achieving accountable and affordable care

8/8/2019 Achieving Accountable and Affordable Care

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Achieving Accountable andAordable CareKey Health Policy Choices to Move the Health Care System Forwa

Judy Feder and David Cutler December 2010


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Achieving Accountable andAordable CareKey Health Policy Choices to Move the Health Care

System Forward

Judy Feder and David Cutler December 2010

The subjects in the cover photo are models and the image is being used for illustrative purposes only.


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Contents 1 Introduction and summary

7 What are accountable care organizations?

10 Encouraging physician-led alongside hospital-led ACOs

14 Promoting an alternative to shared savings

17 Engaging and protecting consumers

20 Conclusion

21 Endnotes

23 About the authors


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1 cener r Ameran prgre | Aevng Aunable and Ardable care

Introduction and summary

Reorming our naions healh care sysem so ha i no longer delivers oo much

low-bene care a oo high a cos will require our new healh reorm law o spark

a sysem-wide revoluion. Disorganized care based solely on ee-or-service pay-

mens o a variey o unconneced physicians, hospials, and clinics will have o

give way o coordinaed, inegraed courses o reamen ha deliver high-qualiy

care a lower coss. Prevenion and primary care will need o be sressed as much

as reamen o he sick. And duplicaion and medical errors will have o be sys-

emaically ound and eliminaed.

We know medical care can be beter organized and delivered. Virually every

indusry in our economy over he pas 15 years drove down coss, increased qual-

iy, and experienced a surge in produciviy. Te resul: An increase in our naional

income a a rae no experienced since he 1960s. And he oulier in our economy?

Our healh care indusry, which missed ou on he produciviy boom even as i

incorporaed all kinds o new and expensive lie-saving equipmen and services.

Te impac o his ailure o innovae based on coss and qualiy in healh care is

enormous. Absen any savings rom he recenly enaced healh reorm law, ederal

spending on medical care is expeced o hi 25 percen o gross domesic produc

(he oal oupu o our economy) by 2035, up rom 15 percen o GDP oday. 1

In conras, increasing healh care produciviy growh o he average o oher

indusries could cu medical spending by over $2 rillion and reduce ederal

governmen spending by almos $600 billion over 10 years.2 Family, employer, and

sae and local governmen budges would bene in he same way. Te possibil-

iy o a more ecien, less cosly healh care sysem is universally shared. Every

analys who sudies healh care believes i is possible o simulaneously lower coss

and improve qualiy. Te major quesion is how o realize i.

Reecing he bulk o sudies, he idea underlying he new healh reorm law, he

Aordable Care Ac, is o promoe eciency hrough hree inerlocking seps.

Firs, we need o gaher he righ daa on wha paiens need and how bes o pro-


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vide ha, and hen eed ha inormaion o paiens, purchasers, and providers.

Te American Recovery and Reinvesmen Ac o 2009 launched he healh I

revoluion, allocaing $30 billion o wire he medical sysem. Te erms or access-

ing he money are se, and all observers look or a subsanial increase in healh I

invesmen as a resul.

Second, we need o move healh care paymen sysems away rom rewarding he

provision o more care o a sysem o rewarding beter care. I is naural (indeed

benecial) ha healh care providers such as docors, hospials, and clinics

respond o he economic incenives hey ace, which sends hem looking or ever

more sophisicaed kinds o care o deliver o heir paiens. Te problem is, per-

orming coronary arery bypass surgery brings in housands o dollars o hospials

and surgeons, while keeping diabeic paiens healhy so hey do no need surgery,

in conras, lowers pros. Tas why paymen incenives have o change.

Tird, we need o encourage providers o reorm heir operaions so ha heycan ake advanage o he inormaion resources and paymen incenives. Tis

hird sep is he subjec o his paper, hough he concep o he accounable care

organizaion, or ACO, is clearly and direcly relaed o he rs wo seps. Why?

An accounable care organizaion is a group o medical care providers who accep

responsibiliy or providing or arranging all care or a group o paiens under a

paymen arrangemen ha allows hem o pro rom reducing coss and improv-

ing qualiy. Because paiens need so many dieren ypes o medical carepri-

mary care providers, specialiss, hospials, labs, pharmacies, and morean ACO

mus necessarily coordinae care across dieren providers.

Tas how an ACO works, good primary care o regularly assess and manage

paiens care needs, inormaion echnology ha aciliaes ecien and eecive

care managemen, specialis care when needed, and bundled paymen sysems

ha reward qualiy care. An ACO can coordinae healh care needs o boos qual-

iy and lower coss. (See box on page 3)


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Thinking about people who star t o healthy, develop one or more

chronic illnesses, and ultimately need acute or post-acute care helps

clariy three sources o savings:

More ecient care in acute and post-acute settings

Preventing acute illness

Reducing administrative costs

Bearing in mind our health care ow chart below, lets see how

coordination through accountable care organizations can best deliver

these three types o savings:

More efcient care in the acute and post-acute setting

Patients who need acute or post-acute care oten receive care that is

not benefcial, or experience setbacks because o lack o coordination.

The widely cited studies o the Dartmouth Atlas researchers show

that care in acute settings varies greatly across the country, with little

impact on patient survival or satisaction. 3

Preventing acute illness

The best way to minimize the cost o acute episodes o care is t

prevent them rom occurring. The problem is that prevention is

haphazard in the United States today. Only 43 percent o patien

with diabetes in our country receive all recommended screenin

The share is over 60 percent in the United Kingdom and near th

in the Netherlands.4 I our payment system were to promote be

primary care to manage diabetes, as much as $2.5 billion could

saved rom avoiding hospital care.5

Reducing administrative costs

Coordinating among the many dierent providers in the United

States involves signifcant administrative expense. Because re-

cords are not electronic, an enormous amount o time is spent

documentation, obtaining appropriate permissions, and ensuri

appropriate reimbursement. A recent study estimated that adm

trative costs account or 39 percent o the dierence in hospita

physician care between the United States and Canada.6

Accounting or accountable care

The total amount that could be saved through more ecient otions is enormous. The studies noted above suggest that about

percent o medical care spending is not associated with the im

health o patients, or improved outcomes in health policy par

and another 10 percent is wasted in administrative costs. The a

to be saved may be as high as 40 percent o total medical spen

or over $2 trillion annually in the next decade.7

Where are the savings?

