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What are Accountable Care Organizations?

Frequently Asked Questions

​What is an ACO?
As per the CMS Web site, ACOs are groups of doctors, hospitals, and other health care providers who come together to provide coordinated, high-quality care to their patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves. Governance of an ACO involving pediatric care must include equitable representation of pediatric primary and specialty care.

Public and private payers are participating in the formation of ACOs for Medicare and non-Medicare populations. The CMS Innovation Center has developed several initiatives and demonstration models for ACOs, including advanced payment models and pioneer ACO models.  Private payers such as WellPoint/Anthem, Aetna, and Cigna are involved in ACO development projects.

In an ACO, global payment is made to the entity (ACO). Distribution of payment, including incentives, to the individual providers is based on the provider’s performance (i.e., cost and quality) in providing the service. Payment may consist of an FFS component, a case management fee, performance incentives, and shared savings.

Shared savings is intended to distribute payment based on reducing costs and achieving quality measures (if the quality measures are not met, shared savings may not be realized). By coordinating services, providers have the potential to deliver quality care below projected costs. Any savings would be shared between the payer and providers. A key component is determining how savings is calculated and distributed among the payer and various providers. It is likely that over time, any shared savings or incentives may diminish. Payers may look to recalculate formulas for shared savings over time, and if your costs are significantly under budget, you may find it difficult to achieve any savings in the subsequent year if the budget is based on your previous year’s performance.
Under the CMS pioneer ACO models, savings is shared between the ACO and CMS and is based on containing the cost rate of growth compared to an established benchmark. If the pioneer ACO manages cost increases that are less than the benchmark, the ACO shares the savings with CMS. After a 3-year period, the benchmark is recalculated.

What is an IDS?
An IDS is a formally organized network of health care providers that is clinically, financially, and administratively integrated to provide coordinated services to a defined patient population or community. The multiple providers may share identified processes (i.e., utilization management, performance improvement, and care management). Examples of IDSs include Mayo Clinic, Geisinger Health System, and Kaiser Permanente. Physician hospital organizations, independent practice associations (IPAs) (group practices without walls) and management services organizations may be formats for an IDS. 

What is the difference between an ACO and an IDS?
An IDS is a model of integration of providers on which ACOs may be based. IDSs are organizations that vertically integrate hospitals, primary care physicians, specialist, and possibly health plans to provide medical services. The structure of an IDS may be conducive to forming an ACO. An IDS may have in place the accountability framework for costs and quality, as well as the leadership and clinical arrangements necessary for an ACO.

ACOs seek to improve care while controlling costs by aligning incentives for continued quality improvement and care coordination. In an ACO, the participating entities are responsible for the financial performance and clinical outcomes and health status of the covered population served. Under an ACO, a portion of any savings achieved in excess of a threshold benchmark would be shared among the provider participants.

ACOs are included in the ACA as one of several demonstration programs to be administered by the CMS, along with bundled payment and other key care delivery approaches. ACOs are also being developed in the private sector by IDSs, hospital systems, clinics, commercial carriers, and physician groups. The ACA calls for ACOs to be physician led. At the present time only very sophisticated medical groups have this capability.

Are all ACOs the same?
ACOs are models of clinical and financial integration that may have different organizational forms depending on the participating entities, local market conditions, and provider involvement.

Are ACOs the same as health maintenance organizations?
Although there are some conceptual similarities (gatekeeper approach, greater role of primary care, assumption of risk), there are key differences, particularly the emphasis of performance measurement and information technology (IT) inherent in ACOs necessary for population management. Global payments for the care of a defined population under ACOs are basically capitated payments. However, ACOs have some type of incentive payment and shared savings program that promotes the alignment of incentives for all parties. Another difference is risk assumption. Risk assumption may include both insurance risk and performance risk. Insurance risk is the financial burden of caring and paying for care for a defined population. This is the type of risk that insurance companies and self-insured groups cover. Performance risk is generally the responsibility of the provider to manage utilization of services as well as the quality and cost of those services.    

