Accountable Care Explained: An Experiment in State Health Policy

  • October 11, 2012
  • By Christine Vestal
(Getty)

The Affordable Care Act and state fiscal pressures have spawned an array of new Medicaid cost containment and quality improvement schemes. Among the most ambitious is a health care delivery system whose components are called accountable care organizations (ACOs).

The phrase “accountable care organization” was coined in 2006 at Dartmouth Medical School and then adopted by an advisory board to Medicare, the federal health plan for seniors. The idea — that health care providers could be enticed to join forces to provide better care at lower costs, while taking financial responsibility for the health outcomes of their patients — gained prominence during the 2009 congressional debate that led to passage of the federal health law.

Although the ACO concept enjoys strong bipartisan support and broad acceptance within the health care community, skeptics argue it relies too heavily on voluntary cooperation among health care professionals who are accustomed to working independently. Others suggest the idea is simply a new label for health maintenance organizations (HMOs), which lost some of their appeal in the 1990s because they were seen as putting profits before quality.

The 2010 national health law creates ACO incentives for Medicare, but only addresses Medicaid in a modest way. It authorizes a demonstration project for creation of pediatric ACOs within Medicaid and the State Children's Health Insurance programs, although funding is not yet available. The law does not specifically apply ACOs to the rest of the Medicaid population — pregnant women, seniors and people with disabilities, and millions of other poor adults (after the law's slated expansion in 2014).

The states, however, are moving ahead on their own. An increasing number are adapting the ACO model for Medicaid in hopes of providing less fragmented care at lower costs. Here's a primer on how accountable care organizations might work under the Medicaid program:

What makes an organization an ACO?

A standard definition for ACOs does not exist. Their parameters vary widely among the states that have developed ACO programs. But in general, accountable care organizations are partnerships of health care providers — including primary care doctors, specialists and sometimes hospitals — that agree to a set budget for serving all of the health and long term care needs of a defined group of patients. The organizations have incentives to keep patients healthy, efficiently treat those who are sick, and help patients who have chronic illnesses control the effects of their diseases. If costs fall below a set budget, ACOs share in the profits. If costs exceed the budget, some ACOs share in the losses. Budgets are set based on the overall health of the population to be served and payments are tied to quality measurements.

How are ACOs expected to improve patient care and health outcomes?

Evidence indicates that the traditional fee-for-service model of paying individual health care providers for each office visit, treatment and test has resulted in fragmented coverage and wide variances in the quality and price of health care across the country. As an alternative, ACOs are designed to encourage health care providers to work together to coordinate the care of their patients rather than racking up individual charges to treat the symptoms of their illnesses. ACOs also have incentives to anticipate the needs of individual patients and to take into account the overall health needs of the populations they serve.

For example, doctors in an ACO are rewarded for working together to treat diabetes patients with the goal of keeping the chronic disease in check and avoiding drastic procedures such as amputations that result in costly long-term care. ACOs are rewarded for preventing the onset of the disease and working with patients to manage their conditions through lifestyle changes.

How do ACOs differ from HMOs or managed care?

Managed care organizations and HMOs are third-party organizations that contract directly with doctors and other health care providers to offer care to a defined group of patients. The HMO or managed care company bears all of the risk if costs exceed a contracted monthly fee per person, and reaps all of the profit if costs come in below budget. Those incentives are used to a great extent in ACOs as well. But when HMOs first appeared on the scene in the 1970s, quality control mechanisms to monitor the ongoing health of patients had not been widely developed. Under ACOs, treatment quality and success rate measurement are at the center of the effort.

Are Medicaid ACOs the same as those created under Medicare or private insurance?

In concept, Medicaid ACOs are no different from Medicare or private ACOs. But because a majority of Medicaid beneficiaries are already covered by managed care organizations and most are sicker than the rest of the population, the details of state programs may differ from those created by Medicare and private payers. Another potential difference is that Medicaid rules allow states experimenting with ACOs to require patients to use them. Medicare ACOs are a voluntary option for patients in the states where they are being employed.

How many ACOs are operating?

So far, ACOs have been used more in dealing with Medicare patients than with those signed up for Medicaid. As of July, Medicare ACOs were serving 2.4 million people in 40 states and the District of Columbia, according to an announcement from the U.S. Department of Health and Human Services. At the moment, only a limited number of Medicaid ACOs in a handful of states are fully operational. But there is clear momentum to try the idea in other states, and more are expected to join in the experiment over the course of the next year.

Which states are pursuing Medicaid ACOs?

According to the National Academy of State Health Policy, which tracks state ACO efforts, the following states have established ACOs within their Medicaid programs:

Colorado: Accountable Care Collaborative

Oregon: Coordinated Care Organizations

Maine: MaineCare Accountable Communities Initiative

Minnesota: The Minnesota Accountable Health Model

New Jersey: Medicaid ACO Demonstration Project

The Kaiser Family Foundation also identifies Utah as being in the early stages of implementing a Medicaid ACO initiative. The Center for Health Care Strategies is helping several states, including Massachusetts, Texas and Vermont, launch ACO models.

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