Healthy person Continued health

Chronic illnessSuccessul

management

Acute episode Post-acute care


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Te Aordable Care Ac requires he Ceners or Medicare and Medicaid Services,

or CMS, o sar an accounable care organizaion program by January, 2012,

inviing all organizaions who qualiy o paricipae or heir Medicare paiens.

Learning rom experience and building on success, he goal is o expand more

eecive paymen and service delivery no only hroughou Medicare bu o all he

insiuions ha pay or healh care and he paiens hey cover over ime.

Te law is inenionally evoluionary, no revoluionary, because pas experi-

encemos noably he backlash agains healh mainenance organizaions in

he 1990sdemonsraes ha orcing consumers and providers o become more

ecien is neiher welcome, eecive, nor susainable. Insead, he law aims o

enice boh consumers and providers ino sharing in and delivering demonsrably

beter care a lower cos.

CMS is now in he process o wriing he rules or he accounable care orga-

nizaions. Equally imporan, he agency is creaing a Cener or Medicare andMedicaid Innovaion, which will be broadly responsible or piloing complemen-

ary iniiaives ha promoe beter care along he specrum o innovaion. ACOs,

he Innovaion Cener, and oher pilo programs specied in he law represen

companion pieces o an overall sraegy o maximize he poenial or susainable

and signican paymen reorm.

Te success o healh care reorm will depend heavily on he way he ools ha

he law provides are acually pu ino eec. Cerain eaures o an ACO program

are generally agreed upon. Having good inormaion and perormance measures

is key. o enable qualiy improvemen a lower coss, CMS mus collec oucome-

and-cos inormaion in real ime and assure is availabiliy o providers and

consumers. Providers should readily undersand how o orm and susain an ACO,

and be held accounable or resuls, no each operaional deail. And he oppor-

uniy o do well by doing goodha is, o bene nancially rom eciency

mus be srong enough o enice paricipaion and achieve inended resuls.

Less clear is how bes o design policy o achieve boh he goal o broad paricipa-

ion and he commimen o beter, lower-cos care. New paymen arrangemens

mus no only be atracive bu also have real poenial o change behavior amonghealh care providers and paiens alike in order o improve qualiy and reduce

coss. Te choices ha CMS makes in dening ACOs and relaed innovaions will

be criical o a successul launch o paymen and delivery reorm in he coming

decade. Tree aspecs o design are paricularly imporan:


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Wheher paymen reorms are designed around hospial sysems or encourage

new orms o inegraion among physicians and oher healh care providers How much paymen incenives should limi paymen or coss above expeca-

ions in addiion o rewarding coss ha are below expecaionsWha righs and responsibiliies consumers have in a sysem where providers

are paid on a bundled-care basis and rewarded or more ecien care

Based on analysis o each o hese hree issues, his paper proposes answers o

each quesion. Specically:

On paymen reorm, we encourage he developmen o physician-led accoun-

able care groups alongside hospial-led organizaions. CMS can encourage hese

organizaions by ying nancial rewards o reducion o prevenable inpaien

and emergency care, as well as providing organizaional and echnical suppor o

physician-led organizaions.

On paymen incenives, we sugges a paymen sysem ha rs opionally and

hen as a requiremen leads providers o share in he nancial risks o overspend-

ing as well as in he savings rom underspending, relaive o spending arges.

On righs and responsibiliies, we believe ha consumers should be acive par-

ners in improving he qualiy o heir care. Ta means consumers should decide

wheher o join an ACO, and i hey do, hey should be able o coun on rules or

consumer proecion and creaive ways o bene nancially rom seeking qual-

iy care a lower coss.

See our able on page 6 or a quick snapsho o our recommendaions.

In he pages ha ollow, we will deail how accounable care organizaions are

designed o atrac he paricipaion o healh care providers and heir paiens.

Ten we urn o how o ensure ha hese new arrangemens acually deliver beter

qualiy a lower cossavoiding he concenraion o pricing power by promo-

ing alernaives o hospial-led accounable care organizaions, and assuring ha

paymen incenives promoe real change in he delivery o care. We close our paper

wih a discussion abou how paiens can parner wih heir healh care providers indelivery reorm and, ogeher, build he condence and commimen well need i

innovaions in healh care provider pracices and paymen reorm are o ake hold.


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Accountable care organizations

Quality care at lower costs

Summary o payment reorm recommendations

Base requirements or setting up an

accountable care organization

Clear standards or becoming an ACO, such as having a mini-

mum number o primary care physicians and the capacity to

report basic perormance measures

Emphasis on primary and patient-centered care as the ocus or

care management

Investment in data systems to measure and disseminate cost

and quality inormation in real time to guide patient care

Strong perormance measures to assure that fnancial benefts

reect better not cheaper care

Participating providers Encourage physician-led organizations by stressing reduced

hospital use in measures o quality, such as avoidance o ambu-

latory-care-sensitive admissions or emergency room visits

Enable physician-led ACOs through CMS arrangements with

organizations that have the technology and management

capacity to support care coordination

Financial rewards and restraints Oer providers an initial choice between a payment arrange-

ment that enables them only to share savings or a payment

arrangement that oers health care providers a greater share o

savings i they also agree to share some risk

Ater three years, require providers to share in risk as well as

savings

Consumer involvement Inorm consumers about an ACOs payment system and enable

them to choose to participate

Provide consumer protection against poor quality ACO-

provider choices and consumer benefts to using high-quality,

low-cost care


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What are accountable care

organizations?

Te concep o an ACO, now dened in law by he Aordable Care Ac, rs

emerged in recen years o characerize arrangemens among healh care provid-

ers who collecively agree o accep accounabiliy or he cos and qualiy o care

delivered o a specic se o paiens.8 Te essence o an ACO lies less in is organi-

zaional orm han in elemens o is delivery and operaion ha enable accoun-

able care, specically is:

Capaciy o deliver he coninuum o care, grounded in srong primary care Paymen ha rewards specied improvemens in qualiy as well as slower

cos growh Reliable measures o paiens healh o assure ha savings are achieved hrough

improvemens in care

Tese hree elemens reec a healh care delivery reorm sraegya combina-

ion o eecive primary care and acive coordinaion o careo promoe beter

care a lower coss by reducing he unnecessary use o high cos services, such as

hospial inpaien and emergency room care.