What are the advantages and disadvantages of joining an ACO/IDS? 
Physicians need to carefully consider how integration applies to their practice and patients. In considering any budget-based payment model, practices need to look at their practice costs and utilization and be able to manage their risk. (For example, the AAP Business Case for Pricing Vaccines and Immunization Administration outlines the total costs involved in practice management, which could be used to assist the practice in contract negotiations). Failure to manage performance risk is a major disadvantage and may threaten the financial viability of the practice (see question on How can a physician practice manage the risk in a risk-based contract? for a description of managing risk). However, given the growth of budget-based payment systems, IDSs, and ACOs, physicians need to position their practice to take advantage of the opportunities, otherwise the practice may end up a nonparticipating or out-of-network provider and not privy to any shared savings or enhanced payments. Participating in an ACO or IDS may provide opportunities to increase revenue and receive additional payment for cost savings and infrastructure and startup costs that can be recovered through shared savings. Providers are rewarded for efficiently providing coordinated, high-quality care.
Who can start an ACO?
Depending on state law, insurance companies, employers, hospitals, and/or physician groups can start an ACO. Larger entities, such as insurance carriers, hospital organizations, and large clinics, may be candidates to start an ACO because of the IT infrastructure, data analysis, and actuarial capabilities. Given that the primary function of an ACO is efficient and effective care delivery, there is a key role for physician leadership within an ACO.

The CMS Center for Medicare & Medicaid Innovation has several initiatives and demonstrations underway that encourage better care and better health at lower costs through continuous improvement, including several models of ACOS, advanced payment model ACOs, and pioneer ACO Models.

Can a patient-centered medical home (PCMH) be part of an IDS and/or ACO?
The PCMH is considered to be an essential component of an IDS and ACO. Primary care physicians are critical to ensuring access to medical services, as well as emphasizing prevention, anticipatory guidance, disease management, and care coordination leading to enhanced quality and overall cost savings. Being a recognized PCMH would be attractive to most payers, IDSs, and ACOs. Indeed, payment reform should encourage patient-centered, coordinated care by all providers. The goals of both ACOs and the PCMH are focused on the triple aim: better coordinated care, better health outcomes, and lower costs.

The “Joint Principles for Accountable Care Organizations issued by the American Academy of Family Physicians, the AAP, the American College of Physicians, and the American Osteopathic Association define key characteristics of effective ACOs. A primary recommendation is that ACOs “provide accessible, effective, team-based integrated care based on the Joint Principles of the Patient-Centered Medical Home for the defined population they serve.”

What options do small independent practices have with payment reform models?
Independent practices may consider joining an IPA (group practice without walls), which is a group of physician practices who have contractually agreed to work together to provide health care services to patients in a health plan network. IPAs usually have the infrastructure, management, IT, and organizational components that can serve as the basis for a virtual physician-sponsored IDS or ACO. Some practices may consider mergers or acquisitions to consolidate the provider network and enhance the infrastructure, management, and IT components. 

Do IDSs and ACOs violate antitrust laws? Do antitrust laws apply to ACOs and IDSs?
The intent of antitrust activities is to prohibit anticompetitive behavior among providers within a given market that leads to higher costs, limited access, or other monopolistic behavior. The Federal Trade Commission and the Department of Justice have published rules clarifying the extent to which health care providers can engage in IDS and ACO activities. Under Notice 2011-20, the Internal Revenue Service established guidelines in March 2011 for tax-exempt organizations participating in the MSSP, including ACOs.

Can a physician be part of multiple IDSs/ACOs?
Yes, but there are some considerations based on your practice (size, location, and your risk management philosophy). Depending on the size of the ACO, not all patients may be part of the ACO. Rural and inner-city areas may not see rapid growth of IDSs and ACOs depending on their local market conditions. It may be possible to participate in one or more ACOs depending on the market. Currently the CMS Shared Savings Program limits primary care physicians to one ACO because of the way that CMS has set up these programs.

What are the key differences in terms of a pediatric ACO/IDS?  
Certain attributes of pediatrics differ from adult care and may impact the development of an ACO or IDS. Prevention, anticipatory guidance, and the family-centered medical home are prominent in pediatrics. Compared to adult care, care coordination and a strong family involvement are more common in pediatrics. Therefore, in considering an ACO or IDS, pediatricians must consider the commitment of the IDS or ACO to pediatrics. The AAP has developed the document Accountable Care Organizations (ACOs) and Pediatricians: Evaluation and Engagement as guidance on pediatric elements of an ACO.

Will the Centers for Medicare & Medicaid Services (CMS) be conducting pediatric-specific pilots around ACOs/IDSs?
The MSSP, created by the ACA, allows development of ACO pilots within the Medicare program. The ACA calls for a Pediatric Demonstration Project (legislated but currently not funded), which allows state Medicaid programs to consider developing pediatric ACOs. To date, the Department of Health and Human Services has not yet developed any further guidelines for the Pediatric Demonstration Project.

For information on payment models, click here.

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