Accountable Care Organizations: Lights! Cameras! But Where’s the Action?

One of the hottest topics in health care reform – indeed, the health care industry – is the Accountable Care Organization (ACO).  Like a summer blockbuster movie, ACOs are being advertised as a solution of epic proportions, starring physicians focused on health improvement and providing the continuum of health care their patients.  Audiences – er – patients will be wowed with data capable of proving stellar outcomes and will swoon at the sight of new models of reimbursement for health care services. In fact, in some corners, ACOs are being heralded as hastening the sunset of HMOs and health insurance companies and ushering in a new age – the Age of the Health Care Provider – for health care delivery in the United States.

What remains unanswered is exactly how ACOs are going go from concept to final release. Before we consign HMOs and insurers to the scrap heap like old black-and-white analog film, there may be some use in those “relics” – expertise that the “new media” ACO could use: financial discipline.

The ACO: Concept Adapted from an Original Source

The concept of an ACO is generally credited to Dr. Elliott Fisher developed through his work with The Dartmouth Institute for Health Policy and Clinical Practice. In his analysis of health care cost variation around the United States, he proposed the use of an organization that could be accountable locally for promoting health, that would achieve results versus standardized performance measures and embrace new payment methodologies, i.e., heading away from the old fee-for-service model that rewards volume and intensity of health care services.^[1]

The American Association of Family Practitioners, the American Medical Association, the Urban Institute, the Brookings Institute, and the Robert Wood Johnson Foundation describe a diverse set of provider organizations that can become an ACO. The physician models include “Integrated Health Systems; Multi-specialty Groups; Independent Practice Associations (also referred to as interdependent physician organizations); and Physician Hospital Organizations.^[2]

[1] See Dr. Fisher’s lecture on this subject at http://videos.med.wisc.edu/videoInfo.php?videoid=16665. Accessed May 26, 2010.

[2] See Accountable Care Organizations: A new model for sustainable innovation, Deloitte Center for Health Solutions, http://www.deloitte.com/assets/Dcom-UnitedStates/Local%20Assets/Documents/US_CHS_AccountableCareOrganizations_041910.pdf, page 12.  Accessed May 26, 2010.

There are a bevy “roles” for health care providers of all walks of life – physicians, hospitals, ancillary providers. Even dependent and independent practitioners (physician assistants and nurse practitioners) have more than just “cameos” in an ACO.  ACOs are a great concept. ACOs have a “cast” of thousands (actually, hundreds of thousands). What ACOs now need is backing and an audience.

The ACO’s “Screen Test”

The ACO has strong backing and an audience. PPACA sets the stage for demonstration projects by providing for at least five pilot projects and thirty demonstration projects.^[3]  Although the term “Accountable Care Organization” is only named once by name in the list of demonstration and pilots projects^[4]  and the PPACA leaves the ultimate details to the HHS of what roles ACOs can play these pilots and demonstrations, some of the subject matter of those pilots and demonstrations seem tailor-made for the concept of the ACO. For example, one pilot program concerning “pay for performance”^[5] seems to fit at least two of the ACO’s purposes (standardizing performance measures and exploring new payment methodologies).

So, there is reason to be excited about the ACO concept under the PPACA – it has strong backing by blockbuster financiers (the United States government) and a huge audience (an entire nation that enjoys the best health care on Earth – provided that one knows about it, one can afford to pay for it, and one can convince one’s health care practitioner to actually provide it). ACOs have it all now – what can stop them from being this health care’s Avatar?

Risky Business

In a word: risk. When I say, “risk,” I am referring to risk of loss that, if unchecked, would result in health care providers not being compensated for the services they provide. With forthcoming ACOs “accountable for 100 percent of the expenditures and care of a defined population of patients,”^[6] where is the pressure to keep costs down? Sure, ACOs are supposed to explore different methods of payment. Bundled payment, payment for performance, shared savings and partial capitation are a few alternatives mentioned in the PPACA demonstrations and pilots.^[7] However, the one constant for health care delivery in a capitalistic society is financial risk. Under our economic system, if demand exceeds supply, prices rise. If prices can’t rise (i.e., CMS will not pay any more money), then either some is not going to get health care services or someone is going to be providing health care services for free. And that “someone” in an ACO is ultimately going to be health care providers.

[3] See Vince Kuraitis’ informative blog entry on the subject at http://e-caremanagement.com/pilots-demonstrations-innovation-in-the-ppaca-healthcare-reform-legislation/. Accessed June 12, 2010.
[4] “Pediatric Accountable Care Organization demonstration project” at section 2706 of the PPACA.
[5] Section 10326 of the PPACA.
[6] Deloitte Center for Health Solutions, supra, page 7. It reads in its entirety: “An ACO is a local health care organization that is accountable for 100 percent of the expenditures and care of a defined population of patients. Depending on the sponsoring organization, an ACO may include primary care physicians, specialists and, typically, hospitals, that work together to provide evidence-based care in a coordinated model. The three major foci of these organizations are: 1) Organization of all activities and accountability at the local level; 2) Measurement of longitudinal outcomes and costs; 3) Distribution of cost savings to ACO members.”
[7] Section 10326 of the PPACA, pay for performance, for example.

ACOs, in any of their proposed physician models, have no structural or systemic financial discipline – internally or externally – for handling financial risk. This is where the role of insurers/managed care companies comes into play. In today’s health care industry, if an insurer or managed care organization runs out of money because of use of services beyond what it fund through premiums and reserves, they get declared insolvent and, ultimately, liquidated. In order to help ensure this does not happen, they employ financial discipline (in the form of utilization review, pressure to their own lower administrative costs, and benefit design). They dedicate departments, adjust plan designs, set up information technology systems to track claims and health trends, and hire lots and lots of people – all in the name of holding down health care costs. As much of a hassle and obstacle these systems are to health care delivery, they do address financial risk.

ACOs need to embrace financial discipline as well as improvement in the health of their populations. Whether it comes from the outside (through relationships with HMOs and health insurers) or incorporated internally (e.g., a health plan as a part of the integrated health care delivery system a la Geisinger Health System or Group Health Cooperative), the discipline needs to be there or success will be only one dimensional and not long in duration.

The Big Premiere

And so, on opening night, when ACOs make their grand debut, let it not be marred by them tripping over their own flowing gowns. Instead, they should wear the sensible shoes of financial discipline on their way down the red carpet. ACOs are a concept that aims to prove that the United States can improve the health of Americans and be financially responsible. Let ACOs garner both box office success and Oscars®.

About the Author

Stephen Camper, JD, CIPP is a health care compliance and privacy expert, currently residing in Brentwood, TN. He can be reached at stephen.camper@gmail.com. He has not produced or acted in films, but what he’d really like to do is direct.