Equally imporan, hese hree elemens reec a paymen-reorm sraegy ha

ies paymens o he eecive measuremen o acual qualiy perormance, which

in urn assures any savings come rom improving care no skimping on care. Boh

sraegies are urher disinguished rom pas reorm eors by holding healh care

providers, raher han insurers, accounable.

Consisen wih he concep as developed in he eld, he law species ha ACO

paricipaiona choice open o all healh care providers who saisy specied cri-

eriacan accommodae a broad range o organizaional arrangemens, including:

Physician group pracices or neworks o individual pracices Physician-hospial parnerships Hospials employing physicians


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How many and wha kinds o providers acually paricipae in ACOs and he

probable consequences on cos and qualiy will have less o do wih specicaions

o organizaional orm han wih he qualiying crieria, broadly dened, and

paymen arrangemens, which he Cener or Medicare and Medicaid Services has

ye o ully speci y.

Sill, we know he broad oulines o whas o come. Te new healh care law says

ha o qualiy as ACOs healh care provider organizaions mus have leadership,

managemen and legal srucures, and dened processes o ensure he delivery o

evidence-based, coordinaed care as well as paien engagemen. Furher, healh

care provider paricipans mus demonsrae he capaciy o implemen qualiy,

cos, and oher reporing requiremens essenial o assess he perormance o an

ACO agains qualiy improvemen and paymen objecives.

More subsanively, he law requires ha providers have primary care capac-

iy sucien o serve a minimum o 5,000 Medicare beneciaries, demonsraehe capaciy or paien-cenered care, and agree o specied erms o paymen.

Consisen wih healh researchers early developmen o he ACO concep, he

sauory language gives prominence o shared savings as he mechanism or

seting hese erms.

Te shared savings model esablishes a benchmark or per capia spending, based

on hisorical experience or a given populaion projeced orward by he projeced

naional average dollar increase in per beneciary spending. Healh care providers in

an ACO are paid on a radiional ee-or-service basis, bu i heir spending is below

he benchmark and heir perormance passes he hreshold or paien service and

qualiy o care hen hey share he resulan savings wih he Medicare program.

Reecing discussion, debae, and evoluion o he ACO concep, he nal saue

also explicily auhorizes he secreary o he Deparmen o Healh and Human

Services o adop alernaive paymen mechanisms. Specically, he law allows or

so-called parial capiaion, a healh-paymen erm ha means some porion o he

paymen is made on a per person basis raher han a per service basis. Parial capia-

ion would enable Medicare no only o share savings bu also risk wih providers.

More broadly, he new healh reorm law allows or oher paymen models ha

will improve he qualiy and eciency o iems and services.9 Tese models

could include a shared savings and shared risk approach, where he ACO bears

all o he coss and reaps all o he savings ha occur wihin a corridor around a

predeermined spending amoun.


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Balancing inclusiveness with incentives for change

A undamenal challenge acing he implemenaion o our new healh care reorm

law is he need o balance inclusiveness (he number o providers paricipaing

in new delivery arrangemens) and impac (he abiliy o new arrangemens, like

accounable care organizaions, o acually promoe ecien delivery o care).o engage as many providers as possible o ener ino new arrangemens means

accommodaing he varied composiion o healh care delivery sysems across he

counry as well as he varied relaionships wihin hese healh delivery sysems.

And i means he new law mus deal head on wih he enormous challenge o

aciliaing collaboraion among he subsanial proporion o physicians who

operae independenly in very small pracices.10

o promoe inclusiveness, he laws specicaion o organizaional arrangemens

eligible o paricipae as ACOs is quie varied, including ully inegraed healh

delivery sysems such as Geisinger Healh Sysem in Pennsylvania, as well as ne-works o individual physician pracices such as he Hill Physician Medical Group

in Caliornia. ACO proponens recommend ha his variaion in organizaional

capaciy be urher accommodaed by using a iered or saged approach in se-

ing organizaional and perormance requiremens and paymen sysems.11

A he lower end o he organizaional specrum, smaller and less ormally ine-

graed groups o providers can orm organizaions ha have only modes care

managemen poenial. Tis helps o engage as many providers as possible where

hey arerunning small, independen praciceswhile acively assising hem

in moving where hey wan o be, paricipans in an inegraed delivery sysem. A

he more organized end o he specrum, more aggressive perormance sandards

(oucome measures or managing paricular diagnoses) and paymen incenives

(parial capiaion) can be used, in order o increase he poenial or cos and

qualiy resuls.

Esablishing hese dieren iers, however, does no eliminae he need or spe-

cic decisions abou wha kind o healh care providers are encouraged o parici-

pae in an ACO, how hey ge paid, and how much paiens will know abou, and

be proeced in, new paymen arrangemenshe decisions we urn o now.


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Encouraging physician-led

alongside hospital-led ACOs

A number o ACO managemen srucures are possible. Te Aordable Care Ac

recognizes ve ypes o poenial qualiying arrangemens. Tree o hese organi-

zaions include hospials:

Inegraed healh delivery sysems in which hospials and physician pracices

share common ownership Mulispecialy group pracices in which physicians own or have srong alia-

ions wih hospials Physician-hospial organizaions in which physicians are a subse o hospials

medical sa

Te remaining wo organizaional ypesindependen pracice organizaions

and even less-organized neworks o physician pracicesare physician-only

organizaions.12

O hese ve ypes, he promoion o hospial-led organizaions is he leas

surprising. Given he limied presence o organized sysems o care around he

counry, he original ACO concep aimed o capialize on exising inormal

neworksnoably hospials and he physicians who pracice here. Tese physi-

cians are ofen reerred o as he exended hospial medical sa. 13 Proponens

o ACOs believed ha using paymen pracices o make hese hospial-physician

neworks boh visible and accounable would give boh hospial managemen and

physicians he incenive o cooperae in order o achieve coninuiy, coordinaion,

and eciency in he delivery o care.14

Clinically, he value o an inegraed sysem ha includes he ull specrum o

healh care providers is obviousbringing everyone on board o improve he qual-iy and eciency o care. Economically, hospials are seen as boh he mos likely

source o resources o build elecronic and oher inrasrucure needed or care

inegraion, and mos likely o cooperae in eors o reduce admissions i hey can

ose revenue losses rom ewer admissions wih a share o he savings ha resul.


