Creating a Learning System for Implementing Accountable Care Organizations
Stephen M. Shortell, PhD, MPH, MBA
Dean and Blue Cross of California Distinguished Professor of Health Policy and Mangement,
School of Public Health, University of California, Berkeley
Lawrence P. Casalino, MD, PhD
Chief of the Division of Outcomes and Effectiveness Research and The Livingston Farrand
Associate Professor of Public Health, Department of Public Health, Weill Cornell Medical
College
Elliott Fisher, MD, MPH
Professor of Medicine and Community and Family Medicine, Dartmouth Medical School
Word Count: 3161
Submitted to HEALTH AFFAIRS for their Special Issue on HEALTH CARE REFORM
IMPLEMENTATION
April 12, 2010
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Creating a Learning System for Implementing Accountable Care Organizations
The new health care reform legislation provides language to create Accountable Care
Organizations (ACOs) as a national voluntary program under Medicare by Janaury, 2012.1 If
found successful, they might be spread throughout the country.. Combined with payment reform,
ACOs are seen as one approach to slowly reducing the rate of increase in health care cost over
time while improving the coordination and quality of care for patients2-4. “Bending the cost
curve” will be necessary to sustain the affordability of the expanded health insurance coverage to
32 million Americans over time.
ACOs are provider organizations that accept responsibility for both the cost and quality
of care for the population of patients cared for by the physicians in the ACO and provide data to
be used for to assess performance on cost and quality criteria. In many respects, ACOs serve as
an umbrella organization for a network of physician practices, which, in turn, may be organized
as patient centered medical homes (PCMHs)5. Many ACOs will also include hospitals, home
health agencies, nursing homes, and potentially other delivery organizations.
Advantages
ACOs have potential advantages for patients, physicians, other clinicians, hospitals, and
payers. The increase in the number of people with chronic illness has overtaken the ability of the
health care system to provide the needed care. Many people with chronic illness have multiple
chronic illnesses and see as many as 7 or 8 physicians across multiple locations. This results in
uncoordinated care reflected in preventable hospital admissions, an increasing number of
preventable hospital readmissions, and poor adherence to medications and follow-up care.
ACOs have the potential to address these issues by creating and responding to financial
incentives that provide rewards for keeping people well; bringing physicians and other clinicians
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together into teams that take responsibility for all of the patients’ care across the continuum; by
utilizing electronic health records and electronic visits (email and telephone appointments) to
improve care management processes with patient involvement and facilitating communication
among all parties; and by promoting the performance measurement for the purposes of both
external accountability to payers and the public, but also for internal continuous improvement.
ACOs are potentially attractive to physicians – particularly to primary care physicians
and other primary care clinicians - because they change the basic practice model. Instead of
having to do everything oneself within a limited amount of time, incentives are created for teambased, e-enabled practice with rewards for keeping people well and assistance in keeping track of
patients between visits and across settings. While ACOs are not themselves a solution to the
acute shortage of primary care clinicians across the country, they may help alleviate the shortage
by allowing primary care practices to more efficiently care or larger numbers of patients through
team based practice. The combination of a more positive work environment and payment
incentives, may help to attract more medical and nursing school graduates into primary care.
ACOs can also benefit hospitals depending on the extent to which payment moves to
capitation (i.e. per member per month) and bundled payment (i.e. single payment to both
hospitals and physicians for a given condition or procedure) and on the degree of enforcement of
penalties for preventable admissions and readmissions. In essence, the business model for the
hospital changes from making net revenue on the in-patient margin only, to one of making net
revenue on the total margin; being held responsible with the treating physicians for all of the
patient’s care for given conditions and episodes of illness. This creates incentives for hospitals
to work closely with their physicians to achieve quality of care targets within revenue targets set
by bundled and capitated payment in order to share in the resulting savings. A recent study
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indicated that 70% of hospital and medical leaders felt that their hospital could be a part of an
ACO over the next five years6.
