Accountable Care Organizations Hot New Product in Health Care

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Tex Med. 2010;106(12):18-25.

By Ken Ortolon
Senior Editor

They could be the saviors of the American health care system, driving down costs and driving up quality. Or, in the opinion of at least one health policy analyst, they could be "yet another dumb idea that is guaranteed to fail."

Accountable care organizations (ACOs) are the latest craze in the ongoing debate over how America delivers and pays for health care. Texas Medical Association officials say many physicians have never heard of ACOs, but they apparently have been around for some time and have gained popularity both in the health care marketplace and in Congress as a potential mechanism to control soaring health care costs.

The new health system reform law – the Patient Protection and Affordable Care Act (PPACA) – creates pilot projects in both Medicare and Medicaid to test ACOs' ability to achieve those objectives. And, hospitals in Texas and across the country appear to be buying up physician practices to position themselves to lead these entities.

But there is still much uncertainty about what ACOs are and how they will be structured. PPACA contains only a vague definition of what Congress envisioned ACOs to be. A more definitive answer is not likely to be available until the U.S. Secretary of Health and Human Services (HHS) Kathleen Sebelius finishes writing regulations to implement them.

Some experts see great potential in ACOs to improve efficiency and quality in health care, but health policy analyst Greg Scandlen sees them as little different from other managed care approaches that have used "top-down, command and control, centralized decision-making" to control health care costs.

"It has never worked and will never work," he said in a recent issue of his Consumer Power Report newsletter. "Health care is too complex, too important, and too costly to put bureaucrats in charge."

TMA officials and other experts warn physicians to carefully examine who controls these organizations and how they are structured before getting involved in one.

And, Plano family physician Christopher Crow, MD, chair of TMA's Council on Socioeconomics, says that for all the hype, ACOs could end up as just another in a long line of alphabet soup entities, such as HMOs, PPOs, and P4P, that failed to deliver on the promise of cost efficiency and quality.

"I think a lot of people are wondering if this is just another flash in the pan," Dr. Crow said.

What Is an ACO?

Accountable care organizations (ACOs) appear to be the latest innovation in health care delivery systems, but they are not really new. Kelsey-Seybold Clinic in Houston says it has provided accountable, coordinated care for more than 60 years and bills itself as the first and longest standing ACO in Houston. The Kelsey-Seybold website lists some of America's other leading ACO providers as Mayo Clinic, Kaiser Permanente, Cleveland Clinic, and the Geisinger Health System.

Scott & White Healthcare also has been described by some experts as a truly integrated health care delivery system that meets all the criteria of an ACO. Its system includes nine hospitals, more than 800 physicians, and its own health plan.

"While the term 'accountable care organization' is new, the principles of physicians coming together to provide the best care for the patients they serve has a long tradition" at Scott & White, which was founded in Temple by Arthur Scott, MD, and Raleigh White, MD, in 1897, said Jim Rohack, MD, senior staff cardiologist and director of the Scott & White Center for Healthcare Policy. "Though medicine has changed scientifically and the delivery has evolved, the basic principle of a physician-led organization has not. That fact, plus having a mission that all physicians who join Scott & White as well as the staff who help us serve our patients believe in, keeps a focus that can weather the rough times."

In a recent TMA Health System Reform School teleconference, Lee Spangler, JD, TMA's vice president for medical economics, defined ACOs as local and related sets of physicians and providers, including at least primary care physicians, specialists, and hospitals, that can be held accountable for the cost and quality of care delivered to a defined population.

Houston internist Spencer Berthelsen, MD, who chairs the Kelsey-Seybold Medical Group Board of Managers, supports the ACO concept and says they can be a driving force for innovation in health care.

 He says other countries have resorted to some form of broad price controls, either on health insurance premiums or physician fees. "That type of price control approach doesn't allow for innovation, for people to come up with health care delivery systems that actually increase value. They're just blunt instruments to control costs, which is a default if you can't control costs and maintain quality in a more thoughtful way."

Dr. Berthelsen says an ACO needs to meet four basic characteristics to be successful.

First, it must invest heavily in information technology to coordinate the care it delivers. "That pretty much means an electronic medical record," he said.

