Overview of Accountable Care Organizations (ACO) | Josette Gbemudu, MSc | RxEconsult

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An Overview of Accountable Care Organizations (ACO) Category: Healthcare Administration by - April 21, 2012 | Views: 22060 | Likes: 3 | Comment: 3  


The rate at which health care expenditure is rising is unsustainable. In 2011, national health expenditures as a percentage of GDP was 17.7% in the United States, which is significantly higher than what other Organization for Economic Co-operation and Develoment (OECD) countries spend on health care, and at this current trajectory, health expenditures will consume 19.8% of our nation’s GDP by 2020. The problems facing our health system are further compounded by access and quality issues. The Commonwealth Fund’s 2011 edition of the National Scorecard on U.S. Health System Performance measured the U.S. health care system’s performance against 42 key indicators of health care quality, access, efficiency, equity, and healthy lives, and found that our health care system faced troubling setbacks in providing access to care and ensuringHealthcare Cost Checkup affordability of care. Despite these challenges, the federal government, states, and the private sector are open to testing new payment and care delivery models to help advance the Triple Aim: improving patient experience and population health while reducing costs. One of these new models is the accountable care organization (ACO), which was put forth by the Patient Protection and Affordable Care Act (ACA).

What is an Accountable Care Organization (ACO)

ACOs are provider groups that agree to be accountable for the overall costs and quality of care for a specific patient population. If an ACO is able to meet or exceed desired quality targets while generating measurable reductions in health care spending, then the ACO is eligible to share, to a certain extent, in the savings. The goal behind the ACO model is to refocus our system away from rewarding and incentivizing volume-driven care to a system that rewards provision of patient-centered and efficient care.

The saying "one size does not fit all" applies to ACOs. They can consist of a variety of structural configurations ranging from hospital-led ACOs to physician-led ACOs. No matter its configuration, ACOs should consider:

  • Maintaining patient choice;
  • Engaging in effective care coordination;
  • Introducing programs to address the needs of high-risk patients (e.g. patients with multiple chronic illnesses);
  • Advancing broader delivery system reforms;
  • Establishing a legal structure with a governing board charged with overseeing the ACO’s strategic direction;
  • Supporting provision of primary care services and encouraging patients to align with a medical home;
  • Assuming responsibility for a sufficient number of patients to ensure that costs and quality improvements are adequately captured and validated;
  • Establishing a performance measurement and reporting program in which providers in the ACO are kept abreast of their performance relative to target metrics;
  • Designing a contract that stipulates the budgeting, benchmarking, target setting, attribution, and payment methodology process; and
  • Investing in health IT in order to measure improvements in health outcomes, quality and costs.

Federal Activity

In an effort to reign in Medicare costs and improve quality of care for beneficiaries, the federal government established the Medicare Shared Savings Program. Under the program, physicians and hospitals will work together to coordinate and improve care for seniors and share in potential future savings from delivering that care. The Centers for Medicare and Medicaid Services (CMS) selected 27 ACOs to participate in the program’s three year performance cycle. These ACOs serve a combined 375,000 beneficiaries in 18 states including Arizona, New York, North Carolina and Texas. Chosen ACOs can join one of two performance tracks. The first track, coined simple shared savings, is for organizations that will share in savings if they reduce their overall spending relative to the benchmark and meet predetermined quality measures. Organizations opting for the second track, two-sided risk, will receive a greater share of the savings if they reduce costs and improve quality, however, if these organizations do not lower their spending (e.g. spend greater than the target benchmark), they will have to give back a portion of the losses.

The federal government, through the Centers for Medicare and Medicaid Innovation (CMMI), has also rolled out another ACO initiative, Pioneer ACO Model, which is meant to complement the Shared Savings Program. The Pioneer Model is designed for health care organizations and providers that already have the experience, tools, and capacity to coordinate care for patients across multiple care settings. Furthermore, these groups have some familiarity with taking on financial risk (e.g. capitated payments) either through population-based and/or outcomes-based contracts. CMMI selected 32 provider organizations from across the country for the Pioneer Model. These organizations will be able to receive higher levels of shared savings than organizations in the Shared Savings Program.

State Activity

States are increasingly interested in applying the ACO model to help lower costs and improve quality of care for Medicaid. For example, Colorado instituted the Accountable Care Collaborative, which includes elements of Accountable Care Organizations. Oregon enacted legislation to establish Coordinated Care Organizations (CCOs), which are networks of different provider groups that have agreed to work together and assume responsibility for the health outcomes of the Medicaid population they serve. Slated to launch in August 1, 2012, CCOs will work under one unified budget and will receive a fixed rate for providing comprehensive health services including mental, physical, and eventually dental care. A few other states have introduced ACO-like legislation. Minnesota passed legislation in 2010 requiring the Department of Human Services to implement a demonstration that would test alternative payment and care delivery models, including ACOs. The Health Care Delivery System Demonstration is expected to launch by the end of 2012 and it will include nine provider groups that have signed risk-based, shared savings contract with the state to care for a subset of Medicaid patients. New Jersey also recently passed legislation in August 2011 to establish a Medicaid Accountable Care Organization (ACO) Demonstration Project. . The demonstration will allow nonprofit corporations local general hospitals, clinics, health centers, qualified primary care and behavioral health care providers, and public health and social services agencies – to apply for certification and participation in the project. Once accepted, certified Medicaid ACOs will be eligible to receive and distribute gain-sharing or cost-savings payments in accordance with a gain-sharing plan.Many more states have either passed ACO legislation or are thinking about piloting small ACO-like demonstrations.

Private Sector Activity

Well before the Medicare Shared Savings Program began, health care organizations and providers were developing ACO partnerships with private insurers. Each partnership has to be looked at individually given the variation in the types of models being developed. So far, Anthem/WellPoint, Humana, United Healthcare and a few others have established pilot-type ACOs with specific provider groups. The patient population being served by these ACOs ranges from PPO patients to large scale employers’ self-insured population to Medicare Advantage beneficiaries.


As many of the ACO efforts are nascent, it left to be seen whether they will produce cost savings and improvements in quality. Consistently testing and evaluating the data stemming from these ACO efforts is very critical to assessing the future success of ACOs. What is clear, however, is that health care expenditures are rising faster than wages and inflation, which could potentially lead to access, affordability, and quality constraints. Therefore, it is important that we test different solutions that may help us achieve quality and cost improvements.

About the author

Josette N. Gbemudu, M.Sc., is a senior policy analyst at the National Governors Association (NGA). In this capacity, she works with governors and their health policy staff to develop solutions to state-specific issues around delivery system transformation and payment reform. Prior to joining the NGA, Ms. Gbemudu was a health policy fellow at The Dartmouth institute for Health Policy and Clinical Practice, where she focused on the implementation of payment reform models and emerging accountable care organizations. Previously, she completed a postgraduate work placement in the government affairs division of Sanofi-Aventis UK and served as an associate at Avalere Health LLC. Ms. Gbemudu holds a master’s degree in international health policy from the London School of Economics and Political Science."

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