ACOs are also potentially attractive to insurance plans and employers who purchase
insurance on behalf of their employees. There are direct incentives for both to restrain cost. But
since neither insurers nor employers directly provide medical care, they must rely on their
provider networks. To the extent that their networks are composed of small physician practices
and fragmented relationships among primary care physicians, specialist physicians, other
clinicians, and hospitals, it has become difficult for insurers and employers to achieve their
desired goals. If ACOs can reduce some of the fragmentation and provide a platform for the
delivery of more integrated care, then insurers and employers should directly benefit.
The key policy issue is how to structure and implement the ACO concept so as to achieve
the “potential” advantages to the key stakeholders noted above. This will require the
development of flexible models and payment approaches that can be adapted to fit local
communities and market conditions plus the creation of a system in which all parties can learn
from ongoing experience.
Types of ACOs
There are at least five different types of practice arrangements that could serve as ACOs.
These include the integrated or organized delivery system, multi-specialty group practices,
physician-hospital organizations, independent practice associations, and “virtual” physician
organizations2,7. Integrated delivery systems involve a common ownership of hospitals,
physician practices, and in some cases an insurance plan. Kaiser Permanente represents an
example of a fully integrated system in which the health plan, the hospitals, the staff model
medical group (the Permanente Federation) are under a common umbrella of corporate
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governance. Other examples, although not with the exclusive arrangements that exist within
Kaiser Permanente, include Group Health Cooperative of Puget Sound, the Geisinger Health
System in Western Pennsylvania, the Henry Ford Health System in Detroit, Michigan, the
Intermountain Health System in Salt Lake City, Utah, and Sutter Health in California.
Examples of multi-specialty group practices include the Mayo Clinic in Minnesota,
Florida, and Arizona, the Billings Clinic in Montana, the Cleveland Clinic in Ohio, the Virginia
Mason Clinic in Washington State, the Marshville Clinic in Wisconsin, among others. Most of
these practices own or have a strong affiliation with a hospital. They typically do not own a
health plan, but rather have contracts with multiple health plans in their areas. Most have a long
history of physician leadership and highly developed mechanisms for providing coordinated
clinical care.
Physician-hospital organizations are comprised of a subset of the voluntary medical staff
of a specific hospital. Most were formed in the 1990s in response to managed care pressures to
negotiate with health plans. Some, such as the Advocate Health System in Chicago, Illinois, and
the Middlesex Hospital in Connecticut, function similarly to multi-specialty group practices of
their focus on reorganizing care delivery to achieve more cost-effective coordination. While
they may be less well suited than integrated delivery systems or multi-specialty practices to
qualify as ACOs, many could structure themselves to meet required criteria.
Independent Practice Associations (IPAs) are comprised of individual physician practices
that come together largely for purposes of contracting with health plans. Over time, however,
many of these have evolved into more organized networks of practices that are actively engaged
in practice redesign, quality improvement initiatives, and implementation of electronic health
records to improve care delivery. Some examples include the Hill Physicians Group in Northern
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California, and Health Care Partners and the Monarch Group in Southern California. Such IPAs
could qualify as ACOs and others might move in that direction given sufficiently strong financial
incentives and technical assistance support.
Finally, a number of independent small physician practices, many located in rural areas,
can organize to become “virtual” physician organizations. This can be accomplished through the
leadership of individual physicians in rural areas, or from a local medical foundation, a state
Medicaid agency or similar organizations. Such entities can provide the leadership, the
infrastructure, and resources for helping small practices redesign their care, implement electronic
health records, share information, and provide more coordinated cost-effective care. Some
examples include Community Care of North Carolina, Grand Junction Colorado, the North
Dakota Cooperative Network, and a diabetes initiative organized in Humboldt County,
California. These “virtual” networks could potentially qualify as ACOs and serve as models for
others.
