If an ACO can’t save money, it would be stuck with the costs of investments made to improve care, such as adding new nurse care managers, but would still get to keep the standard Medicare fees. The Congressional Budget Office estimates that ACOs could save Medicare at least $4.9 billion through 2019. CMS plans to establish the program by Jan. 1, 2012. Agreements will begin for performance periods, to be at least three years, on or after that date.

“ACOs reflect a recognition that there needs to be a different way to pay health care providers, and to pay them in a way that gives them some ability to, and reward for, controlling costs,” states Harold Miller, president and CEO of Network for Regional Healthcare Improvement and executive director of the Center for Healthcare Quality & Payment Reform, based in Pittsburgh. “The payment system that exists today, of course, is very volume-driven. The more things you do, the more money you make. The goal is ACOs is to pay providers more for keeping people well.”

“The purpose of ACOs is to improve the quality of care that beneficiaries receive while also lowering cost,” adds Steve Lieberman, president of Lieberman Consulting (Bethesda, Md.) and visiting scholar with the Engelberg Center for Health Care Reform at the Brookings Institution (Washington, D.C.). “It is very important that these two objectives are linked. For example, an ACO would not gain financially if it does better than budget but does not meet its quality requirements.” As a way of accomplishing these goals, ACOs are intended to create systems of care in which providers come together in a wide variety of arrangements.

“Empirical literature shows that care provided by organized systems tends to be better in terms of quality outcome and also less costly,” notes Lieberman. Performance must be measured from a patient perspective, not an individual provider or service-by-service. The reason is that the patient may receive care from a number of different providers.

In addition, there needs to be a minimum number of patients in a system in order to obtain meaningful measurement of “financial performance against target” and to evaluate the measured quality. “The challenge here is that this number is usually larger than an individual practitioner or small group practice would typically see,” adds Lieberman.

Consolidation Concerns
One concern that health care economists have is that hospital mergers and provider consolidations that are encouraged by ACOs could increase, leaving fewer independent hospitals and doctors. The greater market share could give these merged and consolidated health systems more leverage in negotiating with insurers, which could drive up health costs. In rural areas, for example, health systems could grow so large that they would employ the majority of providers in the region.

This concern is gaining attention, according to Jordan Cohen of the School of Law, Health Law & Policy Program at Seton Hall University (Newark, N.J.). “One potential downside to ACOs is the concern over increased consolidation in the health care industry,” he notes. “By definition, an ACO is a group of providers that comes together to coordinate, so this can trigger anti-trust and competition issues. In fact, the FTC recently held a workshop on this issue.” According to Cohen, consolidations might allow providers to theoretically charge higher rates.

As a result, there’s concern that ACOs will have increased bargaining power. “One of the goals of an ACO is to reduce cost, and there is a risk that these savings could be offset by higher prices on the provider side,” he notes. “There will need to be some government oversight to prevent this from happening.”

In areas that have a lot of small physician practices, Miller believes it will be essential that they work together in some fashion through something such as an independent practice association in order to be able to cost-effectively deliver some of the kinds of care management services that will help to keep people out of the hospital and improve care.“This is desirable,” he states. “The challenge, though, is that, when it is done, it is being done for that purpose, and not being done just to develop greater negotiating leverage over prices.”

Employer and Private Insurer Involvement
According to Cohen, there’s also the possibility employers could create their own ACOs. “Employers could approach physicians and hospitals and ask them if they would like to create an ACO for their employees,” he explains. “This would allow employers to directly get the benefits and tailor it to their organizations.” And according to Miller, private insurance companies are already involved in adopting this model.

“There is a lot of discussion taking place between providers and private insurers around this,” he notes. “In fact, the CMS wants to strongly encourage, if not require, the adoption of multi-payer solutions. That is, it is highly likely that they will not participate in any efforts to pay ACOs in more innovative ways unless all or most of the private payers in the market are participating.” In addition, the biggest piece of the ACO concept that is not being addressed very effectively yet and will probably only be able to be addressed on the private insurance side is the issue of the benefit design for consumers.

“There has been a lot of focus on how to change payment to providers and how providers should organize themselves,” Miller adds. “The missing piece is how the patient is going to change, because ‘it takes two to tango’ in health care. The physicians can only do so much to keep chronic disease patients out of the hospital, if the patients can’t afford to take their medications, regardless of how much education and support you give the patients.” In other words, keeping people well involves the kind of preventive care they get from physicians as well as what the patients themselves do to try to improve their health.

A lot of the latter element can be encouraged by an appropriately-supported benefits structure set up by employers. “I think it’s far more likely that private health plans and employers are going to be able to make these changes more easily than Medicare is,” Miller says. Tony Anastasia, vice president of Hospital Market for UMR (Wausau, Wis.), a national TPA for self-funded health benefit plans, is also seeing the implications of ACOs beyond Medicare into commercial insurance. “We are seeing it within our own company,” he states. “We do a lot of employee medical plans for hospitals and health care systems. They are putting their own employees into ACOs.

