The Road to Accountable Care Organizations

Colin B. Konschak, Managing Partner, DIVURGENT
February 15, 2011

The healthcare system in the United States is at a turning point in its history. The convergence of many factors - including experience with health maintenance organizations, shortages in the healthcare workforce, expansion of the uninsured segment of the population, rising healthcare costs, and challenges to the quality and accessibility of care -has led to a number of reform initiatives. One such initiative is the concept of the Accountable Care Organization (ACO), which has been explored in depth in the recently released book "Accountable Care Organizations: A Roadmap for Success."

It is quite evident that the fee-for-service payment system has not led to optimal performance of the nation's healthcare system. In fact, the Institute of Medicine (IOM) released a report in 2006 calling attention to problems with the fee-for-service payment system. The IOM maintained the system "reward(s) excessive use of services; high-cost, complex procedures; and lower-quality care." These incentives have resulted in a volume-driven system that contributes to reduced or stagnant quality of care, in addition to concurrent rises in the cost of services.

There are a variety of new approaches to reimbursing and incentivizing physicians and hospitals for healthcare services provided and adoption of health information technology. These new approaches are addressed throughout the Healthcare Reform Act and have been and will be tested in various payment reform models throughout the industry. A major test of these approaches will be conducted through ACO pilots funded by the Federal government.

While implementation challenges exist, the ACO model brings the potential to improve quality, efficiency and cost of care for services covered by Medicare Parts A and B, Medicaid and private payers for defined patient populations. Shared savings will be found through stronger alignment of physician and hospital incentives for ACO participants achieving quality of care goals.

As the public sector and private sector ACO models evolve, what are some of the key principles for establishment? In a 2009 Health Affairs article, Dr. Elliott Fisher, Dr. Mark McClellan and others summarized three key design principles for ACOs. These serve as anchor points for industry leaders as they collaborate in crafting the federal rules and language that will guide the implementation of ACOs across the US.

First, the principle of accountability draws upon focusing the power and leadership of these organizations with the physicians. Secondly, the industry focus on performance measurement to provide greater transparency for the patients and other stakeholders who assess the value of care provided will continue to be strengthened under the ACO model and shall build upon the performance measurement requirements in the Patient-Centered Medical Home.

Third, payment reform will hinge on the transition to the pay-for-performance model, which will incentivize chronic disease management and preventive health care, as opposed to episodic outcomes such as hospital stays. This transition will move the industry away from the fee-for-service reimbursement model over time.

It is important to note that with the strategic direction set by the IOM, the Department of Health & Human Services, Centers for Medicare and Medicaid Services, and other key industry stakeholder organizations over the last decade, the foundation for the evolution of many key initiatives is in place. It is also important to point out the importance of keeping a long-term perspective on working toward a multi-payer ACO model that meets requirements for all payers and provides the benefits of improved population-based health management, reduced cost of care, improved reporting and strong accountability.

The US faces tremendous challenges in the coming decades for managing the growth in needed healthcare services, cost of those services and continuing to improve the quality of care provided. Even amidst these challenges, ACOs, the industry shift to pay-for-performance, value-based purchasing, population health management, rising consumer expectations, and other transformational initiatives are setting the stage for advancement of the nation's healthcare system.

Colin B. Konschak, FHIMSS, FACHE is the Managing Partner of DIVURGENT, a healthcare management consulting firm. He leads DIVURGENT's advisory services practice focused on operational and information technology provider strategies. He is a co-author of the aforementioned book, "Accountable Care Organizations: A Roadmap for Success."

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