Physicians may choose any of the above models or combinations that best fit their own
needs and local circumstances. But to accommodate such choices, the payment system must coevolve with the nature of the model chosen. Specifically, the more integrated forms of ACOs,
such as the integrated delivery systems and the multi-specialty group practices are best capable
of assuming the greatest risk in the risk/reward relationship; such as represented by capitated and
bundled payments. Conversely, less structurally integrated forms of ACOs, such as the
independent virtual practices and more loosely organized IPAs are best suited initially to low
degrees of risk and reward as represented by shared savings and limited partial capitation for
selected conditions. To accommodate such co-evolution, policy makers should consider creating
three tiers of qualification criteria as outlined below. The tiers recognize that a balance must be
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struck between developing criteria that are sufficiently challenging to achieve desired cost over
quality goals, while at the same time not being so stringent as to “demotivate” practices from
applying.
Qualification Tiers
Potential ACOs would submit a three year plan to CMS for achieving eligibility status at
one of three levels. At Level 1, ACOs might bear little financial risk, but be eligible to receive
shared savings and bonuses if they meet quality benchmarks and reduce per beneficiary spending
below an agreed upon target. They could be paid largely in a fee-for-service basis within the
above targets. For Level 1, the following requirements might be defined: 1) establish a legal
practice entity with designated governance and management leadership; 2) indicate the specific
relationship among physicians, hospitals, and other units that are a part of the ACO; 3) indicate a
sufficient number of primary care physicians to care for a defined population of patients of
sufficient size to be actuarially stable; 4) demonstrate the capacity to report a basic set of
performance measures based on at least administrative data; and 5) provide a plan for handling
referrals that cross ACOs. Initially, “virtual” small physician practices and loosely organized
IPAs would find Level 1 criteria of greatest interest and potentially achievable.
Level 2 ACOs might be eligible to receive a greater proportion of savings below a target,
but also be at risk for spending above the target. They could be paid more through partial
capitation and selected bundled payments. These ACOs would be required to meet the above
criteria and in addition: 1) participate in a more comprehensive set of performance measures that
include patient experience, and clinical performance on the care of defined chronic disease
populations, such as asthma, diabetes, and congestive heart failure; 2) meet specific standards for
financial reporting, including financial projections and minimum cash reserves; 3) have an
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established consumer representation and grievance process. The physician hospital organization
model might find Level 2 ACO eligibility criteria potentially attractive.
Level 3 ACOs would be reimbursed through full or partial capitation and extensive
bundled payments and would be eligible for the greatest degree of rewards, but also downside
risk. In addition to the above criteria, qualifying criteria might include: 1) public reporting of
acomprehensive set of performance measures drawn from electronic health records and including
patient reports of health related outcomes and quality of life; 2) meet additional, more stringent
standards for financial reporting and be required to hold larger cash reserves. Integrated delivery
systems and multi-specialty group practices would be most likely to qualify as Level 3 ACOs.
From a policy and practice perspective, the attractiveness of the tiering approach is that it allows
physician practices to start at a low level of developing the capabilities to provide cost-effective
coordinated care and advance to higher levels over time with the associated risk/reward
relationship adjusted accordingly as shown in Figure 1.
The Learning System
Given the need to adapt different models of ACOs to local market circumstances and to
match the payment risk/reward relationship to the capability of the model selected, policy makers
need to create a system of learning to promote more rapid diffusion of successful models and
achievements across the country. Existing research and experience suggest four cornerstones for
the learning system: 1) a focus on goals and objectives that motivate efforts to change; 2) skills
and tools that facilitate change, including in particular the implementation of electronic medical
records, care management processes, continuous quality improvement methods, and effective use
of teams; 3) measurement and accountability for performance; 4) a foundation of strong
leadership.
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Strategic Focus
Payment based on outcomes achieved rather than volume of services provides the
motivation for providers to systematically assess outcomes in relation to the structure and
processes used to produce those outcomes. It directs provider attention to the underlying system
of care within which they work. It motivates them to ask questions such as: 1) Why do I have so
many diabetic patients with their blood sugar levels over 9%? 2) Why do I have to spend so
much unproductive time with some patients and not others? 3) What are my patients doing
between visits? 4) Why are my patient satisfaction scores in the lowest quartile of my group?
