An ACO primer and get started on forming an Accountable Care Organization

In early 2011 Department of Health and Human Services will be issuing guidelines for the formation of Accountable Care Organizations (ACO’s) for CMS (Medicaid and Medicare).

I know of several organizations looking into this type of organization as they anticipate the new guidelines.  There seems to be great anticipation of the guidelines in various health care publications that I have recently read.  On December 18, 2010 on the Health Affairs website there was a description of an organization—Advocate Physician Partners and Advocate Health Care—that has been a successful ACO for over 15 years.

What is an ACO?  An ACO is usually a contracting organization of physicians and hospitals to provide services to members of a payer group (insurer), whether private or governmental, so that the quality of care is greatly improved and so that costs are lowered.  California has had organized ACO’s for many years; most of them are based on the HMO model.   ACO’s in California initially were composed of physician groups and hospitals.  This model improved the likelihood that significant savings could be generated by controlling costs across the spectrum of care, from primary care to specialist care to acute care in hospitals.  Lately, though, hospitals in California have been exiting from ACO’s and cost savings have decreased.  Another problem in California is the difficulty in integrating fee-for-service patients into the model.

An example of a current successful ACO is Advocate Physician Partners and Advocate Health Care in northern and central Illinois.  It serves over one million patients, approximately 230,000 in an HMO setting and over 700,000 in a fee-for-service setting.  It has been in existence for over 15 years.

One of the unique arrangements of this ACO is its governance structure.  Decision- making is accomplished through a joint board of the two partner organizations.  Advocate Care Partners and Advocate Health Care have equal voting rights on the board.  Advocate Care Partners represents over 2700 independent physicians in either solo practices, small group practices, or larger groups with primary care and specialists represented.  Advocate Health Care represents 10 hospitals and approximately 800 employed physicians, most of whom are specialists.

One of the functions of the joint board is to sign contracts with payers.  The Advocate board has successfully signed fee-for-service contracts with all major managed care organizations in northern Illinois.  It has also signed two at-risk contracts.  Another of its legal functions is to protect the ACO from antitrust regulations.  As the Advocate group has less than 15% of all physicians and hospitals in its market, the FTC has explicitly allowed the partnership to contract with independent physicians to provide services through the ACO.

One of the main focuses of the board is to see that physicians meet quality and process goals.  Currently, there are 116 target goals, some of which focus on health information technology.  All physician members are required to use registries and be implementing electronic health records.

Of course, the success of the organization depends on its suppliers—the independent physicians.   Those who do not perform at the level expected are removed.  Last year, over 50 independent physicians were removed from the group.

The Advocate organization has an excellent reputation for providing quality care while delivering significant cost containment.  Thomson Reuter has ranked it in the top 10 of over 252 health care systems.

In conclusion, it seems that forming Accountable Care Organizations is the hot trend in healthcare at the moment.  Most planning to do so are waiting on CMS guidelines.  However, I believe this to be short-sited; healthcare organizations can begin forming an ACO as Advocate has done and adjust to the CMS guidelines as needed.

Donald Tex Bryant is a consultant who helps healthcare providers meet their challenges. He can be reached at Bryant’s Healthcare Solutions.

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