View the Washington: Finding Our Bearings

Emerging models for Accountable Care Organizations

Ever since President Obama signed the Patient Protection and Affordable Care Act, Public Law 111-148 (PPACA), into law, the number one question I seem to get from healthcare executives is “What is going to happen with Accountable Care Organizations (ACOs)?” The answer to this is pretty straightforward, albeit frustrating – “At this point, nobody really knows!”

Given the significance that ACOs hold for the future implementation of PPACA, it would seem that more would be known at this point. Nevertheless, conflicting prognostications are coming from many different quarters. If you consider how PPACA was enacted, I think the big reason for the confusion and conflicting opinions becomes evident. PPACA represents the largest transfer of power to the executive branch of government in the history of the United States. Yet, there is no conference report language for Public Law 111-148. The absence of conference report language inhibits the ability of regulators, providers, and others to try and divine the intent of various legislative provisions – including those related to ACOs.

Although PPACA includes provisions requiring the Centers for Medicare and Medicaid Services (CMS) to come up with regulations for ACOs by Jan. 1, 2012, market providers, payers, and others have already begun efforts to build, test and scale new models.

These models are still evolving. However, there are seemingly three common characteristics. First, they all appear to utilize groups of providers who are willing and able to take responsibility for improving the overall health status, care efficiency and experience for a defined population. Some refer to such a system as “pre-primary care”. Another common trait of the evolving models seems to be the inclusion of a “hub-and-spoke” payment approach. The third common characteristic is the assumption of the utilization of an integrated electronic medical record system.

ACOs are widely viewed as a way to overcome the fragmentation and volume orientation of the existing fee-for-service system so that incentives for providers are in place to foster health and wellness, rather than payment for treating illnesses. ACOs also incent greater provider integration as care givers will be encouraged to work cooperatively across the care continuum to achieve common measures of success and assist populations in reaching wellness goals.
Suffice it to say, designing a structure of hospital-physician integration is an essential component for ACOs. The age old saying about following the money comes into play here. The question of who will hold the dollars under an ACO structure depends on who you are asking. Ask doctor interest groups, and they will say that the payers should send the money to the doctors and let them pay the hospitals. Ask hospital interest groups and, not surprisingly, they are sure that hospitals would be much better at doling out any payments received to doctors. Who gets to be at the center of the “hub” becomes very important.

Nevertheless, the healthcare sector appears to be dividing into three camps. The first is the physician-led model. This is characterized by such things as: direct payments to physicians and/or their organizations with payments then made to other providers; strategic alignments with hospitals; interface with other types of providers; marketplace recognition; outcomes measurements; and incentive-based compensation for additional work provided.

The second is the hospital-led model. Characteristics of this model include such things as: physicians as direct employees and/or contractors; integrated network for services; payments coming to hospital or its organization, with subsequent payments to other participants; market position; responsibility for patient safety; electronic medical records; and clinical outcomes measurements and reporting.

It is the third and least known model which is so intriguing. Little is known as of yet about employer-led ACOs. Under this model, employers create or lease contracts from organizations which put providers together to achieve most of the characteristics of the other two models. This model would include: clear focus on clinical outcomes; contracting with centers of excellence and high quality providers; demand for efficiencies; continuous improvement expectations; outcomes measurements and transparency; as well as fostering stability and cohesiveness of various provider services.

Given how much skin employers have in the current game, I anticipate more to be happening with the employer-led model in the months/years ahead. While hospitals and physicians are “duking-it-out” in regions over who gets to hold everybody else’s money, large employers could decide to get into the business through direct contracting and leasing of contracts. They can begin to use their substantial market power in regions to gain price and quality concessions from providers as they establish their own ACOs.

Still too early to tell but I must admit, this is going to be one interesting shake-out phase for this critical part of health reform.

About the Author

Robert Betz Ph.D.
Robert Betz, Ph.D., is president of Robert Betz Associates, Inc. (RBA), a well-established federal health policy consulting firm located in the Washington, D.C. area. Additionally, Dr. Betz is an adjunct professor teaching at The George Washington University where he specializes in political science and health policy. For more information about RBA, visit