. Fisher ES, McClellan MB, Safran DG. Building the path to accountable care. N Engl J Med. 2011; 365(26):2445–7. [PubMed: 22204720] 12. Muhlestein, D. Accountable Care Growth In 2014: A Look Ahead. Health Affairs Blog. 2014 Jan 29. (http://healthaffairs.org/blog/2014/01/29/accountable-care-growth-in-2014-a-lookahead/) 13. Fisher ES, Shortell SM. Accountable care organizations: accountable for what, to whom, and how. JAMA. 2010 Oct 20; 304(15):1715–6. [PubMed: 20959584]
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 10
Author Manuscript Author Manuscript Author Manuscript Author Manuscript
14. Fisher ES, Staiger DO, Bynum JP, Gottlieb DJ. Creating accountable care organizations: the extended hospital medical staff. Health Aff (Millwood). 2007; 26:w44–w57. [PubMed: 17148490] 15. Rittenhouse DR, Shortell SM. The patient-centered medical home: will it stand the test of health reform? JAMA. 2009; 301:2038–40. [PubMed: 19454643] 16. Bodenheimer T, Grumbach K, Berenson RA. A lifeline for primary care. N Engl J Med. 2009; 360:2693–6. [PubMed: 19553643] 17. Centers for Medicare and Medicaid Services. Improving Quality of Care for Medicare Patients: Accountable Care Organizations. 2011 Oct 20. 18. Centers for Medicare and Medicaid Services. Press release: Pioneer Accountable Care Organizations succeed in improving care, lowering costs. 2013 Jul 16. (http://www.cms.gov/ Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-07-16.html) 19. L&M Policy Research. Effect of Pioneer ACOs on Medicare Spending in the First Year. 2013 Nov 3. (http://innovation.cms.gov/Files/reports/PioneerACOEvalReport1.pdf) 20. Centers for Medicare and Medicaid Services. Performance Year 1 Interim Results for ACOs that started in April and July 2012. 2014 Jan 30. (https://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/sharedsavingsprogram/Downloads/PY1-InterimResultsTable.pdf) 21. Wilensky GR. Lessons from the Physician Group Practice Demonstration — A Sobering Reflection. N Engl J Med. 2011; 365:1659–1661. [PubMed: 21916636] 22. Colla CH, Wennberg DE, Meara E, Skinner JS, Gottlieb D, Lewis VA, Snyder CM, Fisher ES. Spending differences associated with the Medicare Physician Group Practice Demonstration. JAMA. 2012 Sep 12; 308(10):1015–23. [PubMed: 22968890] 23. Berwick DM. Launching Accountable Care Organizations — The Proposed Rule for the Medicare Shared Savings Program. N Engl J Med. 2011; 364:e32. [PubMed: 21452999] 24. Haywood TT, Kosel KC. The ACO model — a three-year financial loss? N Engl J Med. 2011; 364 25. Iglehart JK. Assessing an ACO prototype -- Medicare’s Physician Group Practice Demonstration. N Engl J Med. 2011; 364:198–200. [PubMed: 21175306] 26. Chernew ME, Mechanic RE, Landon BE, Safran DG. Private-payer innovation in Massachusetts: the “Alternative Quality Contract”. Health Aff (Millwood). 2011; 30(1):51–61. [PubMed: 21209437] 27. Song Z, Safran DG, Landon BE, He Y, Ellis RP, Mechanic RE, et al. Health care spending and quality in year 1 of the alternative quality contract. N Engl J Med. 2011; 365(10):909–18. [PubMed: 21751900] 28. Song Z, Safran DG, Landon BE, Landrum MB, He Y, Mechanic RE, Day MP, Chernew ME. The ‘Alternative Quality Contract,’ based on a global budget, lowered medical spending and improved quality. Health Aff (Millwood). 2012 Aug; 31(8):1885–94. [PubMed: 22786651] 29. Song Z, Fendrick AM, Safran DG, Landon B, Chernew ME. Global Budgets and TechnologyIntensive Medical Services. Healthcare (Amst). 2013 Jun; 1(1–2):15–21. 30. Salmon RB, Sanderson MI, Walters BA, Kennedy K, Flores RC, Muney AM. A collaborative accountable care model in three practices showed promising early results on costs and quality of care. Health Aff (Millwood). 2012 Nov; 31(11):2379–87. [PubMed: 23129667] 31. Markovich P. A global budget pilot project among provider partners and Blue Shield of California led to savings in first two years. Health Aff (Millwood). 2012 Sep; 31(9):1969–76. [PubMed: 22949445] 32. Anthem, Terhune C. HealthCare Partners save $4.7 million by coordinating care. Los Angeles Times. 2014 Jun 6. (http://www.latimes.com/business/money/la-fi-anthem-healthcarepartners-20140605-story.html) 33. Gbemudu JN, Larson BK, Van Citters AD, Kreindler SA, Wu FM, Nelson EC, Shortell SM, Fisher ES. HealthCare Partners: Building on a Foundation of Global Risk Management to Achieve Accountable Care. Commonwealth Fund pub. 2012 Jan.2:1572. 34. Rice TH. The impact of changing Medicare reimbursement rates on physician- induced demand. Med Care. 1983; 21(8):803–815. [PubMed: 6350746] 35. Nguyen NX, Derrick FW. Physician behavioral response to a Medicare price reduction. Health Serv Res. 1997; 32(3):283–298. [PubMed: 9240281]
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 11
Author Manuscript Author Manuscript Author Manuscript Author Manuscript