Second, the organization must use alternate mechanisms of financing beyond traditional fee-for-service systems. Dr. Berthelsen says this means using prepayment or bundled payments. "That's the way you get dollars to invest back into the practice to make it more efficient," he said. "With the fee-for-service system, as you become more efficient you get less revenue and fewer fees. You don't get investable dollars to invest back and improve."

Mr. Spangler says payment methodologies used in ACOs usually are designed to bring about "value-based" payments, which attempts to marry high quality and low cost, and can include shared savings, a system where physicians and other providers get traditional fee-for-service payments with set goals for containing costs. If those goals are met, physicians get a share of the savings generated.

Third, the ACO must monitor quality and cost and then report that data to the payer, whether that is an employer, a patient, or a health plan.

Finally, the organization must adhere strictly to evidence-based practice. Dr. Berthelsen says physicians must hew "to an ethic of looking to the scientific evidence" as to whether a treatment or procedure really helps patients.

"If it does, you do it," he said. "If there's not good evidence that it helps, then you simply remove it from practice."

Hospitals In or Out?

Mr. Spangler says ACOs can include groups of physicians, such as large multispecialty practices and independent practice associations, or groups of physicians who are in partnership with a hospital.

But while an ACO must include physicians, it doesn't have to include hospitals, he says. That has prompted hospitals in Texas and elsewhere to move quickly to try to position themselves at the forefront of the ACO movement.     

The multihospital Baylor Health Care System in Dallas began forming an ACO in partnership with the physicians in its 501a corporation some time ago. Dr. Berthelsen says all of the major hospital systems in Houston are either buying up physician practices or bringing more physicians into their 501a corporation in anticipation of doing the same.

In San Antonio, both the Baptist Health System and Christus Santa Rosa are rapidly buying physicians' practices, says John Wisniewski, executive director of the Bexar County Medical Society.

Mr. Spangler says hospitals are moving aggressively because they believe physician-led ACOs threaten their bottom line.

If you're really going to achieve great savings through these ACOs, it's going to be in reducing inpatient days in the hospital, because that's very expensive care," he said. "You'll also be reducing procedures in a hospital."

In a physician-only ACO, "the physicians win because they get to share in the savings," he added. "They reap the benefits of emptying those beds, and the hospital just has empty beds. If the hospital is part of the ACO with physicians and that ACO is successful, you've probably done something along the same lines. The difference between the two is the hospital gets to share in the savings with the physicians. So they recoup some of the savings from the empty beds."

John Hawkins, senior vice president for government relations at the Texas Hospital Association, says hospital administrators believe they will continue to face cost pressures that force them to move to more integrated models of care that include not only physicians but also home health, nursing homes, and other subacute providers.

"So they know they need to be better integrated to be able to show well in that quality and transparency environment," he said. They also recognize they will need some type of shared governance structure with physicians to make these ACOs work.

"Most guys tell us they believe the 501a model works pretty well in urban areas," Mr. Hawkins said. "That's a good example of shared governance, and that's an organization, at least on the face, that looks like it would be able to take a bundled payment and use their data system to comply with certain performance measures to be able to handle that."

Regardless how an ACO is set up, physician leadership must be a key component for the organization to succeed, says Norman Chenven, MD, founder and chief executive officer of Austin Regional Clinic, a 280-physician multispecialty group that is looking at the ACO model.

"If anybody is going to be successful in this type of venture, it's going to require willing, able, committed, and engaged physicians to make it work," Dr. Chenven said. "Regardless of who sets it up, regardless of who owns it, if physicians aren't in leadership and governance roles, you can't have a successful program. If physicians are just employees with no engagement, I don't think it works."

Health System Reform Law Pushes Accountable Care 

Two provisions of the health system reform law seek to improve quality and lower costs in the Medicare and Medicaid programs through accountable care organizations (ACOs).

The Patient Protection and Affordable Care Act creates a pediatric ACO demonstration project in Medicaid that begins in 2012, although state officials say the federal government has not given them any guidance on how the Medicaid program will operate.

