achieving accountable and affordable care
TRANSCRIPT
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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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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
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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
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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
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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.
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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.
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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.
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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.
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Endnotes
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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.
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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.
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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 ://
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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.
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18 ibd.
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20 Lawrene p. caaln and er, hal-pyan Relan: tw
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22 cener r Ameran prgre | Aevng Aunable and Ardable care
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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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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-
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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.
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39 Afordable Care Act.
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41 camagn r Beer care, Aco Mu Be Degned w e paen nMnd.
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23 cener r Ameran prgre | Aevng Aunable and Ardable care
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.