MedPAC: Accountable Care Organizations

MedPAC recently released ts annual June report, this year titled Improving Incentives in the Medicare Program. As usual, it's a leader in the reform conversation and full of good ideas. I'm posting a mini-series on it, starting with the chapter on Accountable Care Organizations, or ACOs. 

What exactly is an ACO? Well, there is no exact answer. These entities could look different from one another. They  could be based around an integrated delivery system, a physician-hospital association, or an academic medical center. But they must include three components: primary care physicians, specialists, and at least one hospital. These three groups would share responsibility for the quality of care and the cost of care received by the ACO's patients. If the ACO achieves both quality and cost targets, it could receive a bonus; if it fails, its members could face lower Medicare payments. The incentive is to deliver coordinated, efficient care. 

We already see functioning ACOs taking a number of different forms, proving that all health systems do not have to move towards a one-size-fits-all model, such as Kaiser. Right-of-center readers might appreciate my recent post about the Sumner Clinic-HealthSpring relationship. Sumner Clinic is a physician practice that takes patients exclusively from HealthSpring, a Medicare Advantage plan. HealthSpring enforces rigorous quality standards on the Sumner physicians, but rewards them with a bonus up to 20 percent above Medicare fee-for-service rates if they score high on 25 quality measures. Sumner Clinic provides care at cost rates 69 percent of traditional Medicare. Those savings go to beneficiaries in the form of lower premiums or richer benefits. If these two organizations were to officially partner with their local community hospital, and if they could significantly impress some local specialists, presto, an ACO.  (For more, see Guy Clifton's book here.)

Left-of-center readers would be interested in the remarkable success of Denver Health, the public integrated system in Colorado. Readers of this blog are familiar with this organization and its CEO, Dr. Patricia Gabow, who participated in our Health CEOs for Health Reform event on Capitol Hill earlier this month. Denver Health cares for a quarter of Denver's total population (and a third of the children). Most—85 percent—of the patients are poor, below 185 percent of the federal poverty level. Just under one-third (30 percent) are non-English speakers and 70 percent are ethnic minorities.

Indicators like that usually signal poorer health nationwide. Not at Denver Health. The system has excellent quality indicators, including hypertension control nearly twice the national average. They're efficient, too: inpatient charges for Medicaid patients are 68.7 percent that of the Metro Denver average. Denver Health provided $318 million worth of charity care last year and has been in the black for the past 17 years. 

The MedPAC report sketches out two models: voluntary and mandatory. While the mandatory form might sound attractive to those of us interested in aggressive delivery system reform, it would involve assigning physicians to hospitals where they admit most of their patients (see Elliot Fisher's Extended Hospital Medical Staff, which was analyzed by MedPAC in 2007 here). They would be a "virtual ACO"—not officially in an organization, but they would be responsible for cost and quality like a normal ACO. 

My initial reaction to favor an aggressive but voluntary ACO structure is based on our recently released Health CEOs for Health Reform white paper: "Accountable organizations that accept full responsibility for high-quality patient care and efficient performance will be encouraged and favored over time...Delivering high-quality care within accountable payment models will be more profitable than fee-for-service Medicare...(w)ithin a few years..." 

As we learned in our case studies published by The Commonwealth Fund, culture change is just as important as financial incentives. We need to allow time for physicians to investigate what organization they are comfortable with. Not all ACOs have to be the same. This could be especially true in rural areas.   The end result, though, is the same: we must move toward integrated organizations that are responsible for cost and quality—and away from organizations that benefit from fee-for-service and silos of care.

For another variation on ACOs, see Lawrence Casalino's thorough take on the matter in Making Medicare Sustainable.