An Accountable Care Organization (ACO) is a provider-led organization that manages the full continuum of care for a defined patient population to improve quality and reduce costs. The US healthcare system lacks coordination and incentives for value over volume, motivating ACO development. ACOs differ from 1990s integrated delivery systems by focusing on managing performance risk rather than insurance risk through tools like bundled payments, quality tracking, and health IT. Critical functions include attributing patients, budgeting, performance measurement, and managing payment models to distribute shared savings incentives.

1. ACOs: Core Features and Implications for Care Delivery Charles DeShazer, MD

2. Overview What is an Accountable Care Organization (ACO)? Why is ACO formation being supported by the government? How are ACOs different in design and operation? What are the critical success factors for ACOs? How should providers evolve to or participate in ACOs?

3. What is an Accountable Care Organization (ACO)?

4. Genesis of the ACO Concept Concept began to take shape in 2001 based on work of AMGA to define principles of Accountable Physician Groups Council of Accountable Physician Practices (CAPP) formed in 2002 by AMGA Vision: to foster the development and recognition of accountable physician practices as a model for transforming the American health care system Elliot Fisher “ Creating Accountable Care Organizations: The Extended Medical Staff”, Health Affairs, 2007,26:w44-w57 “ Fostering Accountable Health Care; Moving Forward in Medicare, Health Affairs, 2009, 28:w219-w231 Formally proposed and defined in MedPac report to congress in June 2009 ACO funding supported in the Affordable Care Act beginning in 2012

5. What is an Accountable Care Organization (ACO)? An Accountable Care Organization (ACO) is a provider-led organization whose mission is to manage the full continuum of care and to be accountable for the overall costs and quality of care for a defined population. An ACO is a combination of a hospital, primary care physicians and possibly specialists. Potential ACOs include: Integrated delivery systems Physician hospital organizations (PHO) Hospital plus multispecialty groups Hospital and independent practices Three essential characteristics: Ability to manage costs and quality for patients across the continuum of care and across different institutional settings Capability to prospectively plan budgets and resource needs and distribute payments Sufficient size to support comprehensive, valid and reliable performance measurement (estimated to be at least 5,000 Medicare or 15,000 commercial patients)

6. Why is ACO formation being supported by the government?

7. US Healthcare System is in disarray Highest cost and lowest quality system in the world among developed nations Complex, fragmented, & confusing system Misalignment of incentives Lack of transparency of pricing and costs Inadequate data to assess value (i.e. interaction of quality, cost and satisfaction) Variations in care with no apparent benefits Costs on an unsustainable trend

8. Exhibit ES-1. Overall Ranking Note: * Estimate. Expenditures shown in $US PPP (purchasing power parity). Source: Calculated by The Commonwealth Fund based on 2007 International Health Policy Survey; 2008 International Health Policy Survey of Sicker Adults; 2009 International Health Policy Survey of Primary Care Physicians; Commonwealth Fund Commission on a High Performance Health System National Scorecard; and Organization for Economic Cooperation and Development, OECD Health Data, 2009 (Paris: OECD, Nov. 2009). AUS CAN GER NETH NZ UK US OVERALL RANKING (2010) 3 6 4 1 5 2 7 Quality Care 4 7 5 2 1 3 6 Effective Care 2 7 6 3 5 1 4 Safe Care 6 5 3 1 4 2 7 Coordinated Care 4 5 7 2 1 3 6 Patient-Centered Care 2 5 3 6 1 7 4 Access 6.5 5 3 1 4 2 6.5 Cost-Related Problem 6 3.5 3.5 2 5 1 7 Timeliness of Care 6 7 2 1 3 4 5 Efficiency 2 6 5 3 4 1 7 Equity 4 5 3 1 6 2 7 Long, Healthy, Productive Lives 1 2 3 4 5 6 7 Health Expenditures/Capita, 2007 $3,357 $3,895 $3,588 $3,837* $2,454 $2,992 $7,290 Country Rankings 1.00–2.33 2.34–4.66 4.67–7.00

9. Exhibit 1. International Comparison of Spending on Health, 1980–2007 Note: $US PPP = purchasing power parity. Source: Organization for Economic Cooperation and Development, OECD Health Data, 2009 (Paris: OECD, Nov. 2009). $7,290 $2,454 16% 8% Average spending on health per capita ($US PPP) Total expenditures on health as percent of GDP

10. Threefold variation in per capita spending Source: Peter Orszag, N Engl J Med, 2007

11. The lack of a relationship between quality and Medicare spending, by state, 2004 Composite Measure of Quality of Care Source: Data from AHRQ and CMS.