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Indeed, here has been a recen rend oward hospials employmen o physicians.

In 2009, 49 percen o residens and ellows receiving new jobs and 65 percen o

esablished physicians in new employmen relaionships were hired in hospial-

owned pracices.15 And here is widely-repored hospial ineres in creaing ACOs.

Bu wheher hospial-led organizaions will ransorm healh care delivery remainsan open quesion. o be sure, some hospials have led ransormaion eors

ha avor paien-cenered, inegraed care over maximizing inpaien says and

revenues.16 Bu hisory demonsraes ha healh care provider inegraion can

also be used o end o healh delivery reorm, proec hospials abiliy o secure

reerrals, and enhance provider clou in negoiaing higher reimbursemen raes

wih privae insurers. All o hese possible consequences o healh care inegraion

can increase raher han decrease overall coss.

In ac, hospials curren ineres in buying physicians pracices and creaing

ACOs is markedly similar o heir behavior in he early 1990s as he healh main-enance organizaion movemen ook o. HMOs are generally no seen o have

led o much clinical inegraion or eciency.17 Indeed, here were cases o sig-

nican conics beween hospials and physicians, including conenion, raher

han collaboraion, over he disribuion o resources. Te eors in he 1990s or

hospials o employ physicians was generally seen as a ailure because employed

physicians were less producive han independen physicians.18 Tus, hospial

ineres in igh economic aliaions wih physicians waned or a ime.

Bu i hen reemerged in ways ha promoed cos increases, no eciency. In

he Communiy racking Sudys 2005 visis o 12 communiies, analyss ound

ha hospials were acively hiring specialiss o brand and promoe hear, cancer,

orhopedic/spine, and oher specialized services in order o capure his lucraive

business. A he same ime, physicians were creaing specialy hospials, ambula-

ory surgical ceners, and imaging ceners o compee or he same paiens.19 As

his rend coninued in 2007, analyss described displacemen o longsanding

inormal relaionships beween hospials and physicians by a wo-rack sysem,

wih physicians eiher employed by, or separaing rom and possibly compeing

wih he hospials. In eiher case, he driving orce behind he arrangemen was

he eor o secure marke power (relaive o compeiors and o payers), no oenhance eciency in he delivery o care.20

Caliornias experience wih collaboraion demonsraes hese problems. Hospial

prices in Caliornia rose subsaniallyby an average annual rae o 10.6 percen

rom 1999 o 2005as alliances beween hospials and organizaions o physi-


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cians improved negoiaing clou or boh.21 While Medicares adminisered

pricing sysem proecs he program (axpayers and beneciaries) rom enhanced

marke pressure, privae payers are hard-pressed o resis paymen demands rom

dominan hospial sysems.

Avoiding his oucome in ACO implemenaion will require no only srongnancial incenives o change hospial behavior in hospial-led ACOs (as we

deail below) bu also he encouragemen o ACO models in which hospials are

less cenral o managing he delivery o care. Physicians can gain subsanially

rom orming organizaions o reap he rewards o reducing unnecessary hospial

use. Indeed, some experience wih physician organizaions shows he promise o

physician-led arrangemens in achieving desired eciencies.

Over a decade ago, analyss sudying Caliornia ound ha so-called capiaed

medical groupsphysician groups ha accep paymens on a per enrollee basis

raher han on a per service basisperormed as well or beter han inegraedsysems in conrolling use o hospials.22 Tey avoided expenses or excess capac-

iy ha hospials would no or could no eliminae, and ound ways o move heir

paiens smoohly hrough he sysem even wihou he hospials cooperaion.23

More recen analysis o experience esing a shared-savings paymen model in 10

provider organizaions in Medicares newly compleed ve-year Physician Group

Pracice demonsraion, he orerunner o ACOs, ound more evidence o savings

in physician-led organizaions han in inegraed sysems or organizaions wih

communiy hospial ownership.24 Evaluaors posied ha poenial revenue loss

impeded hospials abiliy o reduce avoidable admissions.

Developers o episode-based care similarly call atenion o he inernal ensions

ha arise beween collaboraing hospials and physicians in he ace o he sub-

sanial pros physicians can earn rom prevening hospial use. As a resul, hey

quesion he proposiion ha hospial-cenric organizaions will deliver he bes

resuls or he counry.25

Te Aordable Care Ac highlighs he poenial role ha physician-led organiza-

ions can play in reducing he unnecessary and cosly use o he hospial hroughbeter primary care and care managemen. By mobilizing heir skills and aking

charge, physicians can call he shos in disribuing he subsanial savings ha can

resul. Physicians can also encourage hospials o compee or, raher han coun

on, heir reerrals, and hereby promoe beter qualiy a lower coss.


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In markes wih a single dominan hospial, however, i may be dicul o oser

his compeiion. Bu orming ACOs should no become an excuse or promo-

ing hospial consolidaion by encouraging hospials o capure physicians and

oreclose rival hospials. I physicians are able o ake he lead in esablishing care

managemen organizaions, hen hey will be ar beter posiioned o capure sav-

ings han i hospials are in conrol.

o encourage physicians o acually ake he lead, ACO qualiy perormance

benchmarks and rewards or good care should emphasize healh care delivery

changes ha depend on physician engagemen in beter care. Reducing preven-

able hospial admissions or readmissions should be a key qualiy meric, empha-

sizing he avoidance o ambulaory-care-sensiive use o hospials in emergency

setings or as an inpaien.

In addiion, he Deparmen o Healh and Human Services can help physicians

orm ACOs by providing or aciliaing echnical suppor. Connecing ineresedphysicians wih ceried care managemen companies could replicae successul

experience ha has enabled independen physicians o beter manage and coor-

dinae care.26 So-called qualiy improvemen organizaions in Medicareprivae,

ypically nonpro organizaions wih which CMS conracs (one in each sae)

o improve he eciency and qualiy o Medicare servicescould be enlised in

helping physician groups make he appropriae arrangemens.

Finally, he Deparmen o Healh and Human Services can aid he developmen o

physician organizaions by sressing oher aspecs o he reorm eor ha concen-

rae on physicians, alongside he accounable care organizaions. For insance, he

new law allows signican innovaion in paien-cenered medical homes, or phy-

sician pracices providing care ha is accessible, coninuous, comprehensive and

coordinaed and delivered in he conex o amily and communiy.27 Encouraging

beter primary care hrough he Cener or Medicare and Medicaid Innovaion

provides a naural complemen o he promoion o physician-led ACOs.