The law also creates a Medicare Shared Savings Program that rewards ACOs for achieving certain levels of cost savings and quality improvement in delivering services under both Medicare Part A and Part B. That program also begins in 2012.

Plano family physician Christopher Crow, MD, chair of Texas Medical Association's Council on Socioeconomics, says there is considerable confusion over how these Medicare and Medicaid ACOs will operate because the statute is short on details, and regulations governing the programs have not yet been written.

Austin attorney William Darling, JD, of the law firm Strasburger & Price, says the broad statutory language describes a "unique entity."

"There are those who liken the ACO to a clinically integrated network," Mr. Darling wrote in a blog. "ACO providers are not at risk for their ordinary Part A and Part B payments, but they will be eligible to share in savings, as defined by the [Health and Human Services] secretary, for attaining financial and quality targets."

Lee Spangler, JD, TMA vice president for medical economics, says the Medicare Shared Savings Program will allow four types of entities to create ACOs:  

  • Physicians in a group practice arrangement,
  • Physicians in independent practice associations,
  • Hospitals that employee physicians, and
  • Partnerships or joint venture arrangements between hospitals and physicians.  

Entities approved as ACOs within the program must agree to participate for three years. They also must be accountable for the quality, cost, and overall care of Medicare beneficiaries assigned to them, have sufficient numbers of primary care physicians to meet the patients' needs, and have defined processes to promote evidence-based medicine and patient engagement, report on quality and cost measures, and coordinate care.

Mr. Darling says physicians and other health care professionals in an ACO will receive their normal fee-for-service payments. ACOs that beat estimated average per capita Medicare expenditures will receive a percentage of those savings.

While proponents of ACOs say they have significant potential to lower cost and improve care, some are concerned that the way the Medicare Shared Savings Program was designed could set up those ACOs for failure.

"My understanding of the way it is anticipated to be set up is that there will be a baseline year of expense and then the accountable care organization will be tasked with a charge of lowering that cost or, at least, reducing it below the expected trend rate," said Houston internist Spencer Berthelsen, MD, who chairs the Kelsey-Seybold Medical Group Board of Managers. "And then it will rebase and you have to beat that rate, and then it will rebase again and you'll have to beat that level." Kelsey-Seybold is a multispecialty group of 365 physicians who practice at 20 locations throughout the Houston area, and it bills itself as Houston's first and longest standing ACO.

"So one concern that I have about the way Medicare ACOs may be set up is if they rebase each year, then it's kind of like the old party game of limbo, where they keep lowering the bar and you have to keep getting underneath it and eventually you can't do it anymore," Dr. Berthelsen continued. "That may be a strategy that has a limited lifespan because eventually you get down to a level that you can't produce any more savings from."

Norman Chenven, MD, founder and chief executive officer of Austin Regional Clinic (ARC), says ARC would like to participate in an ACO "because we think it's important and, if successful, this will be a good thing for everybody." But he also has concerns about how the organizations are structured in the reform law. The biggest problem he sees is that patients will be allowed to seek care outside of the ACO they are assigned to, but the cost of that care will be to the ACO.

"For me to take financial responsibility for someone who, at a whim, can just go elsewhere, that's hard," Dr. Chenven said. "The way it's envisioned, it's a real challenge unless you're in a geographically isolated area. It's a real challenge in a place like Austin to take financial responsibility for people who may not even know they're in your network or, if they do, they don't care."

Jim Rohack, MD, senior staff cardiologist and director of the Scott & White Center for Healthcare Policy, says Scott & White's leadership also is discussing possible participation in the Medicare Shared Savings Program. He says Scott & White wants to choose the program that "will allow us to provide the most personalized, comprehensive, highest quality health care enhanced with medical education and research."

Texas Department of Insurance spokesperson John Greeley also says Texas does not have regulatory framework for ACOs, but it has sought input from TMA and others on what regulations might be needed.

TMA Helps Physicians Understand ACOs

The Texas Medical Association is working to help physicians decide if they should become involved in the accountable care organization (ACO) movement.

