Health care can thank Elliott Fisher, M.D., of the Dartmouth Institute for Health Policy and Clinical Practice in Lebanon, N.H., for the term "accountable care organization," though he insists that part of the credit goes to Glenn Hackbarth, chairman of the Medicare Payment Advisory Commission. About four years ago, the two men started to tout the ACO concept, in which all providers caring for the same patient populations share responsibility, risk and part of the cost savings such collaboration might provide.

Since then, the idea has gained traction among many policymakers, and officially became one tactic for reforming the nation's health care system when the new Patient Protection and Affordable Care Act was signed into law by President Obama in March. The law calls for demonstration projects to test various ways to develop and implement ACOs around the country.

Dozens of ACOs in one form or another are already being organized. Most, though not all, include hospitals, physicians and other providers. By agreeing to adopt evidence-based quality standards and measurements and by aligning hospital and physician incentives, ACO participants aim to improve outcomes and reduce waste, duplication and inefficiencies.

Health care analysts say ACOs offer the infrastructure for members to integrate care and embrace emerging reimbursement methods such as bundled payments, medical homes, gainsharing and pay for performance.

Medicare's Shared Savings

The most important component of the reform law impacting ACOs is the Medicare Shared Savings Program, slated for a 2012 startup, says Doug Hastings, a Washington, D.C., health care attorney who serves as board chair of the Epstein, Becker & Green law firm. It allows provider ACOs that meet quality standards to share accountability for treating Medicare beneficiaries, as well as a cut of any cost savings that result. The networks must include primary care providers, employ evidence-based medicine and achieve levels of integration that include sharing patient information and joint governance.

ACOs in the demonstration project must sign a three-year agreement and attract a critical mass of at least 5,000 Medicare beneficiaries. Hastings says that while the law will accelerate the growth of ACOs, it does not resolve long-standing legal issues that have constrained tighter relationships between physicians and hospitals. "Parties need to be mindful of the antitrust and fraud and abuse laws," he says.

Payment and Quality Benefits

ACOs might ease the pain of diminishing health care resources, says Joane Goodroe, founder of Goodroe Health Solutions and a senior vice president for innovation for VHA Inc. "We've got to accept—and it's not even political to admit this—that there will be less money available for health care," she says. "We have to figure out how to make the dollars go further."

Goodroe, who developed a widely replicated model for gainsharing earlier this decade, says ACOs bring hospitals and physicians together in a meaningful economic way to accept risk and deliver the best care possible. "We're really moving from a payment system of silos to paying hospitals and physicians for collectively managing populations through ACOs," she says.

The American Hospital Association has long hoped to create payment models to better align physician-hospital incentives "to drive toward that high quality of care we all are seeking without having one part or sector suffering financial penalties," says Vice President for Quality and Patient Safety Nancy Foster.

"This is one and perhaps the most significant model embedded in this legislation that reinforces the theme that we need to be better at integrating the care of patients across the continuum of care," she explains. "Whether you move that way in accepting bundled payment or join an ACO, hospitals need to figure out how to integrate with other providers who are touching the same patients they're touching."

Most physicians already participate in referral networks affiliated with hospitals, "so we felt we could move toward integration without dramatic interruptions of current referral patterns," says Dartmouth's Fisher.

The Centers for Medicare & Medicaid Services' demonstration model offers shared savings without shared risk, which Fisher says should make it more palatable to risk-averse hospitals. He predicts the savings could be substantial. Dartmouth research has found that most of the differential in health care spending across geographic regions can be explained by whether significant populations use hospitals as primary care providers.

"ACOs support the reduced use of hospitals as sites of primary care and allow hospitals to close wards they're trying to keep full under the current payment models," he says.

Virginia, Kentucky, Arizona Tests

Dartmouth and the Brookings Institution's Engelberg Center for Health Care Reform are collaborating with three health systems to pilot ACO programs. They chose the three health systems in their demonstration project—the Carilion Clinic Health System in Roanoke, Va., Norton Health System in Louisville, Ky., and Tucson (Ariz.) Medical Center—to achieve geographic and system model diversity.