36. Yip WC. Physician response to Medicare fee reductions: changes in the volume of coronary artery bypass graft (CABG) surgeries in the Medicare and private sectors. J Health Econ. 1998; 17(6): 675–699. [PubMed: 10339248] 37. Song Z, Ayanian JZ, Wallace J, He Y, Gibson TB, Chernew ME. Unintended consequences of eliminating medicare payments for consultations. JAMA Intern Med. 2013 Jan 14; 173(1):15–21. [PubMed: 23336095] 38. Marquis MS, Rogowski JA, Escarce JJ. The managed care backlash: did consumers vote with their feet? Inquiry. 2004–2005 Winter;41(4):376–90. [PubMed: 15835597] 39. Cooper PF, Simon KI, Vistnes J. A closer look at the managed care backlash. Med Care. 2006 May; 44(5 Suppl):I4–11. [PubMed: 16625063] 40. Song, Z. Curfman, G.; Morrissey, S.; Morse, G.; Prokesch, S., editors. Pioneer Accountable Care Organizations: Lessons from Year 1. Insight Center: Leading Health Care Innovation. New England Journal of Medicine/Harvard Business Review. 2013 Oct 8. (http://images.nejm.org/ editorial/supplementary/2013/hbr06-song.pdf) 41. McWilliams JM, Landon BE, Chernew ME. Changes in health care spending and quality for Medicare beneficiaries associated with a commercial ACO contract. JAMA. 2013 Aug 28; 310(8): 829–36. [PubMed: 23982369] 42. Berenson RA. Shared savings program for accountable care organizations: a bridge to nowhere? Am J Manag Care. 2010; 16:721–726. [PubMed: 20964468] 43. Meyer H. Accountable care organization prototypes: winners and losers? Health Aff (Millwood). 2011 Jul; 30(7):1227–31. [PubMed: 21734194] 44. Burns LR, Pauly MV. Accountable care organizations may have difficulty avoiding the failures of integrated delivery networks of the 1990s. Health Aff (Millwood). 2012 Nov; 31(11):2407–16. [PubMed: 23129670] 45. Song Z, Lee TH. The era of delivery system reform begins. JAMA. 2013 Jan 2; 309(1):35–6. [PubMed: 23280220] 46. Colla CH, Lewis VA, Shortell SM, Fisher ES. First National Survey Of ACOs Finds That Physicians Are Playing Strong Leadership And Ownership Roles. Health Aff (Millwood). 2014 Jun 1; 33(6):964–71. [PubMed: 24889945] 47. Baicker K, Levy H. Coordination versus competition in health care reform. N Engl J Med. 2013 Aug 29; 369(9):789–91. [PubMed: 23944255] 48. Baker LC, Bundorf MK, Kessler DP. Vertical integration: hospital ownership of physician practices is associated with higher prices and spending. Health Aff (Millwood). 2014 May; 33(5): 756–63. [PubMed: 24799571] 49. Isaacs SL, Jellinek PS, Ray WL. The independent physician--going, going. N Engl J Med. 2009 Feb 12; 360(7):655–7. [PubMed: 19213678] 50. Kocher R, Sahni NR. Hospitals’ race to employ physicians--the logic behind a money-losing proposition. N Engl J Med. 2011 May 12; 364(19):1790–3. [PubMed: 21449774] 51. Gold, J. Kaiser Health News. Oct 12. 2010 Hospitals Lure Doctors Away From Private Practice. 52. Accenture. Clinical Transformation: New Business Models for a New Era in Healthcare. 2012. (www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Clinical-Transformation-NewBusiness-Models-for-a-New-Era-in-Healthcare.pdf) 53. Fraudabuse: Leibenluft RF. ACOs and the enforcement of fraud, abuse, and antitrust laws. N Engl J Med. 2011 Jan 13; 364(2):99–101. [PubMed: 21175308] 54. Kreindler SA, Larson BK, Wu FM, Carluzzo KL, Gbemudu JN, Struthers A, VAN Citters AD, Shortell SM, Nelson EC, Fisher ES. Interpretations of integration in early accountable care organizations. Milbank Q. 2012 Sep; 90(3):457–83. [PubMed: 22985278] 55. Cassel CK, Reuben DB. Specialization, subspecialization, and subsubspecialization in internal medicine. N Engl J Med. 2011 Mar 24; 364(12):1169–73. [PubMed: 21428774] 56. West CP, Dupras DM. General medicine vs subspecialty career plans among internal medicine residents. JAMA. 2012 Dec 5; 308(21):2241–7. [PubMed: 23212502] 57. Schwartz MD, Durning S, Linzer M, Hauer KE. Changes in medical students’ views of internal medicine careers from 1990 to 2007. Arch Intern Med. 2011; 171(8):744–749. [PubMed: 21518941] J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 12
Author Manuscript
58. Schwartz AL, Landon BE, Elshaug AG, Chernew ME, McWilliams JM. Measuring Low-Value Care in Medicare. JAMA Intern Med. 2014 May 12. [Epub ahead of print]. 59. American Board of Internal Medicine Foundation. [Accessed May 26, 2014] Choosing Wisely: lists of five things physicians and patients should question. http://www.choosingwisely.org/doctorpatient-lists/. Published 2013 60. Cassel CK, Guest JA. Choosing Wisely: helping physicians and patients make smart decisions about their care. JAMA. 2012; 307(17):1801–1802. [PubMed: 22492759] 61. Lewis VA, Colla CH, Carluzzo KL, Kler SE, Fisher ES. Accountable Care Organizations in the United States: market and demographic factors associated with formation. Health Serv Res. 2013 Dec; 48(6 Pt 1):1840–58. [PubMed: 24117222] 62. Conrad D, Grembowski D, Gibbons C, Marcus-Smith M, Hernandez SE, Chang J, Renz A, Lau B, dela Cruz E. A report on eight early-stage state and regional projects testing value-based payment. Health Aff (Millwood). 2013 May; 32(5):998–1006. [PubMed: 23650332]
Author Manuscript Author Manuscript Author Manuscript J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 13
Author Manuscript Author Manuscript
Figure 1.
Accountable care organizations in Medicare
Author Manuscript Author Manuscript J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 14
Author Manuscript Author Manuscript
Figure 2.
Accountability for spending in ACO contracts
Author Manuscript Author Manuscript J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06. Published in final edited form as: J Clin Outcomes Manag. 2014 August 1; 21(8): 364–371.