TMA began offering seminars on the issue in November and two more are scheduled -- in Houston on Dec. 9 and in Dallas on Dec. 14. "Accountable Care Organizations: Opportunity or Threat?" helps physicians explore key strategic issues they must consider when contemplating ACO participation. The seminar will discuss the structure, payment methods, and desired outcomes of ACOs, as well as post-health system reform market changes, the importance of health information technology in the postreform world, and the pros and cons of practicing in an employed setting.

The speakers will be Helen Kent Davis, director of TMA's Office of Governmental Affairs, who is responsible for health care policy research, development, and advocacy on diverse state and national regulatory and legislative issues, and Austin attorney William Darling, JD, who has extensive experience in developing and implementing physician/hospital-related managed care organizations.

The program includes dinner, a free copy of Switch: How to Change Things When Change Is Hard, 3 continuing medical education credits, and a 3-percent discount (up to $1,000) on Texas Medical Liability Trust professional liability premiums.

For more information or to register, click here or call (800) 880-7955.

TMA, in conjunction with the Physicians Foundation, also is developing a toolkit to help physicians make informed decisions about joining an ACO.

The toolkit will include information on what an ACO is, including worksheets and checklists on major points and issues physicians need to know in understanding the ACO concept. It also will include information on how to compute bonuses under the shared savings concept, as well as sample organization formation documents, such as bylaws, corporation papers, antitrust guidelines, and more.

Other information in the kit will include the Do's and Don'ts of forming a physician organization, including tools for implementing an ACO readiness assessment, plus information on developing payment and reimbursement methodology using global or bundled payments, a draft physician hospital organization joint venture agreement, and a capital formation document to act as a tool in seeking capital for commercial and investment communities.

Finally, the toolkit would include a business plan outline, draft agreements for contracting with self-funded employers, software recommendations and vendor lists, and much more.

TMA Executive Vice President and Chief Executive Officer Louis J. Goodman, PhD, says physicians face many important decisions about the future of their practices and need expert help and resources to make the right moves.

"The way ACOs are being presented by some of the hospitals is that it's exclusive, and you either sign up now or you're going to be cut out," said Dr. Goodman, who also is president of the Physicians Foundation. But physicians should take a good look at the pros and cons before signing up for an ACO, he adds.

TMA's efforts regarding ACOs also extend to the Texas Legislature as lawmakers and state agencies examine what legislative or regulatory changes the state might need to implement the new health system reform law, which includes ACO programs.

It is likely the Texas Health and Human Services Commission (HHSC), which runs the Medicaid and Children's Health Insurance Program, would have to apply to be part of a Medicaid demonstration project that begins in 2012.

But Texas officials say federal officials have not given them any guidance on how the program will operate. Maureen Milligan, deputy Medicaid and CHIP director at HHSC, says she has seen nothing from Washington that would indicate how payments would be structured under the pediatric ACO project.

"As far as we know, there has been no guidance as to what that is and how they would need to be structured," she said.

"There are a lot of unknowns still associated with the law because the regulations are going to be so much of what really defines what it ultimately looks like," said State Rep. John Zerwas, MD (R-Richmond), who chairs the House Select Committee on Federal Legislation. That committee is looking at what challenges face Texas in implementing the reform law.

Sen. Jane Nelson (R-Lewisville), who chairs the Senate Health and Human Services Committee, says that panel also is examining ACOs and how they might foster a team approach to patient care. "There is potential for these collaborations among physicians and hospitals to result in better outcomes for patients and to lower overall health costs, and I look forward to hearing more about how they might work in Texas."

In testimony before Representative Zerwas' committee in October, Austin neurologist Sara Austin, MD, said TMA is taking steps to help physicians better understand the health system reform law and the ACO provisions. Those steps include creating an Ad Hoc Committee on Accountable Care Organizations that the TMA House of Delegates directed to study ACOs, new payment methodologies, and possible ACO pitfalls, risks, and protections to ensure patient care is not jeopardized.

Dr. Austin, a member of TMA's Council on Legislation, told lawmakers that TMA's examination of ACOs reveal several legal and practical challenges that must be overcome if they are to succeed in Texas.