John Bertko, a Brookings guest scholar who has worked on the ACO collaborative, says most hospitals receive 40 percent or more of their revenue from Medicare. Dartmouth collects claims data on 20 percent of Medicare's beneficiaries and lends academic resources and superior number-crunching skills, he says, while Brookings' staff work closely with congressional aides and have been involved with physician-hospital organizations and capitated medical groups for years.

Bertko says many studies have demonstrated that there is substantial overuse and misuse in the health care system. "A good proportion of that can be removed," he predicts. "But not overnight. I suspect positive incremental changes of a few percent a year over the baseline over the next 10 years."

Reducing overuse of new technology and inappropriate use of advanced imaging could extract 1 percent from the growth rate in addition to changing the baseline costs, he says, adding, "That doesn't sound like much, but over 30 years it can exert a dramatic effect."

Mark Werner, M.D., president of Carilion Clinic Physicians and executive vice president and chief medical officer for the Carilion Clinic, says practicing accountable care will reduce ancillary and ED visits, hospitalizations and readmissions. "Without rapid enough payment reforms to get a critical mass of more value-based payment systems, this will be very challenging to many average community hospitals," he says. "We need to be migrating toward full capitation models as soon as we can be ready and have the payment system to support that."

'Opportunity, Not a Guarantee'

Werner warned that providers aspiring to form ACOs can't just invite all the local doctors to a town hall meeting and announce they're starting an ACO. Hospitals and physicians must already have some demonstrable level of integration. "Doing an ACO requires passion, a commitment to focus on patient needs, an ability to manage change and develop organizations to manage quality and costs in a comprehensive way," he says. "You cannot fake your way through this."

Palmer Evans, M.D., the Tucson Medical Center's senior vice president and chief medical officer, says TMC is building its ACO network with roughly a dozen employed physicians and another 50 to 60 independent doctors with support from insurer UnitedHealthcare. "We're creating a virtual network by working closely with local independent physicians," he says.

Evans says his organization "could see the direction the country was heading and wanted to become more efficient and improve quality. At the same time, UnitedHealthcare was experimenting with programs to reduce costs to make health insurance more affordable for smaller employers.

"They've been a huge supporter of ours, prodding and encouraging us to move down this path," Evans says. "It's about getting waste out of the system."

Benton Davis, CEO of UnitedHealthcare Western States Health Plan, says the company is participating because "the current reimbursement models are untenable."

"We need to modernize the health care system.... One dimension of modernizing that system is creating better organization in community health systems," he says.

A Team of Rivals

Leaders of the ACO collaboration between Omaha competitors, the Nebraska Medical Center and Methodist Health System, called their Accountable Care Alliance an opportunity to form a best-practices network to share improvement strategies and improve community care outcomes while cutting costs.

This "team of rivals" believes it can achieve those savings by sharing patient health care information, reducing inefficiencies and cutting unnecessary tests using proven, evidence-based quality measures.

Ken Klaasmeyer, president of Methodist Health Partners, the physician-hospital organization, says the two not-for-profit systems formed a for-profit, limited liability company to formalize the structure. The board comprises five physicians representing each system, as well as their chief financial officers.

"We think this should be physician led," Klaasmeyer says. "That's one of our guiding principles. We're committed to this happening at the physician level."

Marcel Devetten, M.D., chief quality officer for the Nebraska Medical Center, agrees, adding that "to succeed, you need buy-in from your physicians. Anyone considering this also would be well advised to think about governance structure early on."

The ACO established a medical management committee whose goal is to identify disease processes and interventions that will draw payer and employer support, such as congestive heart failure, diabetes and chronic obstructive pulmonary disease. Among the ideas the ACO partners have discussed are hiring and sharing nurses to care for patients with chronic conditions and sharing a physician who performs home visits, Klaasmeyer says.

"There is a multitude of things we're going to try and see what offers the greatest reward," Devetten says. "But this is not about reimbursement. It's about care and how it should be delivered, and that's our focus."

Mark Taylor is a freelance writer in Munster, Ind.

Sidebar - ACOs Under the Health Reform Law

Sidebar - What Do We Do Now?