12. Tweaking will not help… Market has changed since the current system was designed Shift from infectious diseases to chronic conditions Population life expectancy extended from late 40’s to late 70’s US reimbursement model has created “perverse incentives” to increase spending Fee-For-Service (FFS) incentivizes volume over quality Third party payer system shields the consumer from the true costs of care 2001 IOM Report the “Quality Chasm” Working harder will not be able to correct the fundamental deficiencies Restructuring is needed to create a system that produces safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity as a reliable property of the system

13. Rationale for promoting the ACO model Payment reform FFS payment structure seen as a one root cause of fragmented, poor quality and low value care delivery Capitation and global payment schemes require a certain level of sophistication and integration P4P mixed results ACO structure considered mechanism to enable transformation of the delivery system Strong interest in improving quality and decreasing costs to maximize the value equation Many best practice models in terms of value are IDSs (e.g. Geisinger, Kaiser Permanente, Intermountain, Mayo, Cleveland Clinic) Need to separate performance risk from insurance risk and place accountability for performance risk where those decisions are made – at the point of care Bundled and global payments are a key enabler Reduces the need to micromanage the delivery process Encourages redesign and innovation to maximize efficiency and performance Supports collaboration and integration

14. How are ACOs different in design and operation?

15. How is this Different from IDS Strategy of Late 1990’s? Performance vs. Insurance Risk IDS strategies of late 1990’s These were mainly defensive strategies to create leverage with health plans IPAs formed primarily to create a contracting structure for greater leverage and control Groups formed to be able to take on and manage capitation payments Hospitals bought physician practices to create leverage, generate referrals and increase FFS revenue There was not much focus on creating a truly integrated system of care capable of taking on performance risk Quality measurement was in a nascent stage and there was not much focus on cost efficiency, quality, transparency nor overall performance Lack of good risk adjustment methodologies and performance assessment lead to some organizations taking on inappropriate levels of insurance risk Very little attention to physician management and productivity dropped in owned practices Information Technology in general and EMR technology in particular was expensive and immature ACOs are designed to take on and manage performance risk Goal is to create a structure capable of balancing cost, quality, access and service to optimize care for a defined population across the entire system Performance measurement to evaluate the quality of care and to prevent potential overuse (in fee for- service organizations) and underuse (in capitated ones) is a cornerstone of the Accountable Care Organization (ACO) model Mature IT today creates the opportunity to wire organizations and create new levels of integration , transparency and performance management

17. Changing Hospital Incentives Current focus: revenue growth Often driven by large capital investments with high fixed costs Incentives for more use Extra MRI means more revenue Foregoing MRI means NO revenue Only way to make margins is to use more or charge more Always leads to greater health care spending Better focus: spending targets & shared savings Preserves margins Provides incentive to avoid increases in capacity (and to reduce capacity where feasible); and to improve care in domains previously ignored: care coordination, end-of-life

18. Reimbursement Models and Delivery Structure Source: ACO Toolkit. Brookings-Dartmouth Collaborative 2011

19. Key Functions an ACO Must Perform Patient Attribution Ensure that providers believe they are fairly accountable for a particular patient Budget Development and Management Establish benchmarks Case Mix Adjustment Track and manage the budget Determine level of risk with payers Manage Payment Models and Incentives Determine how to distribute shared savings to best incentivize providers Performance Measurement Measure and track quality performance

20. Patient Attribution Virtual assignment currently exists b/c most patient see one or two PCPs and most PCPs admit to one or two hospitals ACO must agree to attribution method although can use different attribution methods for different payment models Accountability for assigned patients lies with the ACO, not the individual provider Important to understand that once patient is attributed, the ACO is responsible for ALL costs of that patient, inside and outside of the ACO Methods Patient selection of PCP Utilization patterns Ensure that high-cost patients with an established provider are not referred out or discontinued after formation of ACO

21. Shared savings: Overview The principal features of a “shared savings” model include: Payers and ACOs establish budget targets for the total health spending of ACO’s members. Payers may continue to make payments on a fee-for-service basis. At the end of the year, the actual and target spending are reconciled. If the actual spending is less than the target, and if the ACO has performed adequately on access and quality metrics, the ACO, payers, employers, and consumers share the difference (“shared savings”).