They are also offering it to employers in their backyards.” As Anastasia notes, hospitals and health care systems are all over the country. They’re in every broker’s and agent’s sales territory. They’re typically large providers, and they also tend to be more recession-proof than other industries. “On average, we see many of our employee groups shrinking,” he points out. “However, health care is one of the few industries where they are actually adding employees. As such, there is a lot of opportunity for brokers and agents.” Example: The hospital or health care system CEO says to the CFO, “We need to set up one of these ACOs.”

The CFO goes to the HR person and says, “If we are going to do one of these beyond Medicare, then for credibility purposes, we should have our own employees in it.” The HR person then asks, “Where do I start?” This is where the producer can provide assistance. Premier Healthcare Alliance (Charlotte, N.C.), a national alliance of more than 2,400 hospitals and 72,000+ health care organizations, is currently testing ACOs. It launched two ACO collaboratives in May 2010. One, the Accountable Care Implementation Collaborative, includes 28 health systems, representing 120+ hospitals and over 1.4 million patients nationwide.

The other, the Accountable Care Readiness Collaborative, has over 200 hospitals. “Although the Medicare ACO program has received the most attention, members of the Premier collaborative are moving forward now with their models in the private markets,” explains Wes Champion, senior vice president, Premier Consulting Solutions. “Quite a few are working with provider-sponsored plans to test the concepts in local markets and have plans to move their employee base into the ACO once fully operational.”

Self-insured employers are also prime targets for the ACO, according to Champion, as they try to improve the health of their employees, reduce insurance costs, and eliminate productivity drains that can ensue with an unhealthy workforce. “As the concept builds, and more beneficiaries move into ACOs, we expect that non-profit commercial insurers and ultimately publicly-traded insurers will also be interested in pursuing these types of arrangements, perhaps for a chronic care subset of their population pool, and potentially for entire regions or geographies,” he adds.

One insurer already involved in ACOs is Cigna in Bloomfield, Conn. “Our involvement in the ACO concept goes back a long way, especially in terms of creating health advocacy and health coaching programs,” states Dr. Dick Salmon, vice president and national medical director. “However, in recent years, we have come to realize that we need to align with the patient’s treating physician more strongly than we have in the past in order to drive improvement in quality, affordability and satisfaction.”

Cigna wants to be able to do two things. One is to provide treating physicians with rewards for achieving these goals, by transitioning from payment for volume to payment for value. The other is to enable the physician groups to achieve the improvements that Cigna wants to reward them for. “We can do this by providing them with useful information and also develop the integration pathways between their clinicians and our health coaching clinicians,” Dr. Salmon explains.

“As a result, our clinicians become a virtual extension of their practice.” Cigna has eight ACO pilot programs up and running. It plans to expand to about 30 this year. “We are making good progress,” Dr. Salmon notes. “We and our delivery system partners are learning a lot.” He adds that, if producers have customers who are particularly interested in this type of initiative, Cigna would like to know about it.

“A good part of our prioritization process in terms of where we choose to set up these pilot programs depends on whether or not we have customers in that market who are interested,” Dr. Salmon explains. “In fact, we have become aware of employers who have a high concentration of employees in a certain area and who want such a program, and we are happy to meet that need.”

Challenges
While ACOs are likely to continue to gain popularity, there are a number of challenges that must be addressed along the way. Champion delineates five of these. “For all its sophistication, health care is factionalized, and providers don’t have much expertise working cooperatively,” he notes. “Changing culture will be challenging, even with a shift in incentives, particularly since doctors and hospitals don’t have much experience and, traditionally, not much willingness to share.”

There are new relationships with payors that need to be developed. “Creating reimbursement structures based on value rather than volume is a new business paradigm, and providers and insurers typically haven’t been willing or able to work cooperatively toward common goals,” he explains. “They also don’t have much experience sharing data, which will be a necessity in an ACO.” ACOs require an extensive investment in technologies to improve coordination and convenience, such as electronic health records.

“However, these technologies are expensive and far from widespread in today’s market,” Champion notes. There are also legal barriers that stand in the way of ACOs. “Outdated laws bar hospitals from sharing efficiency savings with doctors unless they are employees,” he continues. “These policies need to change so that loose hospital-doctor cooperatives can operate as an ACO and function like teams on behalf of patients, while still preserving independent ownership and autonomy.” Perhaps most importantly, there are many unknowns in the world of ACOs. For example, if the ACO reduces costs, what portion of the savings should they keep?

How should payments be divided between the doctors, specialists, nurses and others providing care? What financial benefits will flow to patients? How should ACOs be organized and led? How fast can ACOs be implemented, given the cultural, financial and operating changes required? “The only way to answer these questions is through experimentation,” he concludes.