Accountable Care Organizations in the U.S. Health Care System Zirui Song, M.D., Ph.D. Department of Medicine, Massachusetts General Hospital, Boston, MA. Harvard Medical School, Boston, MA
Author Manuscript
Introduction In recent years, the growth of health care spending has climbed to the top of the domestic policy agenda. Medicare spending growth is now recognized as the biggest driver of the federal debt.1,2 Medicaid spending growth puts similar pressure on states. In the private sector, employee health care costs increasingly weigh on company balance sheets, affecting business operations and employee wages. All the while, individuals and families face insurance premium growth that far outpaces real income growth.
Author Manuscript
Out of this recent history emerged a broad recognition that health care spending growth is unsustainable at current rates. If Medicare spending continues to exceed gross domestic product (GDP) by 2.5 percentage points per year—the traditional gap over the past 4 decades—a greater than 160 percent increase in individual income taxes would be needed to pay for it.3 Even if the gap were 1 percentage point, the increase in income taxes needed would still be over 70 percent, with consequent contraction in GDP of 3 to 16 percent by 2015.4,5 Other consequences, such as significant cuts in Medicare benefits or shifting of costs onto patients, are equally undesirable.6,7
Author Manuscript
Policy options for slowing health care spending are varied. Some focus on changing the provider’s incentives, while others focus on changing the patient’s incentives. Some are based on federal solutions,8 while others are based on market solutions.9 In the current policy landscape, payment reform for physicians and hospitals has emerged as a leading candidate for addressing health care spending. Public and private payers are increasingly changing the way that providers are paid, moving away from fee-for-service towards bundled or global payments for populations of patients. Physicians and hospitals are in turn forming integrated provider organizations to take on these new payment systems. The pace of this change has been rising. Since January, 2012, an estimated 360 provider organizations have began contracts with the Centers for Medicare and Medicaid Services (CMS) as accountable care organizations in four cohorts, responsible for the spending and quality of over 5.3 million beneficiaries (Figure 1).10 A similar growth in private-sector ACO contracts among commercial insurers has boosted the total number of covered lives in the country under ACO arrangements to over 18 million.11,12
Correspondence: Zirui Song, M.D., Ph.D., Department of Medicine, Massachusetts General Hospital, 55 Fruit Street, Boston, MA 02114; [email protected].
Song
Page 2
Author Manuscript
Key Features of the ACO Concept An accountable care organization (ACO) is a group of providers—that can include both physicians and hospitals—that accepts joint responsibility for health care spending and quality for a defined population of patients. The ACO concept can be considered an extension of the staff model health maintenance organization (HMO).13,14 It also shares features with the patient centered medical home (PCMH) model in its focus on a robust primary care nexus that serves to coordinate a patient’s care.15,16 Three key characteristics are embedded in this definition.
Author Manuscript
First is joint accountability. In an ACO contract, incentives for providers are agreed upon at the organizational level. Physicians and hospitals bear the financial risks and rewards of the ACO contract together. Shared savings, quality bonuses, and other incentives are determined by how the organization performs as a whole, rather than any an individual physician, practice, or hospital. In this way, physicians across specialties and care settings are incentivized to approach patient care collectively and coordinate care more effectively.
Author Manuscript
Second, an ACO takes on accountability for both spending and quality. Accountability for spending is manifested through a spending target (Figure 2). Going into an ACO contract, the organization typically assumes a spending target for the upcoming year, which usually takes into account its historical cost trends and the burden of morbidity among its patients. If spending for its patient population ends up below the target by at least a minimum amount (2 percent in the current contract model), the organization receives a share of the savings. If spending exceeds the target by 2 percent or more, the organization may not be reimbursed a portion of the difference (often referred to as “downside” risk). In a so-called one-sided ACO contract—the majority of those in the Medicare Shared Savings Program— organizations face only shared savings but do not face shared risk. In two-sided contracts, such as those in the Medicare Pioneer ACO Program and many commercial ACO contracts, organizations face both shared savings and shared risk. In the latter scenario, the spending target can be appropriated called a global “budget.”
Author Manuscript
Accountability for quality is operationalized through quality measurement and reporting. Using the traditional pay-for-performance framework, organizations receive bonus payments for various quality measures. In the Medicare ACO programs, for example, measures are grouped into 4 domains: (1) patient and caregiver experience, such as patients’ ratings of doctors; (2) care coordination and patient safety, such as all-cause readmission rates; (3) preventive health, such as influenza and pneumococcal vaccinations; and (4) specific measures for at-risk populations, such as hemoglobin A1c levels below 8 percent for patients with diabetes and beta-blockers for patients with left ventricular systolic dysfunction.17 Accountability for quality and spending can be linked. For example, organizations may only be eligible for shared savings after they achieve a certain minimum quality performance (as in Medicare ACOs), or their shared savings and risk percentages may be tied to the level of quality (some commercial ACOs). Third, an ACO is responsible for the care of a population of people. Each year, spending and quality are measured for the population attributed, or assigned, to the ACO. Attribution of
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 3
Author Manuscript
patients to organizations can take place in two ways. It can be prospective, meaning that before the start of a contract year, the ACO knows exactly the patients whose spending and quality it is responsible for. This is typically more feasible in commercial ACO contracts, especially in the HMO population, where patients designate a primary care physician at the beginning of the year. Otherwise, attribution is typically retrospective, such as in the Medicare ACO programs, where beneficiaries are assigned to organizations at the end of a contract year based on the organization which accounted for the plurality of a patient’s medical spending or primary care spending.
Evidence to Date
Author Manuscript
While formal results from most ACOs today are not yet available, several notable ACO experiments have been evaluated. These include early results from the Medicare ACO programs, previous evaluations of the Medicare Physician Group Practice Demonstration (a predecessor of today’s ACO contracting model), and early results from commercial ACO contracts, such as the Blue Cross Blue Shield of Massachusetts global budget contract.