22. Developing a Budget Analysis of 2+ years of historical data Benchmarks established Cohort approach Claims lag an issue Ensuring similar populations Incentive for better coding may distinguish populations Decreasing ability to identify control population Budget Projection approach Avoids issue of loss of control population Build historical trends into projected benchmarks which may reward high cost providers Difficult to account for system-wide changes Accurate exposure data (monthly membership) extremely important for calculation of PMPM costs Various trend project methods Need to analyze care management investments relative to potential shared savings benefit Important to consider whether and how benchmarks should be updated

23. ACO and Payment Continuum Source: ACO Toolkit. Brookings-Dartmouth Collaborative 2011

24. Manage Payment Models and Incentives ACO will have to manage a complex mix of reimbursement methods Likely will have a mix of reimbursement schemes for some time, including FFS Need to determine model for shared savings distribution that will incentivize the right providers for the right behavior Must have the ability to distribute payments and shared savings accurately ACO governance will need to determine how align financial and non-financial incentives such that functional groups are not working at cross-purposes

25. Performance Management ACOs will have to demonstrate performance transparency Achieving selected quality targets will be a prerequisite for obtaining shared savings May include credit for improvement vs. hitting absolute benchmarks Investments in redesign and infrastructure for care management may need to precede reimbursement through shared savings Standardized metrics and benchmarks are evolving Overuse Avoidance of antibiotic use for adults with bronchitis Population health Breast screening Chronic care Diabetic A1c control Outcomes 30 day post-MI mortality rate Outcomes measures should be risk-adjusted

26. Performance Reporting Highly Dependent on IT Infrastructure Basic IT Infrastructure Administrative data Claims data Intermediate IT Infrastructure Clinical data Lab data Registries Advanced IT Infrastructure EHR ACO-wide Direct patient-generated information about experience Outcome measures

27. Health Information Technology Meaningful Use incentives driving broad adoption of EHRs Health Information Exchanges (HIEs) will help with comprehensive information needed for care management Data warehousing and analytic resources will be essential Care management Disease registries are a minimum requirement Clinical decision support – reminders, alerts Referral tracking Care plan documentation Case management system Patient Health Record (PHR)

28. What are the critical success factors for ACOs?

29. What are the Challenges to ACO Development The historical lack of collegiality and collaboration between the various organizations, in particular, physicians and hospitals The need for strong leadership and skills to address the cultural, legal, financial and resource-related challenges to creating new provider organizations Ensuring a strong primary care base with adequate infrastructure and resources to be accountable for a full scope of responsibilities Governance and creating joint accountability Determining who will and how to distribute revenue and "shared savings“ Cultural and workflow shifts necessary to implement more efficient and high-quality models of care delivery Holding physicians accountable for productivity, quality AND efficiency at an individual AND population level Implementation of necessary infrastructure, especially IT, in a capital constrained environment Source: McKethan A, McClellan M. Moving from volume-driven medicine toward accountable care. Health Affairs Blog. August 20, 2009. (Accessed October 26, 2009, at http://healthaffairs.org/blog/2009/08/20/movingfrom-volume-driven-medicine-towardaccountable-care/)

30. ACO Critical Success Factors Culture Collaborative Transparent Progressive Performance driven Clinical leadership Legal and financial expertise Effective governance structure Strong and effective primary care base redesigned to support care coordination Integrated and effective administrative and clinical IT infrastructure and operations

31. How should providers evolve to or participate in ACOs?

32. ACO Considerations Local market conditions Assessment of readiness Determine alignment strategy (alone, strengthen current partnerships, new partnerships) Establish governance and management structure Ensure have right leadership, experience and mix of skill-sets Determine capital requirements Determine IT strategy Establish quality and operational improvement methodology Integrate with other changes (e.g. meaningful use, ICD-10, PCMH) Define a time-boxed tactical pathway to achievement of an ACO organization with effective tracking and course correction mechanisms

33. Critical Success Factors for Primary Care Effectiveness in an ACO Complete & timely information about their patients and the services they are receiving Technology and skills for population management and coordination of care Adequate resources for patient education and self management A culture of teamwork Coordinated relationships with specialists and other providers Ability to measure and report on the quality of care Infrastructure skills for the management of financial risk Commitment by leadership to improving value as a top priority

34. In closing, Berwick comments… Triple Aim Berwick’s highest priority as head of CMS Better care for individuals , described by the six dimensions of health care performance listed in the Institute of Medicine’s 2001 report “Crossing the Quality Chasm”: safety, effectiveness, patient-centeredness, timeliness, efficiency, and equity. Better health for populations , though attacking “the upstream causes of so much of our ill health,” such poor nutrition, physical inactivity, and substance abuse. Reducing per-capita costs (utilization and unit costs) . Recent Comments re Goals of ACOs Reducing dependence on hospitals . Instead, "patients will be home where they want to be." Using a proactive approach . ACOs will advance ways to help people stay healthy. Using a rich trove of healthcare data . ACOs will use data-driven approaches such as patients registries. Taking an innovative approach . ACOs will draw upon the best advances in models of care. "We want to help integrated care to thrive in America.” Maintaining and executing plans . "I don’t view the ACO as primarily a financing mechanism, It's a care delivery system.” “ Successful redesign of health care is a community by community task. That’s technically correct and it’s also morally correct, because in the end each local community — and only each local community – actually has the knowledge and the skills to define what is locally right.”