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Promoting an alternative to shared savings

Te impac o accounable care organizaions on spending and perormance will be

signicanly aeced by he erms on which ACOs ge paid. Te shared savings model

coninues ee-or-service paymens, which healh care providers are amiliar wih, bu

gives hem a bonus i cos increases are below cos rends as calculaed by CMS. Te

mainenance o curren paymen sysems and he poenial or upside gains bu no

downside losses are a key elemen in he ACO conceps grounding in evoluionary,

raher han revoluionary, change.28 Proponens see rewards as more likely han risks

o achieve he desired balance beween encouraging broad provider paricipaion andsecuring cos savings.

Te shared savings approach has been recenly esed in he Physician Group Pracice

demonsraiona model o qualiy improvemen combined wih rewards or savings

on which ACOs are based. Preliminary experience rom ha demonsraion alongside

saisical analysis showing ha even modes changes in perormance could generae

subsanial savings relaive o ee-or-service projecions provided a oundaion or suc-

cessully inegraing ACOs ino he Aordable Care Ac.29 Bu in a hree-year evaluaion

alhough some paricipaing organizaions spen below arges and earned bonuses,

evaluaors atribued variaions in savings more o measuremen error and pre-exising

organizaional capaciy han o behavioral changes or he prospec o nancial rewards.30

Concerns abou he shared savings approach ocus in par on he weakness o is

incenives. Is reliance on modes rewards does no eliminae coninuing, and poen-

ially greaer, rewards o providers rom mainaining curren cosly syles o pracice.

While shared savings may enice some providers ino new arrangemens, i provides a

relaively weak impeus o real change.31

Skepicism abou he limied eeciveness o shared savings now uels ineres inalernaive paymen sraegies. An alernaive wih greaer poenial o balance he

goal o paricipaion wih he goals o delivery reorm is o oer prospecive ACOs a

ime-limied choice beween he shared savings model and alernaives ha no only

share savings bu also some risk. Under his alernaive approach, ACOs could keep

a larger share o he savings rom beter managemen, bu in exchange share some o


18/27


he losses or coss above arge spending levels. Paymens could coninue o be

made hrough ee-or-service or limied paymens could be paid ou as a lump

sum, and new ACO enrans would be given a choice o model, bu afer hree

years o paricipaion in shared savings all ACOs would be expeced o shif away

rom ha approach.(see box)

There are several ways that payments to ACOs could be structured, re-

ecting dierent degrees o risk and incentivesthe shared savings

approach, the shared savings and risk approach, and the so-called

partial capitation approach. Lets look at each in turn.

Shared savings only

This model is specifcally called or in the Medicare Shared SavingsProgram section o the Accountable Care Act. In this model, a target

amount is set or each ACO, generally as past spending projected

orward by the expected growth in per person medical costs. Actual

payments are then made on a ee-or-service basis.

Periodically, providers receive additional savings i actual costs all

below the target by a sucient amount. For instance, in the Physician

Group Practice demonstration, shared savings was triggered when

costs were at least 2 percent below target. The threshold was set to

assure savings were real and not a statistical artiact. So or every

dollar saved greater than 2 percent, the provider received 80 percent

o the savings and the government received 20 percent.32

Shared savings and risk

This model would set a target spending amount, as in the shared

savings-only model, and ee-or-service payments would continue

to be judged against the target. But in place o the threshold and a

share o savings above that level, the ACO would have a corridor

around the target amount, within which the ACO would retain all

savings or bear all costs.

In the model discussed by the Medicare Payment Advisory Commis-

sion, or MedPAC, the corridor would allow or maximum profts or

losses o 4 or 5 percent.33 A similar approach could use a sliding scale

or sharing, with the government keeping a greater share o sa

and bearing more o the expense as costs diverge rom the targ

Partial capitation

The shared-savings-and-risk approach could move urther away

ee-or-service payment by using capitation payments, or lump-s

payments made regardless o utilization levels, to replace ee-orvice payment in the corridors. This approach would use the same

spending level as the other twobut would make regular paym

or a portion o that level without regard to ees or volume o se

For example, ACOs would receive a monthly lump-sum paymen

equal to the targeted amount o spending. ACOs would ace th

maximum prots or losses as in the previous approach. But Med

payments would be adjusted retroactively to share savings and

based on actual service costs.

Which model to choose?

Analyses o how best to encourage more ecient care come to

ent conclusions about the best model to use. What is clear, how

is that a shared-savings model by itsel is not ideal.

We thus recommend that CMS oer clearly defned alternatives

the shared-savings model, and require ACOs to transition away

shared savings ater three years. For most providers, the closest

alternative to current payment structures is the shared-savings

risk model with an underlying base o ee-or-service paymentsthe option o providers, however, CMS should be able to conve

ee-or-service payment to a capitation amount.

Payment models or accountable care organizations


19/27


A sraegy ha pus providers a risk or cos increases as well as rewarding hem

or cos reducion limis he curren incenive o jus do more and pus pressure

on he larges sources o prevenable coss, especially inpaien and emergency

deparmen care. Bu hose risks are bounded, which means poenial losses and

savings are capped a a level specied by CMS, and or hose no ready o ake

hose risks are imposed only afer a hree-year period.

Posiive incenives could be urher increased by having he Innovaion Cener

oer loans o healh care providers willing o ake risk. Tese loans could be used

o inves in redesigning he pracice, or example by invesing in nurse coordinaors

and elecronic records in order o a make greaer responsibiliy possible. Such loans

would address anoher major criique o shared savingsis coninued reliance on

ee-or-service paymen leaves invesmens in improved care delivery unpaid or.34

Te proposals above are no he only easible alernaives ha could be oered

alongside shared savings.35 Ohers recommend ha he Cener or Medicare andMedicaid Innovaion es several models o risk-sharing, parial capiaion or

mixed paymens.36 esing cerainly makes sense, and learning and adaping are

a he hear o he new healh laws sraegy or paymen and delivery reorm. Bu

unless a robus alernaive is available simulaneously and on he same scale as a

shared-savings model, is appeal and adopion will likely be hampered. Oering

ha alernaive rom he ge-go, as we recommend, creaes a beter balance

beween paricipaion and impac han does reliance on a single model alone.37


20/27


Engaging and protecting consumers

Paymen reorm can only succeed i consumers see i as improving and no under-

mining heir care and i hose paiens are acive paricipans in heir care process.

