An hfm Web Extra

The concept of accountable care organizations (ACOs) was initially developed through a pilot project, now coordinated by the Brookings Institute and Dartmouth Institute for Health Policy and Clinical Practice. Under the pilot, a total of three integrated delivery systems in Arizona, Kentucky, and Virginia and two independent practice associations in California developed contracts with large private payers by which participating providers agreed to coordinate care for a defined patient population, and periodically report core clinical process, clinical outcome, and patient satisfaction measures to the payers ( In return, if key quality metrics were satisfied, the payers agreed to share a fixed portion of the savings resulting from any reduction in per capita costs below a fixed benchmark

A concurrent pilot program administered by the Centers for Medicare & Medicaid Services (CMS), the Physician Group Practice (PGP) Demonstration, provided further impetus for the ACO concept. In that demonstration, which ran April 2005 through March 2010, participating physician groups were eligible to receive a portion of any per capita savings below a fixed, risk-adjusted benchmark for the Medicare fee-for-service beneficiaries they treated. The providers were not at risk if Medicare costs exceeded the benchmark amount, and beneficiaries were free to see any Medicare-participating physician they chose. Moreover, the portion of savings paid to participating groups varied with the scores they registered on designated quality metrics.

Initial data on the effectiveness of ACOs at reducing growth in healthcare expenditures are inconclusive. The Brooking-Dartmouth pilot is still relatively new, and data relating to the effect of the demonstration on health expenditures is not widely available. Similarly, the data from the PGP Demonstration is mixed. In the two most recent years of the program for which data are available, only five of the 10 participating physician groups generated savings greater than 2 percent of the allotted benchmark to qualify for a shared savings payment, although quality of care metrics improved significantly for all groups (CMS Fact Sheet: Medicare Physician Group Demonstration, December 2010, (

Despite the paucity of evidence regarding the effectiveness of ACOs, many experts believe that the model represents a promising mechanism for promoting more cost-effective care in the Medicare fee-for-service program. Indeed, the Medicare Payment Advisory Commission officially endorsed the concept in a 2009 report to Congress (

Consequently, in March 2010, as part of the Patient Protection and Affordable Care Act, Congress directed the Secretary of Health and Human Services to establish a program by which:

  • CMS would contract with qualified ACOs
  • The ACOs' providers would manage and coordinate care for the Medicare patients through their ACO organizations
  • The ACOs would periodically report data regarding quality of care for their assigned beneficiaries
  • As long as threshold quality of care standards were met, the ACOs would receive-and be permitted to distribute to their providers-a portion of any savings resulting when the Medicare payments made by CMS on behalf of assigned beneficiaries fell below pre-established benchmark levels.

Congress left it to CMS to develop the specifics of the Shared Savings program via regulation and ensure that the program would be operative by Jan. 1, 2012.

Interest in ACOs among the provider community continued to grow as the industry awaited proposed regulations. For example, after Premier Healthcare Alliance launched a collaborative in May 2010 to assist providers in preparing for near-term ACO participation, more than 25 health systems, encompassing more than 80 hospitals in 23 states, contributed $150,000 each to participate (Devore, S., and Champion, R.W., "Driving Population Health Though Accountable Care Organizations," Health Affairs, January 2011). Similarly, when Premier opened a second collaborative in the following month to assist providers in preparing for longer term formation of ACOs, 56 health systems in 32 states paid to participate ( Fnally, when regulators announced a public workshop to discuss the forthcoming Shared Savings Program, all available spots were reserved within minutes, compelling officials to broadcast the workshop over the internet.

Despite interest in the ACO concept, many providers chose to await details of the Shared Savings Program before committing significant resources. ACO formation involves significant capital investment, and many providers were unwilling to take that step until they learned what ROI they might receive through the Shared Savings Program and what structural and operational requirements CMS might impose. Would ACOs be placed at financial risk if expenditures increased? Would they receive meaningful relief from federal fraud and abuse laws that could stymie shared savings between hospitals and physicians participating in an ACO? How onerous would the quality reporting requirements be? Precisely what preconditions would be imposed in order to receive savings generated? Many providers decided to await answers to these questions before moving ahead.

For more information, see Max Reynold's "Managing the Risks of Accountable Care," hfm, July 2011.


Publication Date: Friday, July 01, 2011

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