5) Why do I not receive the information I need from the specialist to whom I refer? 6) Why do I
not know enough about what happens to my patients when they are in the hospital? 7) Why did
our group have the smallest increase in enrollees in the most recent employer open enrollment
period? 8) How much can I influence the answers to these questions? 9) To what degree am I
dependent on the work of others? Payment reform provides the motivation to learn the answers
to these and related questions.
Skills and Tools
Given the motivation to learn, providers must have the skills and tools to address the
questions raised. These include, in particular, the use of evidence-based care management
processes, continuous quality improvement techniques, the ability to develop effective teams,
and the implementation of electronic medical records and registries. Much has been written
about each of these, but they need to be considered as an integrated set of competencies required
to effectively respond to the new payment incentives to provide more coordinated cost effective
care. For example, recent research on the use of information technology extension centers to
help physicians adopt electronic medical records suggest limited impact without integrating this
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assistance into the practice’s overall approach to developing team-based, evidence-based use of
care management processes and practice redesign8. Particular attention should be given to
implementing electronic medical records with the ability to transfer relevant information across
different kinds of providers within the ACO and across ACOs themselves as needed.
Measurement and Accountability
Key to learning is the ability to receive accurate feedback on one’s performance in a
timely fashion. Thus, electronic medical records must not only facilitate patient diagnosis and
treatment, but also the ability to aggregate data across patients to develop feedback reports for
both individual clinicians and the practice at large assess deviations from desired performance
goals and take corrective action. Drawing on the recommendations of the Institute of Medicine
Performance Measurement Report and the work of the National Quality Forum, a portfolio of
measures are available for use9,10. As performance measures improve over time, they can be
grouped into three categories: 1) those with known reliability, validity, and feasibility ready for
“primetime”; 2) those that are almost ready, but that require further testing, particularly in
regards to the ability of different kinds of practice settings to provide the data; and 3) measures
that are promising, but that require considerable development in regards to establishing their
reliability, validity, and feasibility.
Leadership
Perhaps the most challenging aspect to implementing and expanding ACOs is the lack of
sufficient clinical and managerial leadership. Most of the success stories of leading integrated
delivery systems, multi-specialty group practices, physician hospital organizations, and IPAs can
be attributed, at least in part, to specific leaders and the development of leadership capability
within the organization. A cadre of leaders is needed to help practices develop the skills and
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tools to respond to the new payment incentives and develop the necessary performance
measurement and accountability systems. Evidence-based frameworks of effective leadership
exist based on transformational, executional, and people competencies11. Targeted CMS and
others should set aside for the development of leadership competencies within the developing
ACOs.
Technical Assistance – A Portfolio Approach
Considerable technical assistance will be needed to implement the learning system for
ACO development. This will be particularly true for the loosely organized independent practice
associations and the small “virtual” networks of physician practices that currently lack the size
and resources to participate in a learning system that will accelerate the provision of the desired
coordinated care. CMS and others need to set aside funds to provide the required assistance.
The quality improvement organizations (OIOs), most of which have considerable experience and
expertise in quality improvement and process redesign skills, implementation of electronic
medical records, as well as promotion of care management processes can be used. Private sector
organizations such as the Institute for Health Improvement can continue to play key roles. In
other parts of the country, local and statewide foundations and regional collaboratives such as the
Pittsburg Regional Health Initiative12, the Twin Cities Integrated Clinical Services Institute
(ICSI), and California’s Integrated Health Care Association can play important roles.
An additional approach would be to develop a network of more mature health care
delivery organizations around the country that can “adopt”, or be “twinned” with less mature
delivery organizations to provide assistance in developing the learning system. Such
“organizational mentoring,” could be provided, for example, by the Council of Accountable
Physician Practices (CAPPs); a subsidiary of the American Group Practice Association
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andcomposed of some of the country’s leading multi-specialty group practices. CMS might
provide these organizations with a technical assistance bonus payment to work with selected
organizations across the country for a defined period of time to quickly transfer best practices in
regard to care management processes, practice redesign, development of effective teams,
implementation of electronic medical records, and related assistance. The incentive to the
mentoring organization might structured such that 50% is paid “upfront” with the remaining 50%
only earned if the recipient organization successfully implements the better practice using
predetermined criteria for success. For example, successful implementation of a patient
reminder follow-up system for medication adherence for diabetic patients, successful
implementation of a medication management therapy program; or successful implementation of
the patient self-management program.