She said TMA has developed six recommendations that the committee should consider as it explores ACO implementation in Texas. Any ACO should: 

  • Strive to be community-based and patient-centric and should avoid profit-centric goals. In essence, an ACO should reinvest its savings and revenues back into the ACO and community. 
  • Strive to meet the needs of the patients.
  • Ensure participation by physicians is voluntary.
  • Ensure the active involvement of local physicians and hospitals in the design, implementation, monitoring, and evaluation.
  • Ensure pilot programs are of sufficient length to provide valid and reliable data to evaluate the program's impact on health care outcomes.
  • Ensure that performance measures:
  • Are evidence-based, nationally recognized, transparent, and routinely updated to reflect changes in clinical practice;
  • Are developed by consensus and applicable to the population;
  • Are limited in number, published in advance, and easily collected and measured using current data systems; and
  • Ensure appropriate due process protections for participating physicians and hospitals. 

In addition, she said, any legislation passed regarding an ACO structure should:  

  • Use positive financial incentives instead of penalties;
  • Invest resources to monitor, evaluate, and disseminate information on emerging best practices to physicians and other health care professionals;
  • Focus pilot programs on high-volume, high-cost, and/or high-risk illnesses; and
  • Coordinate Medicaid initiatives with those under way in the Employee Retirement System, commercial insurers, and Medicare. 

In addition to the legal challenges associated with ACO formation, she said, TMA identified nine different practical challenges the committee may want to consider:  

  • Medical care in Texas is predominantly organized around small and solo practices. Therefore, most communities are not primed for the ACO movement like the larger practice groups in urban areas and in medical centers.
  • A large and intensive capital investment is required to create an ACO, especially on the front end.
  • The ACO model depends on a community-wide culture, which may take decades to build.
  • Numerous legal barriers exist without sufficient guidance.
  • Patients may view an ACO as just another HMO.
  • There are unrealistic expectations about ACOs' impact on quality and costs.
  • If incentives are not based on the right criteria, there could be a temptation to curtail necessary care.
  • The consolidation of market power could increase health care costs.
  • There are still many obstacles that prevent widespread health information technology implementation in Texas, which will be critical to an ACO's long-term success.  

Should You Make the Leap to an ACO? 

While the ultimate point of an accountable care organization (ACO) is lowering overall health care costs and improving quality, Spencer Berthelsen, MD, who chairs the Kelsey-Seybold Medical Group Board of Managers, says that doesn't mean physicians who practice in an ACO should expect lower incomes.

In fact, a group of physicians who are part of an effective ACO should see their income stay the same or rise as the value of the services they provide increases.

Dr. Berthelsen and others say the real concern for physicians thinking about joining an ACO lies elsewhere.

"The biggest issue for physicians is the question of control of these entities and where they fit in the organization," said Austin health care attorney William Darling, JD. "The questions of who controls that organization, do physicians have a meaningful place at the table, and do they have the ability to negotiate contracts inside the accountable care organizations in a way that allows them to be rewarded for their efficiencies -- all these are open questions."

Mr. Darling recently attended a listening session on the Medicare Shared Savings Program in Baltimore and says a huge red flag that came up is exclusivity.

"If we're going to coordinate care, it all needs to be coordinated under one umbrella, and we can't have physicians, particularly the primary care physicians, involved with two or three of these organizations," he said. "It would make it too hard for them to coordinate care in an appropriate way."

That, he says, could be very limiting in terms of both a primary care physician's ability to refer patients to certain specialists and to hold on to his or her current patient population.

"I think it's going to be absolutely limiting," Mr. Darling said. "These organizations are not going to be created simply to be a Medicare entity. They are going to be created to do the commercial payer market, as well. If your ACO doesn't have a contract with the patients you see, that could certainly be a limiting factor."

Dr. Berthelsen advises physicians to look for ACOs that exhibit four basic characteristics: a willingness to invest in health information technology; a willingness to use alternate financing mechanisms, such as prepayment or bundled payment; a commitment to quality and cost measurement and reporting; and a commitment to evidence-based medicine.  