Author Manuscript
In interpreting lessons from these evaluations, several questions are worth keeping in mind. If a new payment system is correlated with changes in medical spending, is this explained by underlying changes in prices or in quantities? Since medical spending is the product of prices of services and quantities (volume) of services, an intervention that affects spending must affect either the prices or the volume of care. In the Medicare program, where prices are standardized, a global budget contract that works off of the underlying physician fee schedule would only affect spending through volume. In the private insurance sector, however, an ACO contract may affect spending through both volume and prices, since variations in prices across providers creates an opportunity for savings if care is obtained through a less expensive provider. Separate from its relationship to medical spending, which is measured through the claims submitted by providers, what is the connection between a new payment system and total payouts from the insurer to the provider? An ACO contract contains a variety of incentives to providers that may generate additional payments from the insurer (most notably shared savings and quality bonuses). These non-claims payments may partially or entirely offset savings obtained through medical claims, making them an important dimension in the evaluation of the contract. Yet they, are also different from medical claim dollars in a meaningful way. Changes in medical spending reflect underlying physician (or patient) behavior—what care is delivered and how much of it is delivered—whereas non-claims payments reflect the incentive structure of the contract.
Author Manuscript
On the quality dimension, it is worth noting whether a new payment system has similar effects on process and outcome measures. Process measures, which have been widely used by health plans, are operationally similar to additional items on a fee schedule, whereby the delivery of a service effectively generates a payment. Clinical outcome measures, such as blood pressure or cholesterol, and patient experience measures, on the other hand, cannot be fulfilled by simply checking off a box. Therefore, these measures may represent quality in a more meaningful way.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 4
Early Results from Medicare ACOs
Author Manuscript
Thirty-two provider organizations entered the Pioneer ACO program in 2012, with about 669,000 Medicare beneficiaries attributed to these organizations. According to CMS, medical spending growth for ACO beneficiaries was 0.3 percent in the first year, compared to 0.8 percent for similar beneficiaries outside of these organizations.18 This generated a gross savings of $87.6 million in 2012, of which $33 million were returned to the Medicare trust fund. These savings were driven by 13 ACOs, with another 17 ACOs not reporting statistically significant changes in spending and 2 ACOs garnering losses with spending above the target of about $4 million total. Lower rates of admissions and readmissions largely explained the savings. A separate analysis comparing these ACOs to their local markets estimated a higher year-1 savings of $147 million dollars, driven by 8 ACOs whose savings ranged from $396 to $1224 per beneficiary per year.19
Author Manuscript
Pioneer ACOs also earned over $76 million for quality. In the first year, quality bonuses were awarded for the reporting of quality measures rather than for performance, and all 32 ACOs successfully reported. According to CMS, Pioneer ACOs on average performed better than fee-for-service Medicare beneficiaries on 15 clinical quality measures for which comparison data were available, including blood pressure control and cholesterol control for diabetic patients. A complete analysis of quality performance is not yet available. In the Medicare Shared Savings Program, interim results from CMS for the first 2 cohorts of ACOs showed that 29 of the 114 organizations lower spending sufficiently enough to generate shared savings while 2 organizations had shared losses.20 This suggests that the great majority of ACOs spent close to their target. Final results on spending and quality are pending.
Author Manuscript
Results from the Medicare Physician Group Practice Demonstration Ten provider organizations entered one-sided ACO-type contracts with Medicare in 2005 via the Physician Group Practice Demonstration. In this contract, organizations shared in savings provided that their spending was at least 2 percent below target and they achieved threshold performance on certain quality measures, most of which were process metrics.
Author Manuscript
In year 1, only one organization decreased spending enough to earn a shared savings, but after 3 years, five organizations had generated shared savings, although half of the savings were awarded to one organization.21 An recent analysis showed that four organizations sustained shared savings by the end of the program, with savings concentrated in acute care, readmissions, and beneficiaries who are dually-eligible for Medicaid. Across the 10 organizations, financial performance ranged from average savings of $866 to increased spending of $749 per beneficiary per year.22 In total, about $78 million in savings were generated by this demonstration. Although a positive finding, this is a relatively small amount in the context of total Medicare expenditures.23,24 On quality, all organizations met threshold performance on at least 29 of the 32 measures by the end of 5 years.21 Most of these were process measures focused on coronary artery disease, diabetes, heart failure, hypertension, and preventive care.25
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 5
Early Results from Commercial ACO Contracts
Author Manuscript
One of the early commercial ACO contracts to be evaluated was the Blue Cross Blue Shield of Massachusetts Alternative Quality Contract (AQC).26 Initially implemented in 2009, the AQC is a multi-year contract that pays provider organizations a risk-adjusted global budget for the entire continuum of care. Seven organizations in Massachusetts entered the contract in the first year, and four more entered in 2010. Enrollees in HMO plans were prospectively attributed to their ACO by their designation of a primary care physician. The AQC is a twosided contract that offered an additional 10 percent of an organization’s budget as a bonus for performance on 64 quality measures, half outpatient measures and half inpatient. Budget growth rates were tied to inflation and terms of its growth were negotiated with the organizations.27
Author Manuscript Author Manuscript
Over the first two years, the contract was associated with a decrease in medical spending of about $90 per enrollee per year, a −2.8 percent change (−1.9 percent in year 1 and −3.3 percent in year 2).28 These savings were concentrated in procedures, imaging, and tests in the outpatient facility setting, and were largely explained by lower prices achieved by referring patients to less expensive providers. They were also concentrated in organizations that entered the AQC from fee-for-service, rather than prior risk contracts, and driven by enrollees with the highest expected spending. Over the second year, decreases in volume for certain services, such as percutaneous coronary interventions, began to contribute more to the savings.29 However, medical savings in the first two years were exceeded by non-claims payments, including shared savings and quality bonuses.27,28 The AQC was also associated with improvements in outpatient quality, including chronic care management measures (3.7 percentage points increase per year), adult preventive measures (0.4 percentage points per year), and pediatric quality measures (1.3 percentage points per year). Outcome measures such as hemoglobin A1c, LDL cholesterol, and blood pressure also showed an upward trend in the early years.28 Inpatient quality measures have yet to be examined.