As providers regularly noe, hey will ace diculies in assuming accounabiliy

or boh he qualiy and cos o care i consumers are no involved. Consumer

organizaions are now acively espousing paymen reorm and are engaged in

promoing consumer-oriened erms o accounabiliy.38

Responding o heir concernsand sensiive o avoiding a repea o he HMObacklashhe Aordable Care Acs qualiying crieria or ACOs include require-

mens direcly aimed a paien engagemen. Alongside he oher organizaional

requiremens noed above, ACOs mus dene processes o promoe evidence-

based medicine and paien engagemenand coordinae care and demonsrae

heir use o paien-ceneredness crieria, specically dened o include paien

and caregiver assessmens or he use o individualized care plans.39

Furher, he law requires ha measures o qualiy used o assess ACO peror-

mance include paien, and where possible caregiver, experience, broadly

undersood as he paiens assessmen o how much he provider lisens, explains,

respecs heir saemens, and spends ime wih hem.40 Consumer organizaions

are appropriaely promoing aggressive implemenaion o hese provisions, along

wih requiremens or adequae provider neworks, risk adjusmen, and oher ele-

mens o ACOs o achieve delivery reorm ha provides qualiy care.41

Equally imporan o hese eors are decisions in areas where he law is viru-

ally silen. In he iniial ACO concep and is applicaion in he Physician Group

Pracice demonsraion, providers choose o paricipae in an ACO bu paiens

do no. Providers are held accounable or he coss and qualiy o care or paienswho rely on hem or mos (a preponderance) o heir caredeermined afer

he years end. Idenicaion o hose paiens, andor qualiy and paymen pur-

posesassessmen o heir experience agains cos and qualiy benchmarks occurs

afer he ac, and is reerred o as rerospecive assignmen. Paiens are no aware

hey are in an ACO and hey reain he reedom o choose any provider a any ime.


21/27


Reaining paiens choice o providersor in healh care parlance no requiring a

lock-inis a key elemen in engaging raher han orcing consumers ino healh

care delivery reorm. Bu uninormed consumers and rerospecive assignmen

run couner o eecive consumer engagemen. I does nohing o encourage

paiens o aler heir use o specic services or heir prevenive care o improve

he cos and qualiy o care. And i leaves consumers unaware o nancial incen-ivesrewards as well as risksha may lead providers o discourage appropri-

ae as well as inappropriae services, o avoid reerrals or expensive services, or o

be relucan o serve some paiens.

More acive consumer paricipaion and consumer proecion is hereore

required. o assure boh consumer paricipaion and proecion, ACOs should

employ inormed, prospecive assignmenleting boh providers and paiens

know in advance who is paricipaing in he new healh delivery arrangemens

raher han rerospecive assignmen, which happens when beneciaries are

assigned o an ACO a he end o he ime period over which he ACOs spendinglevels are compared o CMSs expendiure arge. Te uncerainy o rerospec-

ive assignmen or boh providers and paiens undermines he invesmen

each o hem has in shared decision-making o achieve beter care a lower cos.

Prospecive assignmen, perhaps accompanied by allowing consumers o op

ou by reaining access o heir physician under radiional paymen rules, can

srenghen ha invesmen.42

Furher, inorming paiens in advance o he ACO arrangemen aciliaes wha

some have called a good aih social conrac or sof lock-in ha species a

commimen o work ogeher bu no a resricion on choice.43 For example, he

Geisinger healh sysem has adoped wha hey call he ProvenCare model o pay

or hospial services. I includes a paien conrac ha describes he commi-

men o he sysem, paiens, and amilies in adhering o he programs bes prac-

ices. Use o he conrac dramaically increased consumer adherence o provider

recommendaionsraising he share o paiens receiving all 40 elemens o he

ProvenCare process rom 59 percen o 100 percen wihin 6 monhs.44

Such conracs would be srenghened i ACO providers are allowed o reward

consumers or living up o he conrac erms. Reducions in Medicare cos-shar-ing or consumers who agree o paricipae in ACOs is one proposed mechanism

or providing nancial rewards.45 Bu Medigap insurance, or privae insurance

used o supplemen radiional Medicare coverage, eliminaes cos-sharing or

many Medicare beneciaries, limiing he eeciveness o his approach.


22/27


Mechanisms o reduce Medicare Par B premiums or beneciaries who adhere

o conracs are possible, bu complicaed. Te simples arrangemen or sharing

savings wih consumers migh be o allow providers o oer hem a rebaean

explici share o he shared savings or oher bonus he ACO acually earnsas a

reward or adherence o ACO recommendaions.

Bu no mater how genly ACOs are implemened, changing providers nancial

incenives raises real quesions, and ears, among some paiens. Rigorous adher-

ence o he qualiy measuremen and perormance requiremens ha are unda-

menal o ACOs are essenial o eecive reormand o prevening he backlash

ha accompanied HMO implemenaion. Given new nancial incenives or

providers, consumers also deserve acive proecionrecourse in case o bad

behavior on he par o ACO providers.

o ha end, CMS should assure beneciaries access o some kind o ombuds-

mansomeplace o go or help arranging a second opinion or recommendaiono alernaive provider i hey quesion a providers recommendaion. In he even

ha all appropriae physicians, including specialiss, paricipae in an ACO, esab-

lishmen o exernal appealsas applies in Medicare Advanage plansmigh

also be necessary.


23/27


Conclusion

Debae surrounding he enacmen o he Aordable Care Ac requenly included

criique o is measures o conain coss. Bu he new law is designed o enable,

no orce, cos conainmen by allowing Medicare o experimen wih alernaive

paymen designs. Te accounable care organizaion regulaion, alongside relaed

eors in he Cener or Medicare and Medicaid Innovaion, is key o making

Medicare he engine or sysem-wide reorm.