"As these ACOs are starting to gel or crystallize – and many of them are crystallizing around hospital systems or faculty practices or IPAs, for instance – look for those four characteristics and see if they're present," Dr. Berthelsen said. "Then look for an organization that's developing a means of organizing itself into an effective governance system. So it has a representative form of government with a board, with an effective group of physician leaders."

Jim Rohack, MD, senior staff cardiologist and director of the Scott & White Center for Healthcare Policy, also says physicians looking at joining an ACO need to examine the leadership structure of the ACO.

"For those independent physicians who are wondering if they should join an ACO, I would suggest they look at their physician leadership opportunities and their mission," he said. "If physicians are not allowed input or the mission is focused just on profit and not the patients, then the result will be similar to what happened in the 1990s with physician management companies -- an unsustainable model."

Lee Spangler, JD, TMA's vice president for medical economics, says physicians considering joining an ACO need an exit strategy in case the ACO's prospects for savings are poor or the quality measures are inappropriate.

"You have to go into these arrangements with your eyes open," he said. "Physicians have to do their homework, they have to be happy with the partners they're signing up with or the group that they're with."

Mr. Darling says the best advice he can give physicians, particularly those going into an ACO led by a hospital, is to "pick your partner well. Historically, hospitals have had some challenges in managing physician practices, so the question about whether or not they are up to the task is an important one. And I am very concerned about what happens if you decide you do not want to be in that ACO. It will be very difficult to change horses in the middle of the stream."

Ken Ortolon can be reached by telephone at (800) 880-1300, ext. 1392, or (512) 370-1392; by fax at (512) 370-1629; or by e-mail at Ken Ortolon.



Six Points Every Physician Should Consider About Medicare ACOs

By Asa Lockhart, MD

Doctors, that age-old business advice still applies: Take your time and read carefully, and evaluate what it might mean to your patients and your practice, before you sign a contract.

Specifically, the Patient Protection and Affordable Care Act (PPACA) paves the way for Medicare shared savings accountable care organizations (ACOs).

Conceptually, this type of ACO is a collaboration of physicians and health care providers that accepts accountability for the costs and quality of an assigned population of Medicare patients. The goal of this model is to reduce costs while improving quality by weaning physicians and providers from uncoordinated care. New and future payment models for ACOs in the commercial market may use a number of payment methods including fee-for-service payments with incentives, bundled payments, partial capitation, or some combination of payment models.

Even though the new health law is extremely murky on exactly how the Medicare shared savings ACOs work, many hospitals and physicians already are moving ahead to form collaborations.

My concern is that doctors are rushing, are being enticed, into systems that won't protect them or their patients. I'm afraid physicians who act too early could harm their practices and patients.

Even though no one knows precisely how ACOs will work, there are a few facts we do know. For starters, the new law is clear on these features of Medicare shared savings ACOs:  

  • What can you do if you disagree with the government's decision about whether your ACO is eligible to share in any savings? Nothing. The law specifically prohibits any administrative or judicial appeals of this decision.
  • What can you do if you disagree with the amount of shared savings the government decides to pay you for your patients under an ACO? Nothing. The law specifically prohibits any administrative or judicial appeals of this decision.
  • What can you do if you disagree with the Medicare patients the government assigns to your care under an ACO? Nothing. The law specifically prohibits any administrative or judicial appeals of this decision.
  • What can you do if you disagree with the measurements the government plans to use to determine the quality of care you provide to your patients under an ACO? Nothing. The law specifically prohibits any administrative or judicial appeals of this decision.
  • What can you do if you disagree with the government's assessment of the quality of care you are providing to your patients under an ACO? Nothing. The law specifically prohibits any administrative or judicial appeals of this decision.
  • What can you do if the government terminates the ACO from participating in the shared savings program? Nothing. The law specifically prohibits any administrative or judicial appeals of this decision.  

Physicians need to be wary and be informed. Please take the time to learn about these systems, and understand their differences and what they could mean to your practice and your patients, before you sign any agreements.

Asa Lockhart, MD, is an anesthesiologist in Tyler and chair of TMA's Ad Hoc Committee on Accountable Care Organizations. This commentary was originally published on the website and is reprinted here with permission.  

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January 29, 2016