Author Manuscript
Elsewhere in the country, Cigna’s Collaborative Accountable Care model was rolled out in 2009 with provider organizations in New Hampshire, Texas, and Arizona. A one-sided shared savings contract, it features a care coordination fee that is counted towards a practice’s medical spending, helping fund registered nurses who work as care coordinators. Interim results in 2012 suggested cost savings and quality improvements, but were not statistically significant.30 A two-sided contract between Blue Shield of California and the California Public Employees’ Retirement System slowed medical costs by shortening admission and reducing readmissions.31 Most recently, an accountable care partnership between Anthem Blue Cross and HealthCare Partners physician group in California claimed $4.7 million in savings in the first half of 2013 for 55,000 patients in preferred provider organization (PPO) plans.32 These savings were driven by an 18 percent reduction in inpatient days, 4 percent reduction in overall admissions, and a 4 percent reduction in visits for radiology and lab tests, although specific price and volume contributions are yet unknown. Similar to the AQC, the Anthem contract is a 5-year agreement. Unlike the initial AQC contract, shared savings were tied to meeting a quality threshold and HealthCare Partners did not bear downside risk in year 1.33
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 6
Author Manuscript
Lessons Learned Strengths of the ACO Model Evidence to date points to both the potential of ACOs to slow spending and improve quality, but also the significant obstacles that they face. One of the encouraging lessons so far is that quality of care need not be threatened by a contract that rewards savings, provided that meaningful incentives for quality are in place. In both public and private two-sided contracts, process quality seemed to consistently improve. However, less is known about performance on outcome measures, which is ultimately the meaningful metric for patients.
Author Manuscript
Broadly speaking, ACO contracts may be able to induce changes in physician behavior that could lead to medical savings. The low hanging fruit in Medicare seems to be admissions and readmissions, while that in commercial contracts may be lower prices obtained by changing referral patterns. While these medical savings reveal changes in clinical decisionmaking, it is still poorly understood whether clinical choices geared towards higher value can extend to other areas of utilization where wasteful care may be concentrated. Little is also known about whether an ACO’s physicians and hospitals are in agreement over these changes in utilization or referral patterns, given their consequences for referral business and admissions. Moreover, there has yet to be evidence suggesting that medical savings can be larger than non-claims payments (rewards and bonuses to the ACOs) in a given year, generating net savings to the health care system. This may well take time to materialize given the initial investment costs and inducements for provider participation embedded in the early year incentives, but it is an important metric of success.
Author Manuscript
ACOs serve as a vehicle for payment reform and organizational reform among providers. They bring physicians across specialties and hospitals together under the same contractual roof, allowing the organization to determine how it allocates its resources under the spending target. Historically, policies aimed to slow health care spending have focused on either cutting prices (provider fees) or constraining volume (gatekeeping, prior authorization, and utilization review, etc.), but both types of strategies have been complicated by unintended consequences. Medicare fee cuts have traditionally been followed by compensatory increases in the volume or intensity of coding, offsetting the intended savings to a significant degree.34,35,36,37 Managed care techniques have met resistance from both physicians and patients.38,39 A spending target or budget takes an alternative approach; rather than controlling prices or quantities directly, it seeks to control total spending. Although the underlying fee schedule is retained for accounting, a spending target or especially a global budget pushes the organization to decide what care is high or low value.
Author Manuscript
A two-sided contract imposes stronger incentives on the ACO than a one-sided contract, which is both a strength and a weakness. While ACOs facing downside risk may respond earlier to the incentives, as some of the evidence thus far suggests, this risk may also propel ACOs to abandon this contracting model. In the Medicare Pioneer ACO program, for example, nine of the 32 organizations exited the contract after year 1, which was allowed given the voluntary nature of participation. Seven organizations opted for the one-sided Medicare Shared Savings Program in year 2 and two left the ACO programs altogether.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 7
Author Manuscript
Downside risk was thought to be a principal concern for these organizations.40 Massachusetts providers in the AQC have thus far remained in the contract, but the AQC was a multi-year agreement to begin with. Spillovers are another potential strength of the ACO model. Given that organizations care for patients across multiple payers, strong payment incentives in one payer population may affect care broadly. In the AQC, for example, recent evidence showed slowing of spending in Medicare beneficiaries associated with the contract in similar settings and categories of care as for the Blue Cross Blue Shield patients.41 Weaknesses of the ACO Model
Author Manuscript
Still in its nascent stages, the ACO paradigm faces a number of challenges. Some relate to inherent weaknesses of the model, while others relate to the institutions and economics of the broader health care economy. At a contractual level, a key challenge is setting the target growth rate. If too low, providers may be overly constrained; if too high, providers may not have enough incentive to change practice. In an extreme case, if the target is set above what spending would have been under the old arrangement, an ACO contract can in fact be cost increasing on claims spending alone. Financial rewards such as shared savings and quality bonuses can help offset the risk, but they also make it more difficult for the ACO contract to generate net savings.
Author Manuscript
Achieving the right balance of risks and rewards is difficult. As noted above, a one-sided contract may not be strong enough to induce behavior change,42,43 but a two-sided contract may be too risky, driving providers who are unable to align incentives and coordinate care to exit the model.44 Although the percent of shared risk borne by payer versus provider can be negotiated, putting financial risk on providers in a palatable way will be a key challenge. Financial risk can be more daunting if ACOs do not know in advance which patients they are responsible for, as in contracts with retrospective attribution rules and enrollees in unmanaged plans. A payer can help providers handle risk by sharing data on spending and identifying potential areas of overuse and low value care. Payers can help further by implementing risk corridors, providing reinsurance, or improving risk adjustment of the organization’s global budget. But with all that said, it remains to be seen whether providers around the country will be willing to bear substantive risk.
Author Manuscript
Within the ACO, a primary challenge is diving up risks and rewards among constituent providers. How much shared savings are given to the hospital, to primary care physicians, or to specialists? What share should each specialty receive? What about shared losses should spending exceed the target? In a two-sided ACO contract, these questions are particularly salient as global budgets change the business model for providers. Revenue centers under fee-for-service become cost centers. Organizations are confronted with difficult tradeoffs. The ability of providers across specialties to find common ground will be crucial, and leadership from providers will be key.45 Physicians have established themselves as leaders of the majority of ACOs today.46 It remains to be seen whether these organizations can keep providers together through the tradeoffs.
