Accountable Care Organization
A voluntary organization consisting of doctors, hospitals and other health care providers, formed with the goal of improving the quality of care for Medicare patients. Through cooperation and coordination of care the goal is to reduce duplication of medical services and prevent medical errors. The idea for an Accountable Care Organization is to replicate the shared accountability for patient health care that a Health Maintenance Organization (HMO) provides while maintaining open access for patients(1). These organizations are designed to be 'virtual' organizations of physicians in association with acute care hospitals.
There are three essential characteristics of Accountable Care Organizations(2):
1) provide and manage with patients the entirety of their care over various settings, including ambulatory and inpatient
2) prospectively planning budgets and resource needs
3) be of sufficient size to provide comprehensive, valid and reliable performance measurement
Section 3022 of the Affordable Care Act amended Title XVIII of the Social Security Act by adding a new section 1899(3). This section requires the creation of a Medicare Shared Savings Program designed to encourage Accountable Care Organization (ACO) development. This section enacts provisions to provide Medicare payments to providers of services or supplies who participate in ACOs. The creation of the Shared Savings Program is geared towards developing better care for individuals, populations and lower growth in Medicare Part A and B expenditures (the three-part aim). The organization of an ACO is described in the HHS Final Rule(4). Each ACO agreement period will typically be for a period of not less than 3 years, although it may be longer. An ACO will need to have a minimum of 5,000 Medicare fee-for-service (FFS) beneficiaries assigned to it to qualify. If the eligible Medicare FFS beneficiary patient panel drops below this number during the agreement period a warning will be issued and the ACO will be placed on a Corrective Action Plan (CAP), but would still be eligible for shared savings during that performance year. If the population remains low for an additional performance year that ACO would no longer be eligible for shared savings payments. An ACO will be a collection of Medicare-Enrolled provider Tax Identification Numbers (TIN).
CMS estimates to enroll between 50 and 270 ACOs with approximately 2 million Medicare beneficiaries overall, approximately 4% of the 49 million Medicare beneficiaries in the country. (7) The Medicare Shared Savings Program may save the federal government up to $940 million over a four-year period, while paying out up to $1.9 billion in shared savings over three years (7).
Patients retain their freedom of choice under traditional FFS Medicare and the patient's are assigned to ACO's based on where and from whom they receive a plurality of their primary care during the performance year. This includes patients that are typically designated as noncompliant or unmanageable. ACO's will need to establish a method by which the patients can opt out of this data sharing process. Patients may continue to receive care from providers both inside and outside the ACO.
Rewards ACO's that lower their health care costs while meeting performance standards on quality of care. Providers continue to receive traditional Medicare FFS payments under Medicare parts A and B but may be eligible for additional payments if they meet quality and savings requirements. For ACOs that successfully meet quality and savings requirements the Medicare Program can share a percentage of the achieved savings with the ACO.
Two Models of ACO in the proposed Final Rule(5)
In the One-Sided Model ACO's share in the savings but are not responsible for any of the costs surpassing the ACO's CMS determined benchmark. Yearly the estimated per capita Medicare expenditures for Medicare beneficiaries are calculated based on CMS benchmarks. To qualify for payment on the savings an ACO must have per capita costs significantly below that benchmark (by more than a CMS determined 'minimum savings rate). At that point the ACO can qualify for a maximum of 50% of the savings (plus an extra 2.5% for ACO's in rural hospitals or federal qualified health centers under certain circumstances). Payment is capped at 7.5% of the ACO's benchmark.
Shared saving payments are also contingent upon minimum quality performance measures in various areas:
1) Patient/ Caregiver experience
2) Care Coordination
3) Patient Safety
4) Preventative Health
5) At-Risk Population/ Frail Elderly Health
In the Two-Sided ACO model the ACO shares in both the savings as well as the losses for patient care CMS will also determine a benchmark for Medicare Part A and Part B costs to determine whether the ACO is eligible for savings payments or liable for losses. ACO's must be either below the benchmark by the minimum savings rate or above the benchmark by a minimum loss rate to be penalized or rewarded. Two-sided ACO's are eligible for up to 60% of the savings accrued, with an extra 2.5% for rural hospitals or federally qualified health centers under certain circumstances. The payment cap in a two-sided ACO is also higher, up to 10% of the ACO benchmark.
Contrast with Health Maintenance Organizations
Unlike an HMO patients will be able to see providers outside of the ACO network at no extra cost. There is an internal pressure to keep patient and provider services within the ACO, since this will better lead to shared organizational savings.
Some also contrast the national corporation basis of HMO's with the 'virtual' organizations of ACOs, with ACOs consisting of local health care providers working as a team to provider higher quality of care for their patient panel.(6) In HMO's cost savings were implemented by denial of patient services and by negotiating lower compensation for hospitals and providers. Furthermore there are improved IT solutions today that will enable ACOs to better integrate health care.
1. Cohen J, "A Guide to Accountable Care Organizations and their Role in the Senate's Health Reform Bill;" Health Reform Watch Mar 2010. 
2. Devers K, Berenson R, "Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandries?" Urban Institute October 2009. 
3. Centers for Medicare and Medicaid Services Accountable Care Organization Overview. 
4. Department of Health and Human Services Centers for Medicare and Medicaid Services; Medicare Program: Medicare Shared Savings Program: Accountable Care Organizations; Federal Register Vol 76, No 212 Nov 2,2011.
5. Cohen J, "Summary of CMS Proposed Rule on Accountable Care Organizations;" Health Reform Watch Apr 4, 2011. 
6. Emanuel E, "The End of Health Insurance Companies;" New York Times, Jan 30, 2012. 
7. Katayama A, Monfre A, "ACOs: HMOs in Drag or the Savior of our Health Care System?" Health Law Update, Nov 2011.
Submitted by Gerry Dunlap