Can ACOs curb health costs and improve quality of care?

Accountable Care Organizations (ACOs) have received considerable attention recently, and are the new “hot topic” in healthcare delivery policy circles. They are the latest response to the need to do something to stem the runaway inflation of healthcare costs, while maintaining or improving measurable health care quality.

According to a report in Health Affairs, U.S. health expenditures represent more than 17% of gross domestic product (GDP), and is projected to rise to almost 20% by 2019. Expenditures by Medicare alone are expected to almost double, from approximately $500 billion in 2009 to almost $1 trillion in 2019. Such a trend is unsustainable, and seriously cripples the economic well-being of the country.

Many reasons for this runaway cost spiral have been argued – the development of new diagnostic and therapeutic technologies; incentives that pay physicians to simply do “more”; persistence of medicine as a cottage industry in many parts of the country without systematic accountability; the surplus of specialists relative to primary care physicians, especially in high-cost areas… the list goes on.

Solutions to this dilemma require a change both in how hospitals and physicians are clinically organized, and how they are paid for their services. Various runs at this problem have already been tried over the past decades – commercial (and later, Medicare) HMO efforts mainly looked at payment-method changes (paying a negotiated fixed amount per-member-per-month – capitation – to physicians), but struggled to achieve physician and hospital organizations that could manage such risk.

Insurance companies, after all, receive money from premiums as a capitation (fixed number of premium dollars per member per month), and are at-risk when they pay fee-for-service to healthcare providers – they need to establish “utilization control” in order not to run out of money. If they do run out of money, they must raise their premiums. When insurance companies shift that risk onto physicians and hospitals by paying them a capitation, leaving it up to physicians and hospitals not to run out of money, all manner of withholding-of-care stories arise if those physicians and hospitals are not well organized to manage that risk.

In some parts of the country, risk-taking organizations arose during the 1980s and 1990s and have remained successful – in California, sometimes called “the land of the Delegated Model,” many large medical groups and Independent Physician Associations (IPAs) have successfully managed capitation, kept costs from escalating wildly, and have been able to demonstrate good quality of care. The California Association of Physician Groups (CAPG) is a large organization of such groups, and strongly advocates preservation (and expansion) of the Delegated Model.

In most other areas of the country, however, such organizations did not develop successfully, and insurance companies had to negotiate directly with individual physicians, rather than risk-capable physician groups. In the absence of organizational change, the payment-methodology change was mostly met with backlash.

In the current era, ACOs are intended to be the kind of organizational structure that can manage payment reform. ACOs are specifically called-for in the 2010 Health Reform Law, and are proposed as a way to serve Medicare fee-for-service patients (not, interestingly, Medicare Advantage – “Medicare HMO” – patients).

It is not yet clear exactly what an ACOs can look like. For example, it is not clear whether physician-only groups can be ACOs, or whether a hospital partner is needed. It is also not clear what changes in federal and state anti-trust laws will be needed to allow ACOs to thrive. There are certain guidelines, however, for what is needed to participate with Medicare as an ACO. The group must: (1) be accountable for quality, cost, and overall care of an assigned population; (2) must agree to participate for at least 3 years; (3) must have a structure that allows it to receive and distribute payments for shared savings; (4) must have enough primary care physicians to cover the population; (5) must have a management structure in place; (6) must define processes that promote evidence-based medicine; and (7) must demonstrate that it meets “patient-centeredness” criteria.

Such organizations can be group practices, networks of independent practices (like risk-taking IPAs), hospital-physician partnerships (the “Foundation model”), hospital-owned physician practices (in states where this is legal), and the like. Likely, thousands of ACOs will emerge around the country, with very different structures and cultures, and a certain spectrum of experience will come out of this experiment. Some will fail, some will thrive.

How does this tie in to the use of Electronic Health Records (EHRs), which is promoted by a different law (the 2009 ARRA act, which defined Meaningful Use)?

In order for an organization of physicians to be able to do the things an ACO must do – clinical quality measures, advanced decision support, implementation of Business Intelligence systems to determine where to appropriate resources in a non-wasteful way – clearly, a modern EHR system is needed. An ACO can’t function without an electronic platform of clinical data.

The kinds of things required by Meaningful Use are, in fact, exactly the kinds of things that an ACO must do. On this point, the 2009 ARRA law and the 2010 Health Reform law converge. For those of us who are creating modern EHR products that will facilitate demonstration of Meaningful Use, and for those clinicians who are learning how to use those tools in their clinical practices – everyone is pointed in the same direction. And it is this direction that will nicely position Meaningful Users of EHRs as good candidates for successful ACO participation (regardless of the exact form such ACOs might take).

Robert Rowley is a family physician and CMO of Practice Fusion.  He blogs at EHR Bloggers.

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  • http://nostrums.blogspot.com Doc D

    A nice summary, although you start with cost and transition to quality. I’ve not seen anyone explore the relationship between the two if any: historically organizations lower cost by reducing expenses, which can impact quality. Accountability may or may not be the answer.

    You don’t mention the analysis in the NEJM last week that said the government’s own demo was a failure at recouping the cost of investment in ACO, even for the cherry-picked physician groups who participated. Although 6 out of 10 participants achieved some piece of the shared savings pie (call it savings, pay for performance, bonuses, or incentives: the point is, meet standards or earn less), none were making headway to break even.

    You also don’t mention the large scale British study of Pay for Performance published in the BMJ in January. It looked at the quality of care for hypertension (500K records) before and after a PFP transition, which showed no impact on control of BP or it’s complications.

    Dr. Beriwck was quick to reply in the NEJM this week, giving a head nod to unmet expectations, and calling it a learning experience, but basically said we’re pressing ahead.

    As a fellow blogger reminded us recently, Goodhart’s Law says that “a measurement when used as a target loses its value as a measure” (see “retired doc’s thoughts”). I suspect the grandiose schemes of Dr. B and others will find that human nature will triumph over management.

    Wouldn’t it be better to demonstrate the utility of these policies first, before using US patients’ health outcomes as an experiment in learning?

  • Patrick Mac

    “Can ACOs curb health costs and improve quality of care?” The answer is no, but they will generate millions of dollars for lawyers and consultants. see: http://www.washingtonpost.com/national/complex-health-care-law-turns-into-payday-for-consultants/2011/04/01/AFPkQXQC_story.html

  • gzuckier

    well, at least it’s a break in the frozen sea of pay for procedure medicine which fails to ensure either quality or financial efficiency, either in practice or in theory.
    if it works, hooray; if not, i don’t believe it’s going to actually propel us backwards as we attempt to move towards “better” medicine. after all, people learn stuff from failures. certainly more than they learn by never trying something which might fail.

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