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 8
Author Manuscript
Patient trust in the ACO model has yet to be established. The managed care backlash of the 1990s suggests that patient buy-in will be crucial for the sustainability of ACOs. ACOs can have similarities to the HMO that traditional produce negative associations, including downside risk, gatekeeping, or managed care techniques. To earn patients’ trust, ACOs will need to prove their value, such as through delivering better preventive care, less expensive care, more holistic care through stronger teams of providers, or smoother transitions of care across settings. The task of primary care medical homes to provide patient-centered care and coordinate across specialists effectively will be crucial. While today’s ACOs may be better positioned because of risk sharing, quality bonuses, risk adjustment, electronic medical records, or other innovations, the patient’s experience may ultimately be the arbiter. Broader Challenges
Author Manuscript
While clinical integration is a central tenet of ACOs, consolidation between providers is simultaneously a chief concern for policymakers. Consolidation generally reduces competition and drives up prices, which is at odds with the goals of cost containment.47,48 Across the nation, physicians are consolidating with hospitals and health systems at an increasing rate, with recent surveys reporting that the proportion of independent physicians has steadily declined to below 50 percent.49,50,51,52 Increasing the number of covered lives is a dominant growth strategy under risk contracts, and more covered lives also increases an ACO’s bargaining power during acquisitions of specialist practices, whose referrals are better protected by inclusion in the provider network. As this trend continues, its effect on commercial prices will likely be scrutinized.53,54
Author Manuscript
The ACO paradigm may also have significant effects on the physician labor market. Over the past 4 decades, the rate of physician specialization has grown dramatically.55 Fee-forservice incentives were aligned with specialization, but a rapid transition to alternative payment systems may disrupt the more gradually evolving physician labor market. Most medical school graduates today choose to specialize, as do most graduates of general medicine training programs,56,57 yet it is unclear to what degree the demand for specialists will continue to grow in the accountable care era. Specialty services tend to be higher cost than generalist services, and in some situations they are more likely to be lower value.58,59,60 Yet having specialists allows an organization to integrate services across the continuum of care, for which they are now financially responsible. As a new generation of specialists prepare to enter practice, whether the health care system will be able to support them and fulfill their expectations about their practice environment is in question.
Looking into the Future Author Manuscript
The landscape of payment and organization in health care will likely continue to migrate towards the ACO concept.61,62 As the federal government, states, and individual payers move in similar directions, physicians and hospitals will face increasing pressures to change and adapt to new incentives surrounding cost and quality. Whether ACOs succeed in slowing spending while improving quality may have important ramifications for future stages of health care reform. For example, the growing debate in Washington, D.C. over the future of Medicare financing may be informed, in part, by whether ACOs succeed within the traditional Medicare program. Market-based reforms such as converting Medicare into a J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 9
Author Manuscript
premium support program, whereby private insurers compete to insure Medicare beneficiaries for a pre-defined contribution from the federal government, have been gaining momentum in recent years. Although not without concerns, such proposals would expect to gain consideration if the ACO model does not succeed.
Author Manuscript
Perhaps the most meaningful contribution of the ACO model is that it gives providers a reason to change the culture of medicine. It asks providers across specialties to work together and coordinate care in a way that was not rewarded under fee-for-service. It asks organizations to stitch the separate pieces of the patient’s care trajectory together through teamwork. In the long run, this may be the most intangible but substantive legacy that the ACO model provides. Under a single, collective contract at the organizational level, providers are quite literally in it together. If providers can break down silos, better care coordination, and manage population health with a collective vision towards keeping patients healthy, the ACO paradigm would be able to claim a profound achievement. Such changes, however, will take time and they are not guaranteed.
Acknowledgments Supported by a grant from the National Institute on Aging F30 AG039175.
References
Author Manuscript Author Manuscript