Tis evoluionary, raher han revoluionary, approach o reorm embedded in heAordable Care Ac reecs appropriae concern wih moving reorm briskly, bu

no oo ar and oo as, in order o insill paien and provider condence. Among

he many choices he Cener or Medicare and Medicaid Services will make in

sriking he balance beween impac and accepance, evidence and experience

underscore he imporance o he hree areas o reorm we have ocused on:

Encouraging accounable care organizaions where physicians, no jus hospi-

als, dominae Moving o paymen models ha penalize losses as well as reward cos savings Engaging consumers in he choice o ACOs and he seps hey can ake o con-

ribue o higher-qualiy, lower-cos care.

Wih he adopion o hese recommendaions, Medicares launch o ACOs in 2012

alongside relaed paymen changes will signal is commimen o he ransorma-

ion o our medical sysem ha he Aordable Care Ac aims o achieve.


24/27


Endnotes

1 Dugla W. Elmendr, Enm Ee e Mar heal Legla-n (Wangn: cngrenal Budge oe, 2010), avalable a://www.b.gv/d/119xx/d11945/Usc10-22-10.d.

2 Melnda Beeuwe Bunn and Davd culer, te tw trlln Dllarslun: savng Mney By Mdernzng e heal care syem (Wa-ngn: cener r Ameran prgre, 2009), avalable a ://www.ameranrgre.rg/ue/2009/06/d/2rlln_lun.d.

3 Jn E. Wennberg and er, Ue al, yan v, and -e are durng la x mn le amng r lyal gly re-eed al n e Uned sae,British Medical Journal328 (2004):607-611, avalable a ://www.bmj.m/nen/328/7440/607.ull.d+ml; Ell Fer and er, te imlan R egnal Vara-n n Medare sendng. par 1: te cnen, Qualy, and Aebl-

y care,Annals o Internal Medicine 138 (2003): 27387, avalable a://annal.rg/nen/138/4/273.ull; Ell Fer and er, teimlan Regnal Varan n Medare sendng. par 2: healoume and saan w care,Annals o Internal Medicine 138(2003): 28898, avalable a ://www.annal.rg/nen/138/4/288.ull.d+ml.

4 cay sen and er, in crn cndn: Exerene o paenW cmlex heal care Need, i n Eg cunre, 2008, Health A-airs 28 (1) (2009): w1-w16, avalable a ://nen.ealaar.rg/g/rern/28/1/w1.

5 Ageny r healare Reear and Qualy, Enm and healc Dabee, HCUP Highlights, (1) (2005), avalable a ://www.arq.gv/daa/u/glg1/g1.d.

6 Alex pzen and Davd M. culer, Medal sendng Derene n eUned sae and canada: te Rle pre, predure, and Admn-rave Exene, Inquiry47(2) (2010): 124-134, avalable a ://www.

nb.nlm.n.gv/ubmed/20812461.

7 Bunn and culer, te tw trlln Dllar slun.

8 Fr mre ef, ee seen M. srell, Lawrene p. caaln, andEll s. Fer. hw te cener Fr Medare And Medad i nnva-n suld te Aunable care organzan,Health Afairs 29(7) (2010): 1293-98, avalable a ://nen.ealaar.rg/g/rern/29/7/1293; seen M. srell and Lawrene p. caaln, imle-menng Qualfan crera and tenal Aane r Aunablecare organzan, The Journal o the American Medical Association303 (17): 1747-48, avalable a ://jama.ama-an.rg/g/nen/ull/303/17/1747; Mar Mclellan and er, A Nanal sraegy tpu Aunable care in prae, Health Afairs 29 (5) (2010): 982-90,avalable a ://nen.ealaar.rg/g/rern/29/5/982.

9 Afordable Care Act, publ Law 111-148, se. 3022, 111 cng., 2d e.Gvernmen prnng oe, 2009.

10 Wle e landae angng, alm al e nan yann 2008 were n rae w ewer an fve yan, nludng 32eren n l r w-yan rae. Fr deal, ee Ellyn Buu,Alwyn cal, and Anne s. oMalley, A sna U.s. pyan: keyFndng rm e 2008 trang pyan survey (Wangn: cenerr sudyng heal syem cange, 2009), avalable a ://www.rwj.rg/fle/reear/bullen35e2009.d.

11 Mar Mclellan and er, A Nanal sraegy t pu Aunablecare in prae, Health Afairs 29 (5) (2010): 982-90, avalable a ://nen.ealaar.rg/g/rern/29/5/982; seen M. srell,

Lawrene p. caaln, and Ell s. Fer. hw te cener Fr MedareAnd Medad innvan suld te Aunable care organzan,Health Afairs 29 (7) (2010): 1293-98, avalable a ://nen.eala-ar.rg/g/rern/29/7/1293.

12 seen M. srell, Lawrene p. caaln, and Ell s. Fer, hw tecener Fr Medare And Medad i nnvan suld te Aunablecare organzan, Health Afairs 29 (7) (2010): 1293-98, avalable a://nen.ealaar.rg/g/rern/29/7/1293.

13 Ell s. Fer and er, creang Aunable care organzan:te Exended hal Medal sa, Health Afairs 26 (1) (2006): w44-57, avalable a ://nen.ealaar.rg/g/rern/26/1/w44;Medare paymen Advry cmmn, Rer cngre: i mrv-ng inenve n e Medare prgram, (June 2009), avalable a ://

www.meda.gv/dumen/Jun09_EnreRer.d.

14 Lawrene caaln and Jame c. Rbnn, Alernave Mdel h-al-pyan Alan a e Uned sae Mve Away rm tgManaged care, The Milbank Quarterly81 (2) (2003): 331-52, avalable a://www.rwj.rg/fle/reear/caln%20&%20Rbnn,%2081-2.d; Lawn Rber Burn and R al W. Muller, hal-pyancllabran: Landae Enm inegran and ima n cln-al inegran, The Milbank Quarterly86 (3) (2008): 375-434, avalable a://www.nb.nlm.n.gv/ubmed/18798884.

15 Debra Beauleu, MGMA: hal-emlymen rend rlng u ae menan, Fierce Practice Management, June 4, 2010,avalable a ://www.fereraemanagemen.m/ry/mgma-65-eren-eabled-yan-red-al-wned-ra-e-2009/2010-06-04.

