Accountable Care Organizations Need Time to Develop, Mature

Accountable care organizations, or ACOs, have emerged as a powerful concept of how health care is delivered and paid for in the ongoing debate about health care reform. For many Capitol Hill lawmakers and White House officials, ACOs represent a way to improve quality and save costs, two fundamental but elusive goals of health care reform.

According to a new policy brief from the Urban Institute and the Robert Wood Johnson Foundation, however, ACOs still are evolving. Many issues and questions about the entities are unresolved, thus, minimizing their overall impact on health care reform. In the short term, they are not game changers in either the private or public sector, says the brief.

"ACOs are a highly worthy idea," says Robert Berenson, M.D., a fellow at the Urban Institute and one of two authors of the policy brief. "But there is so much ambiguity and confusion about what we are talking about, it is going to take some time to sort out and test the notion."

Berenson says ACOs will take at least five to 10 years to develop, and in time, they could be a fundamental solution to health care cost and quality problems. "But I have no pretensions that they are easy to do or that there are not going to be lots of growing pains," Berenson says.

The policy brief defines an ACO in general terms as a local health care organization and a related set of providers -- at a minimum, primary care physicians, subspecialists and hospitals -- who are held accountable for the cost and quality of care delivered to a defined population. The goal of the ACO is to deliver coordinated and efficient care. ACOs that achieve quality and cost targets would receive a financial bonus, but the entities could incur penalties for failing to achieve those targets.

ACOs would make providers and organizations responsible for the quality and cost of care, a change from past reform efforts that sought to hold insurers responsible for quality and costs. Although there are various versions of ACOs, there is widespread consensus about the need to create the right type of incentives for hospitals and physicians to work together and to be held accountable for costs and quality.

"That makes a lot of sense," says Berenson.

But questions still remain, he notes. In some communities, for example, physicians and hospitals dislike each other and actively compete, making it difficult for the two entities to work together.

"Some think local hospitals must be included in an ACO," says the policy brief. "However, others think that the relationship between physicians and hospitals is becoming so severely strained -- at least in some areas -- that perhaps we should allow separate ambulatory and inpatient ACOs to develop and not force a marriage between feuding partners."

The different versions of ACOs also vary dramatically in how they would work and how they are paid, says Berenson.

"I don't think we have any clarity at this moment beyond the sort of general concept that we want to change payment, and we want better organizations to support a greater attention to cost and quality," he says.

The policy brief describes the current fee-for-service payment system as an impediment to health care cost control and quality improvement.

"There is a general consensus among policymakers that fee-for-service and independent practices that are not accountable for either cost or quality have taken us down the road to perdition," Berenson jokes.

The policy brief describes one ACO payment structure in the House health care reform bill in which the fee-for-service system remains intact. Medicare would pay physicians and other providers within the ACO based on fee-for-service. In this model, Medicare would calculate and set the expected total expenditures for patients cared for by the ACO. Medicare also would measure and assess the quality of care. If the ACO provides the care patients need for less than expected and quality standards are met, the ACO receives a portion of the savings as a reward.

Berenson does not think that particular model is strong enough to create fundamental and systematic change. He is convinced that ACOs will not work without some type of capitation, which leads to another set of unresolved questions: "How do we form real organizations that are willing to give up fee-for-service -- and the inherent, profit-making incentives of fee-for-service -- to be held accountable for holding costs down?" asks Berenson.

Even if policymakers succeed in forming ACOs that operate under some capitation, they could produce unacceptable side effects, such as locking patients into the organizations and not giving them a choice of physicians, according to Berenson.

ACOs would have to meet three basic criteria to qualify as true ACOs, according to the policy brief:

Most physician practices do not have the resources to meet the criteria of ACOs on their own. But Berenson says even small and solo practices could participate in an ACO by forming or participating in an independent practice association, or IPA -- a group of practices that come together to accept capitated risk. In California, IPAs bind independent practices -- including primary care and subspecialist practices -- together. They could be considered under the rubric of ACOs.

"(IPAs) develop practice guidelines and are the organizational form that permits independent practices to work together," says Berenson.

A rural physician practice in Iowa, for example, could function independently but also be a part of a larger IPA. "You can have IPAs in which doctors come together for some of their purposes, but are independent for other parts of their purposes," says Berenson.

He further points to examples where small rural practices became part of multispecialty groups. Although they have maintained their decentralized location in the community, they benefit from the capabilities of the medical group's management and access to capital improvements, including electronic health records.

Berenson, like many other analysts, is adamant that "any successful ACO has to have a major primary care orientation." The patient-centered medical home, for its part, should be embedded in the ACO, according to Berenson.

"The primary care doctor has to be the glue that holds it all together," he says. "We also know empirically that some of the successful ACO prototypes in California and elsewhere are primary care dominated."

Unlike subspecialists, primary care physicians do not want to put patients in hospitals and perform procedures, says Berenson. "You need the chronic care management that primary care provides and that (sub)specialists don't do. All of that requires a primary care orientation."

If done properly, ACOs are favorable to primary care, according to Berenson. But in some instances, would-be ACOs are dominated by large multispecialty practices who take advantage of the fee-for-service payment system, one of the reasons why primary care physicians may feel threatened by the organizations.

"The primary care doctors may feel excluded because they are in a system that that is rewarding profitable services and the physicians who perform these services," Berenson says.

He also believes an ACO should comprise at least 40 to 50 physicians and that at least half of those should be primary care physicians, working in tandem with subspecialists who are willing to be held accountable for cost and quality.

"ACOs and medical homes are the right concepts," Berenson says. "And we are now in the trenches to try and make them work."