1. Orszag PR, Ellis P. The challenge of rising health care costs — a view from the Congressional Budget Office. N Engl J Med. 2007; 357:1793–5. [PubMed: 17978287] 2. Chernew ME, Hirth RA, Cutler DM. Increased spending on health care: long-term implications for the nation. Health Aff (Millwood). 2009; 28:1253–5. [PubMed: 19738238] 3. Congressional Budget Office. Financing projected spending in the long run. Washington, DC: Congressional Budget Office; 2007 Jul 9. 4. Financing projected spending in the long run: letter from Peter R. Orszag, director, Congressional Budget Office, to Senator Judd Gregg. Jul 9. 2007 5. Baicker K, Chernew ME. The economics of financing Medicare. N Engl J Med. 2011 Jul 28.365(4):e7. [PubMed: 21751901] 6. Chernew ME, Baicker K, Hsu J. The specter of financial armageddon — health care and federal debt in the United States. N Engl J Med. 2010; 362:1166–8. [PubMed: 20237338] 7. Newhouse JP. Assessing health reform’s impact on four key groups of Americans. Health Aff (Millwood). 2010 Sep; 29(9):1714–24. [PubMed: 20651002] 8. Emanuel E, Tanden N, Altman S, Armstrong S, Berwick D, de Brantes F, Calsyn M, Chernew M, Colmers J, Cutler D, Daschle T, Egerman P, Kocher B, Milstein A, Oshima Lee E, Podesta JD, Reinhardt U, Rosenthal M, Sharfstein J, Shortell S, Stern A, Orszag PR, Spiro T. A systemic approach to containing health care spending. N Engl J Med. 2012 Sep 6; 367(10):949–54. [PubMed: 22852883] 9. Antos JR, Pauly MV, Wilensky GR. Bending the cost curve through market-based incentives. N Engl J Med. 2012 Sep 6; 367(10):954–8. [PubMed: 22852881] 10. Centers for Medicare and Medicaid Services. More partnerships between doctors and hospitals strengthen coordinated care for Medicare beneficiaries. 2013 Dec 23. 11. Fisher ES, McClellan MB, Safran DG. Building the path to accountable care. N Engl J Med. 2011; 365(26):2445–7. [PubMed: 22204720] 12. Muhlestein, D. Accountable Care Growth In 2014: A Look Ahead. Health Affairs Blog. 2014 Jan 29. (http://healthaffairs.org/blog/2014/01/29/accountable-care-growth-in-2014-a-lookahead/) 13. Fisher ES, Shortell SM. Accountable care organizations: accountable for what, to whom, and how. JAMA. 2010 Oct 20; 304(15):1715–6. [PubMed: 20959584]
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 10
Author Manuscript Author Manuscript Author Manuscript Author Manuscript
14. Fisher ES, Staiger DO, Bynum JP, Gottlieb DJ. Creating accountable care organizations: the extended hospital medical staff. Health Aff (Millwood). 2007; 26:w44–w57. [PubMed: 17148490] 15. Rittenhouse DR, Shortell SM. The patient-centered medical home: will it stand the test of health reform? JAMA. 2009; 301:2038–40. [PubMed: 19454643] 16. Bodenheimer T, Grumbach K, Berenson RA. A lifeline for primary care. N Engl J Med. 2009; 360:2693–6. [PubMed: 19553643] 17. Centers for Medicare and Medicaid Services. Improving Quality of Care for Medicare Patients: Accountable Care Organizations. 2011 Oct 20. 18. Centers for Medicare and Medicaid Services. Press release: Pioneer Accountable Care Organizations succeed in improving care, lowering costs. 2013 Jul 16. (http://www.cms.gov/ Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-07-16.html) 19. L&M Policy Research. Effect of Pioneer ACOs on Medicare Spending in the First Year. 2013 Nov 3. (http://innovation.cms.gov/Files/reports/PioneerACOEvalReport1.pdf) 20. Centers for Medicare and Medicaid Services. Performance Year 1 Interim Results for ACOs that started in April and July 2012. 2014 Jan 30. (https://www.cms.gov/Medicare/Medicare-Fee-forService-Payment/sharedsavingsprogram/Downloads/PY1-InterimResultsTable.pdf) 21. Wilensky GR. Lessons from the Physician Group Practice Demonstration — A Sobering Reflection. N Engl J Med. 2011; 365:1659–1661. [PubMed: 21916636] 22. Colla CH, Wennberg DE, Meara E, Skinner JS, Gottlieb D, Lewis VA, Snyder CM, Fisher ES. Spending differences associated with the Medicare Physician Group Practice Demonstration. JAMA. 2012 Sep 12; 308(10):1015–23. [PubMed: 22968890] 23. Berwick DM. Launching Accountable Care Organizations — The Proposed Rule for the Medicare Shared Savings Program. N Engl J Med. 2011; 364:e32. [PubMed: 21452999] 24. Haywood TT, Kosel KC. The ACO model — a three-year financial loss? N Engl J Med. 2011; 364 25. Iglehart JK. Assessing an ACO prototype -- Medicare’s Physician Group Practice Demonstration. N Engl J Med. 2011; 364:198–200. [PubMed: 21175306] 26. Chernew ME, Mechanic RE, Landon BE, Safran DG. Private-payer innovation in Massachusetts: the “Alternative Quality Contract”. Health Aff (Millwood). 2011; 30(1):51–61. [PubMed: 21209437] 27. Song Z, Safran DG, Landon BE, He Y, Ellis RP, Mechanic RE, et al. Health care spending and quality in year 1 of the alternative quality contract. N Engl J Med. 2011; 365(10):909–18. [PubMed: 21751900] 28. Song Z, Safran DG, Landon BE, Landrum MB, He Y, Mechanic RE, Day MP, Chernew ME. The ‘Alternative Quality Contract,’ based on a global budget, lowered medical spending and improved quality. Health Aff (Millwood). 2012 Aug; 31(8):1885–94. [PubMed: 22786651] 29. Song Z, Fendrick AM, Safran DG, Landon B, Chernew ME. Global Budgets and TechnologyIntensive Medical Services. Healthcare (Amst). 2013 Jun; 1(1–2):15–21. 30. Salmon RB, Sanderson MI, Walters BA, Kennedy K, Flores RC, Muney AM. A collaborative accountable care model in three practices showed promising early results on costs and quality of care. Health Aff (Millwood). 2012 Nov; 31(11):2379–87. [PubMed: 23129667] 31. Markovich P. A global budget pilot project among provider partners and Blue Shield of California led to savings in first two years. Health Aff (Millwood). 2012 Sep; 31(9):1969–76. [PubMed: 22949445] 32. Anthem, Terhune C. HealthCare Partners save $4.7 million by coordinating care. Los Angeles Times. 2014 Jun 6. (http://www.latimes.com/business/money/la-fi-anthem-healthcarepartners-20140605-story.html) 33. Gbemudu JN, Larson BK, Van Citters AD, Kreindler SA, Wu FM, Nelson EC, Shortell SM, Fisher ES. HealthCare Partners: Building on a Foundation of Global Risk Management to Achieve Accountable Care. Commonwealth Fund pub. 2012 Jan.2:1572. 34. Rice TH. The impact of changing Medicare reimbursement rates on physician- induced demand. Med Care. 1983; 21(8):803–815. [PubMed: 6350746] 35. Nguyen NX, Derrick FW. Physician behavioral response to a Medicare price reduction. Health Serv Res. 1997; 32(3):283–298. [PubMed: 9240281]
