Accountable care organisations: fostering change to bend the cost curve

Blog post

Published: 23/03/2012

Amongst all of the health reform activities in the United States, the formation of accountable care organisations (ACOs) is considered one of the more promising for bending the health care cost curve while improving patient outcomes.

ACOs are comprised of a group of providers who are held accountable for the cost and quality of care for a defined population of patients.

Successful ACOs are expected to manage costs by aligning incentives for hospitals, physicians and other providers to encourage better coordination across the full continuum of care and to promote continuous quality improvement efforts.

Those that are able to keep costs below specified amounts can share in the savings, contingent upon meeting performance standards.

The ACO model is still relatively new and untested. In fact, the results for one of the largest ACO-like efforts to date, the Medicare Physician Group Practice Demonstration, has been mixed at best, with only half of the ten participants achieving cost-reduction targets by the end of the fifth year.

However, providers and payers remain committed to the ACO concept. Over the next year, the number of ACOs is expected to grow substantially, as a new Medicare program designed specifically for ACOs is set to begin in April.

Interestingly, the ACO model bears a strong resemblance to the basis of proposed reform under the National Health Service (NHS) in the United Kingdom – i.e. the clinical commissioning groups (CCGs).

CCGs will also be provider-led and responsible for managing the health of a defined population of patients under a budget.

At the recent Nuffield Trust Summit, I had the chance to meet with several NHS delegates and other UK stakeholders to discuss the progress of ACOs.

Highlighted below are three of the issues raised:

  • Flexibility in ACO design
    A key feature of the ACO framework is its inherent flexibility. For example, participating provider organisations can range from integrated delivery systems to loosely affiliated physician groups that may be linked together through a regional health information exchange.

    In addition, ACO payment models can range from ‘one-sided’ approaches which reward providers for reducing costs, but do not hold them at-risk of any excess costs, to ‘two-sided’ approaches, in which providers can achieve even larger rewards, but are held accountable for excess costs.

    Since the ACO program is voluntary, this flexibility can help encourage broad participation. However, too low a barrier for entry could lead to the enrolment of providers not ready to effectively coordinate and manage care, potentially resulting in wasted investments.
  • Hospital participation
    A cost-reduction strategy often identified for ACOs is to avoid high-cost hospital services. However, those services represent revenue to hospitals, which calls into question the value proposition for a hospital to participate in the ACO model.

    On the other hand, hospitals can be considered logical ACO leaders. For example, they already have a management structure and are likely to have a data sharing infrastructure in place, as well as capital available for upfront investments needed to form an ACO.

    In addition, hospitals may be motivated to protect their market share, realising that change may be inevitable as current payment rates are unsustainable and physician groups and competing hospitals may already be getting a head start in reform efforts.
  • Engaging patients
    The ACO model does not require any insurance benefit design changes. Thus, for example, patients assigned to an ACO under the Medicare program would still have access to other Medicare providers outside of the ACO network.

    While this helps ensure that patients retain choice, it also makes it harder for ACOs to manage the care of their patients. Ideally, ACOs will retain their patients by providing high-quality care associated with positive patient experiences.

As can be gathered from this sampling of issues discussed at the Summit and those facing ACOs in general, ACOs are certainly not a sure fix to the problems in the United States health care system.

The ACO model represents a sharp change from the current health care environment in which most providers are not well-equipped to coordinate care and have little financial incentive to do so because of the predominate fee-for-service payment system which rewards inefficiency by paying more for more care regardless of the impact on patient health.

Thus, it would likely take years and many modifications from lessons learned, to foster the type of change that can permanently bend the cost curve.

Given that similar issues are being faced by the NHS, ideally that process can be accelerated by sharing lessons learned across health systems on both sides of the Atlantic.

Dr Mark Zezza is a Senior Policy Analyst at The Commonwealth Fund in the United States. He presented at the Nuffield Trust’s Health Policy Summit 2012.

Please note that the views expressed in guest blogs on the Nuffield Trust website are the authors’ own. This article is also available to read on The Guardian Healthcare Network website.

Suggested citation

Zezza M (2012) ‘Accountable care organisations: fostering change to bend the cost curve’. Nuffield Trust comment, 23 March 2012.