Systemtic Evaluation and Feedback
To accelerate learning and improvement of the ACO model and to help all ACOs learn from the
experiences of others, systematic and comprehensive evaluation of ACO implemation is needed.
Common cost and quality performance measures will provide one important source of data. But
additional data will be needed on how electronic medical records, care management processes,
quality improvement initiatives and leadership training programs were implemented. Data will
also be needed about the local context within which the ACO was implemented including the
size of the market, payer concentration, and related factors. Only through such a comprehensive
assessment will it be possible to rapidly learn from the successes and failures and, thereby,
maximize the probability that the program as a whole will succeed.
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Conclusion
From a federal perspective, the logical starting point for implementing the ACO learning
system is CMS’s proposed new Center for Innovation. The Center should emphasize
innovations in both payment and practice models as they must necessarily co-evolve within the
context of the learning system. There are many challenges to the development and
implementation of ACOs beyond those discussed; for example, legal and regulatory barriers13.
But policy makers recognition of the need to consider a variety of different models of ACOs that
can be adapted and implemented to fit local circumstances; the need to recognize different levels
of qualification that are appropriately matched with different risk/reward payment models; and
developing an associated system for learning provides a foundation for addressing what will
inevitably be a difficult journey.
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care by solving the cost and quality quandaries? Washington, DC. The Urban Institute.
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3. Fisher ES, McClelland M, Bertko J, et al. Fostering accountable health care: moving
forward in Medicare. Health Aff (Millwood). 2009; 28(2):w219-31.
4. Shortell SM, Casalino LP. Health care reform requires accountable care systems. JAMA.
2008; 300(1):95-7.
5. Rittenhouse DR, Shortell, SM, Fisher ES. Primary care and accountable care – two
essential elements of delivery system reform. N Engl J Med. 2009; 361(24):2301-3.
6. Shortell SM. Accountable care organizations. The period in the society for health care
strategy and market development (Editor). Futurescan 2010; Health care trends and
implications 2010-2015. Chicago, Il: American Hospital Association.
7. Shortell SM, Casalino LP, Fisher ES. Achieving the Vision: Structural Change.
Crosson FJ, Tollen LE (Eds.). Partners in Health, How Physicians in Hospitals Can be
Accountable Together. San Francisco: Jossey-Bass. 2010.
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small practices. Health Aff (Millwood). 2010; 29(4):668-75.
9. Institute of Medicine. Performance Measurement: Accelerating Improvement.
Washington, DC. National Academy Press. 2006.
10. National Quality Forum. Measurement Framework: Evaluating Efficiency Across
Patient-Focused Episodes of Care. Washington, DC. 2009.
11. National Center for Healthcare Leadership. Leadership Competencies, Version 2.0, 2004.
Chicago, Il.
12. Pittsburg Regional Health Initiative. Accountable Care Networks: Transitions for Small
Practices and Community Hospitals. Pittsburg, PA. Jewish Health Care Foundation.
2009. http://prhi.org/docs/accountable20care2020networks.pdf.
13. Burke T, Rosenbaum S. Accountable Care Organizations: Implications for Anti-trust
Policy. Aligning Forces for Quality, The Robert Wood Johnson Foundation. The George
Washington School of Public Health and Health Services. 2010.
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Figure 1. The Co-Evolution of Delivery System Models and Payment Forms
Ability to Respond
ACOs
Payment Form
IDS
MSGP
PHO
IPA
Virtual
Full Capitation
Ris
Partial Capitation
Episode of Illness
k-R
ew
a rd
Re
lat
ion
sh
ip
Bundled Payment
Fee-For-Service
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