16 sre al-led ranrman, r examle a Vrgna ManMedal cener n seale and inermunan healare n Ua, are

nruve abu allenge and ble. Fr deal, ee hang-ma h. pam and er, Redegnng care Delvery in R ene t Ahg-perrmane Newr: te Vrgna M an Medal cener, HealthAfairs 26 (4) (2007): w532-44, avalable a ://nen.ealaar.rg/g/rern/26/4/w532; Davd Lenard, Mang heal careBeer, The New York Times, Nvember 8, 2009, avalable a ://www.nyme.m/2009/11/08/magazne/08healare-.ml.

17 caaln and Rbnn, Alernave Mdel hal-pyan Ala-n a e Uned sae Mve Away rm tg Managed care..

18 ibd.

19 Rber A. Berenn, paul B. Gnburg, and Jea h. May, hal-pyan Relan: ceran, cmen, r searan? HealthAfairs 26 (1): w31-43, avalable a ://nen.ealaar.rg/g/rern/26/1/w31.

20 Lawrene p. caaln and er, hal-pyan Relan: tw

tra And te Delne o te Vlunary Medal sa M del, HealthAfairs 27 (5) (2008):1305-14, avalable a ://nen.ealaar.rg/g/rern/27/5/1305.

21 Rber A. Berenn, paul B. Gnburg, and Nle kemer, Uneedprvder clu in calrna Freadw callenge t heal R erm,Health Afairs 29 (4) (2010): ://nen.ealaar.rg/g/re-rn/29/4/699.

22 Jame c. Rbnn and Lawrene p. caaln, te Grw Medal
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23 Jame c. Rbnn and Lawrene p. caaln, Veral inegranAnd organzanal Newr in heal care, Health Afairs 15 (1)(1996): 7-22, avalable a ://nen.ealaar.rg/g/re-rn/15/1/7.d.

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eEvalR/dwnlad/pGp_Rtc_se.d.

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26 te hll pyan Medal Gru, r examle, rele n a r-rfmanagemen nulng many ur qualy mrvemenr ver 2000 yan. see tm Emwler and Len M. Nl,hll pyan Medal Gru: indeenden pyan Wrng imrve Qualy and Redue c,The Commonwealth Fund1247(11) (2009): 1-14, avalable a ://www.mmnwealund.rg/~/meda/Fle/publan/cae%20sudy/2009/Mar/hll%20py-an%20Medal%20Gru/1247_Emwler_hll_ae_udy_rev.d.

27 Rber A. Berenn and er, A hue i N A hme: keeng pa-en A te cener o prae Redegn,Health Afairs 27 (5) (2008):

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29 ibd.

30 Gregry pe, Jn kauer, and Dana trebn, Fnanal Reulrm e pyan Gru prae (pGp) Demnran Reearsnr and Dlamer (Bn: Aademyheal Annual cner-ene, 2010), avalable a ://www.aademyeal.rg/fle/2010/unday/e.d.

31 kelly Dever and Rber Berenn, can Aunable care organza-n imrve e Value heal care by slvng e c andQualy Quandare? (prnen: Rber Wd Jnn Fundan

and Urban inue, 2009), avalable a ://www.rwj.rg/fle/reear/abrenal.d; harld D. Mller, hw creae Aun-able care organzan (cener r heal care Qualy and pay-men Rerm, 2009), avalable a ://www.qr.rg/dwnlad/hwcreaeAunablecareorganzan.d; Davd Gla andJe senland, Medare sared savng prgram r Aco (Wa-

ngn: Medare paymen Advry cmmn, 2010), avalablea ://www.meda.gv/ranr/Aco%20fnal%20e%202010.d; Davd Gla and Je senland, Medare sared savngprgram, (Wangn: Medare paymen Advry cmmn,2010), avalable a ://www.meda.gv/ranr/Aco%20o%202010%20fnal.d.

32 kaleen sebelu, Rer cngre: pyan Gru praeDemnran Evaluan.

33 Gla and senland, Medare sared savng prgram r Aco..

34 Mller, hw creae Aunable care organzan.

35 Mller a red a aral aan ara, alang nve-men n u-rn delvery rerm and a away rm ee-rerve. see Mller, hw creae Aunable care organzan..

36 karen Dav and seen c. senbaum, tward hg-perrmaneAunable care: prme and pall,The Commonwealth Fund Blog14 seember (2010) avalable a ://www.mmnwealund.rg/~/meda/Fle/publan/Blg/Dav_senbaum_Aco_blg_9142010.d.

37 ibd.

38 camagn r Beer care, Aco Mu Be Degned w e paen nMnd (2010).

39 Afordable Care Act.

40 Ageny r healare Reear and Qualy, Nanal healareQualy Rer (2009), avalable a ://www.arq.gv/qual/nqr09/nqr09.d.

41 camagn r Beer care, Aco Mu Be Degned w e paen nMnd.

42 Anna D. sna and Mered B. Renal, paen Rle n Aun-able care organzan, te New England Jurnal Medne, 10Nvember 2010: 13, avalable a ://eallyandrerm.rg/?=13018

43 Dever and Berenn, can Aunable care organzan imrvee Value heal care by slvng e c and Qualy Quanda-re?. Abu e aur

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About the authors

David M. Cutler is a Senior Fellow a he Cener or American Progress and he

Oto Ecksein Proessor o Applied Economics a Harvard Universiy, where he

recenly compleed a ve-year erm as associae dean o he aculy o Ars and

Sciences or Social Sciences.

Judy Feder is a Senior Fellow a he Cener or American Progress and a proessor

o public policy a he Georgeown Public Policy Insiue, where rom 1999 o

2008 she served as dean o he insiue.

Acknowledgements

In ideniying issues and developing recommendaions or his brie, we ben-

eed grealy rom he inpu o a number o expers in he eld, in paricular, BobBerenson and Harold Miller. We are also graeul o Nicole Caarella and Beh

Wikler or invaluable research suppor. While we are indebed o hese colleagues

or heir many conribuions, he views presened here are hose o he auhors.

Prepared with the support of the Peter G. Peterson Foundation


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The Center or American Progress is a nonpartisan research and educational institute

dedicated to promoting a strong, just and ree America that ensures opportunity

or all. We believe that Americans are bound together by a common commitment to

these values and we aspire to ensure that our national policies relect these values.

We work to ind progressive and pragmatic solutions to signiicant domestic and

international problems and develop policy proposals that oster a government that

is o the people, by the people, and or the people.

achieving accountable and affordable care

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