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December 19, 2012

ACOs: Making Organizations 'Accountable' for Care

The historic Patient Protection and Affordable Care Act (PDF), usually referred to as the ACA, or "Obamacare," focuses primarily on extending coverage to uninsured Americans. But it is also intended to help curb cost growth. One of the key tools for doing that is the "accountable care organization," or ACO—an alternative delivery model intended to lower costs while also improving quality of care.

It's perhaps not obvious how organizations (rather than individuals) become "accountable" for care. For clarification, RAND turned to M. Susan Ridgely, JD, a senior health policy analyst at RAND and an expert on health policy reform and payment models.

RAND: Ms. Ridgely, how does an organization become "accountable" for care? What is an ACO and how does it work?

M. Susan Ridgely: One way to think about an ACO arrangement is a stool with three legs: insurers, hospitals, and physician organizations. The idea is that the insurer sets the incentives for the other two (the hospital and physician organization) to share responsibility for providing care to a defined group of patients. An ACO is supposed to bring together the different components of care to ensure that they all work well together. To promote coordination, ACOs make service providers jointly accountable for the health of their patients—for example, the way that Sony is accountable for the quality of the TV set it assembles from the components of many different suppliers. ACOs may be based in hospital systems or physician organizations.

RAND: What would motivate individual providers to become jointly accountable for their patients' health?

MSR: There are probably two basic reasons. In principle, providers understand that coordinated care is better for patients, and the structure of an ACO encourages cooperation. But a powerful reason is financial: Insurers, who pay for care, give service providers financial incentives to cooperate and save money by coordinating care. ACOs that save money get to keep some of it, provided that their care meets certain standards of quality. In other words, they can't just cut corners. They have to find ways to provide good care, more efficiently.

RAND: ACOs sound pretty new. They must not be very common yet.

MSR: Actually, hundreds of commercial ACOs have sprung up across the country since the ACA was passed in March 2010. And as with other new approaches to paying for care, the private sector was ahead of the public sector in launching ACOs.

However, recently the Centers for Medicare and Medicaid Services made ACOs with at least 5,000 beneficiaries eligible for the Shared Savings Program, under which ACOs that lower costs are eligible to keep some of the money saved if they meet strict quality standards. The number of participants in the plan is growing rapidly. As of July 2012, more than 2.4 million Medicare beneficiaries are receiving care from Medicare ACOs operating under the Shared Savings Program and other Medicare ACO programs.

RAND: You've mentioned the private sector and Medicare. What about Medicaid?

MSR: The ACA also authorized a demonstration project to create pediatric Medicaid ACOs. The demonstration isn't currently funded, but some states have begun planning and implementing Medicaid ACOs independently. However, it's not clear how to adapt the private sector-Medicare ACO model for the settings that serve Medicaid patients—for example, Federally Qualified Health Centers, the nation's safety net health centers. RAND has just proposed to examine that issue.

RAND: Medicaid aside, how well are ACOs working overall?

MSR: Unfortunately, ACOs have grown faster than the evidence we have about how well they work. We actually know next to nothing about how these programs are structured and how they will affect the health care system. But again, the private sector is out in front. Blue Shield of California has given $20 million in grants to 18 California health care providers to build health information technology and clinical delivery systems to support creation of ACOs. Put another way, the private sector is investing to build an infrastructure and experience base about how ACOs can be put together to improve care and contain costs. I'm leading a RAND team that is evaluating this pilot program, but it's too early for results.

RAND: In addition to leading the California evaluation, you're working on other projects that focus on ACOs in various ways, as well as on other new payment approaches such as bundled payments. Do you have any general lessons to share that emerge from this work?

MSR: I think there are three lessons for the government and other insurers regarding new ways to pay for health care services:

  1. Payment reform is a long-term proposition—not a "quick fix." Achieving payment reform will take sustained effort as well as the ability to adapt policies as we gain experience.
  2. Just because something is intuitively appealing doesn't mean it will work, and, perhaps most important,
  3. To borrow an expression, "The devil is in the details." "How" a reform is implemented can be as important as "what" is implemented. It's the details that make it work. Given how little we know about the most effective structures for ACOs, this is a lesson that deserves a lot of attention.