J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 11
Author Manuscript Author Manuscript Author Manuscript Author Manuscript
36. Yip WC. Physician response to Medicare fee reductions: changes in the volume of coronary artery bypass graft (CABG) surgeries in the Medicare and private sectors. J Health Econ. 1998; 17(6): 675–699. [PubMed: 10339248] 37. Song Z, Ayanian JZ, Wallace J, He Y, Gibson TB, Chernew ME. Unintended consequences of eliminating medicare payments for consultations. JAMA Intern Med. 2013 Jan 14; 173(1):15–21. [PubMed: 23336095] 38. Marquis MS, Rogowski JA, Escarce JJ. The managed care backlash: did consumers vote with their feet? Inquiry. 2004–2005 Winter;41(4):376–90. [PubMed: 15835597] 39. Cooper PF, Simon KI, Vistnes J. A closer look at the managed care backlash. Med Care. 2006 May; 44(5 Suppl):I4–11. [PubMed: 16625063] 40. Song, Z. Curfman, G.; Morrissey, S.; Morse, G.; Prokesch, S., editors. Pioneer Accountable Care Organizations: Lessons from Year 1. Insight Center: Leading Health Care Innovation. New England Journal of Medicine/Harvard Business Review. 2013 Oct 8. (http://images.nejm.org/ editorial/supplementary/2013/hbr06-song.pdf) 41. McWilliams JM, Landon BE, Chernew ME. Changes in health care spending and quality for Medicare beneficiaries associated with a commercial ACO contract. JAMA. 2013 Aug 28; 310(8): 829–36. [PubMed: 23982369] 42. Berenson RA. Shared savings program for accountable care organizations: a bridge to nowhere? Am J Manag Care. 2010; 16:721–726. [PubMed: 20964468] 43. Meyer H. Accountable care organization prototypes: winners and losers? Health Aff (Millwood). 2011 Jul; 30(7):1227–31. [PubMed: 21734194] 44. Burns LR, Pauly MV. Accountable care organizations may have difficulty avoiding the failures of integrated delivery networks of the 1990s. Health Aff (Millwood). 2012 Nov; 31(11):2407–16. [PubMed: 23129670] 45. Song Z, Lee TH. The era of delivery system reform begins. JAMA. 2013 Jan 2; 309(1):35–6. [PubMed: 23280220] 46. Colla CH, Lewis VA, Shortell SM, Fisher ES. First National Survey Of ACOs Finds That Physicians Are Playing Strong Leadership And Ownership Roles. Health Aff (Millwood). 2014 Jun 1; 33(6):964–71. [PubMed: 24889945] 47. Baicker K, Levy H. Coordination versus competition in health care reform. N Engl J Med. 2013 Aug 29; 369(9):789–91. [PubMed: 23944255] 48. Baker LC, Bundorf MK, Kessler DP. Vertical integration: hospital ownership of physician practices is associated with higher prices and spending. Health Aff (Millwood). 2014 May; 33(5): 756–63. [PubMed: 24799571] 49. Isaacs SL, Jellinek PS, Ray WL. The independent physician--going, going. N Engl J Med. 2009 Feb 12; 360(7):655–7. [PubMed: 19213678] 50. Kocher R, Sahni NR. Hospitals’ race to employ physicians--the logic behind a money-losing proposition. N Engl J Med. 2011 May 12; 364(19):1790–3. [PubMed: 21449774] 51. Gold, J. Kaiser Health News. Oct 12. 2010 Hospitals Lure Doctors Away From Private Practice. 52. Accenture. Clinical Transformation: New Business Models for a New Era in Healthcare. 2012. (www.accenture.com/SiteCollectionDocuments/PDF/Accenture-Clinical-Transformation-NewBusiness-Models-for-a-New-Era-in-Healthcare.pdf) 53. Fraudabuse: Leibenluft RF. ACOs and the enforcement of fraud, abuse, and antitrust laws. N Engl J Med. 2011 Jan 13; 364(2):99–101. [PubMed: 21175308] 54. Kreindler SA, Larson BK, Wu FM, Carluzzo KL, Gbemudu JN, Struthers A, VAN Citters AD, Shortell SM, Nelson EC, Fisher ES. Interpretations of integration in early accountable care organizations. Milbank Q. 2012 Sep; 90(3):457–83. [PubMed: 22985278] 55. Cassel CK, Reuben DB. Specialization, subspecialization, and subsubspecialization in internal medicine. N Engl J Med. 2011 Mar 24; 364(12):1169–73. [PubMed: 21428774] 56. West CP, Dupras DM. General medicine vs subspecialty career plans among internal medicine residents. JAMA. 2012 Dec 5; 308(21):2241–7. [PubMed: 23212502] 57. Schwartz MD, Durning S, Linzer M, Hauer KE. Changes in medical students’ views of internal medicine careers from 1990 to 2007. Arch Intern Med. 2011; 171(8):744–749. [PubMed: 21518941] J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 12
Author Manuscript
58. Schwartz AL, Landon BE, Elshaug AG, Chernew ME, McWilliams JM. Measuring Low-Value Care in Medicare. JAMA Intern Med. 2014 May 12. [Epub ahead of print]. 59. American Board of Internal Medicine Foundation. [Accessed May 26, 2014] Choosing Wisely: lists of five things physicians and patients should question. http://www.choosingwisely.org/doctorpatient-lists/. Published 2013 60. Cassel CK, Guest JA. Choosing Wisely: helping physicians and patients make smart decisions about their care. JAMA. 2012; 307(17):1801–1802. [PubMed: 22492759] 61. Lewis VA, Colla CH, Carluzzo KL, Kler SE, Fisher ES. Accountable Care Organizations in the United States: market and demographic factors associated with formation. Health Serv Res. 2013 Dec; 48(6 Pt 1):1840–58. [PubMed: 24117222] 62. Conrad D, Grembowski D, Gibbons C, Marcus-Smith M, Hernandez SE, Chang J, Renz A, Lau B, dela Cruz E. A report on eight early-stage state and regional projects testing value-based payment. Health Aff (Millwood). 2013 May; 32(5):998–1006. [PubMed: 23650332]
Author Manuscript Author Manuscript Author Manuscript J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 13
Author Manuscript Author Manuscript
Figure 1.
Accountable care organizations in Medicare
Author Manuscript Author Manuscript J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
Song
Page 14
Author Manuscript Author Manuscript
Figure 2.
Accountability for spending in ACO contracts
Author Manuscript Author Manuscript J Clin Outcomes Manag. Author manuscript; available in PMC 2015 May 06.
