Accountable care organizations could save Medicare 20%

March 1, 2010

In the alphabet soup of healthcare, nothing's garnering greater attention these days than accountable care organizations.

The biggest benefit that can come from ACOs, says proponent John Bertko, a visiting scholar at the Brookings Institution and a former chief actuary for Humana, is that "they create both an incentive to do the right thing and an organized team for clinical delivery."

Bertko believes ACOs could enable Medicare to realize a savings of between 5% and 10% over the next five years and as much as 20% over the next decade or two by reducing wasteful services and unnecessary spending.

The model sounds ideal; who doesn't want to reduce costs and improve quality? And the ACO concept has attracted a lot of believers who contend that reforming the dysfunctional fee-for-service model lies at the heart of improving quality and reducing waste. But in healthcare, the devil is always in the details.

WHAT IS AN ACO REALLY?

ACOs could emerge from a variety of existing organizations, such as multi-specialty groups, integrated delivery systems, physician-hospital organizations, hospital medical staff organizations and independent practice associations, experts say.

While different types of healthcare organizations might be poised to form ACOs, proponents agree they must meet specific criteria, including the ability to manage patients across a continuum of care and delivery settings; the ability to plan prospective budgets and resource needs; and sufficient size to support thorough performance measurement.

Others are less optimistic. In an October analysis of ACOs, Urban Institute Fellow Robert Berenson, MD, says, "ACOs are no game changer in the short run."

Dr. Berenson's chief complaint with the ACO concept is that it's not much different from what's already been tried with certain integrated delivery systems, and the promise of shared savings in the future wouldn't be enough to motivate hospitals and providers to change their behavior. He prefers a system based on partial capitation that calls for greater risk sharing.

"Proponents say this is the way you do a transition; that you can't get people to move from fee-for-service to taking risk, and to move from small practices to integrated medical groups in one fell swoop without a transition," he says. "I'm concerned the transition is not enough of one, and it looks more like the status quo."

He also questions whether the ACO's closest living relative-the five-year Medicare Physician Group Practice (PGP) demonstrations launched at 10 sites across the country in April 2005-are robust enough to warrant replication.

Others see more promise in ACOs, but caution that savings won't be easily realized.

Gail Wilensky, an economist and senior fellow with Project HOPE and former head of Medicare and the Medicare Payment Advisory Commission (MedPAC), questions whether patients who are free to choose their own providers will seek care within the confines of an ACO. It might be logical for a patient to seek care within an ACO for an acute episode, such as a heart attack, she says, but patients with chronic conditions are more likely to frequent many doctors and hospitals, some of which might not be part of an ACO.

"I'm not sure what it will take to get the patients with multiple chronics who are heavy Medicare users to participate in and remain a part of an ACO for part or all of their care," she says. "If that doesn't happen, then you're not going to produce the kind of savings being talked about. What is going to induce the seniors to want to play?"

Marsha Gold, a senior fellow with Mathematica Policy Research, Inc. points to historical stumbling blocks. In a January analysis of ACOs, Gold sites examples of providers opposing measures to create more organized delivery systems dating back to the 1930s. She says that the vilified HMO movement of the 1990s included a purchaser push for delivery-system reform but encountered tremendous provider opposition.

The past "shows that reforms based on providers' responses to market incentives are not necessarily successful," she says.

While the ACO concept holds promise, the providers have to buy into it. The policy challenge will be striking the right balance.

"There is always going to be a push to water down requirements," Gold says, and virtual organizations might have trouble enforcing accountability. "The requirements have to make this more than the status quo, but they also have to be realistic and realize that the capacity of different ACOs is likely to differ."

TIERED ACO SYSTEM AN OPTION

Stephen Shortell, dean of the School of Public Health at the University of California-Berkeley, suggests a tiered system could strike that balance. Such a system would allow more risk-tolerant ACOs to assume greater risk with the potential for greater rewards while allowing others to assume a more conservative risk-reward structure.

Shortell says that ACOs will face an uphill battle and that overcoming the infrastructure challenges will take time and creativity. Stark and anti-trust laws will almost certainly need to be modified if ACOs are to spread. Providers, particularly those in small practices, will need assistance adjusting to the new approach and the sometimes contentious relationship between physicians and hospitals will have to be addressed.

But challenges shouldn't stymie reform, he says, and elements of ACOs-including patient-centered medical homes, which he refers to as building blocks-hold enormous promise.

"The ACO concept is not going to bend the cost curve in a meaningful way for many years," he says. "It's not a silver bullet. It's not going to happen overnight, but the early evidence says that they work, and you need to start somewhere."

Shelly Reese is a Cincinnati-based freelance writer.