Provider and payment reform in the US: how do Accountable Care Organisations work?

After spending over a year in the United States, it has become very apparent that there are significant differences between our two countries – baseball and drive-through pet grooming being two of them. However, despite fundamental differences between our health systems (and in the case of the US, I use the word ‘system’ loosely), both countries are looking at how the link between payment mechanisms and quality of care can be strengthened.

The most contentious parts of the US Affordable Care Act (recently upheld by the Supreme Court) aim to increase access to health care. However, the Affordable Care Act also aims to reduce costs and improve quality by establishing Accountable Care Organisations (or ACOs).

An ACO is a partnership or network (led by providers) that collectively agrees with the payer (or payers) to share a proportion of any savings – on the condition that agreed quality standards are met. These standards are negotiated and agreed locally between the provider group and the payer. The provider group might also take on financial risk. The underlying theory is that cost savings and quality improvements are more likely if the partners work together.

Throughout 2012, the Centers for Medicare and Medicaid Services (CMS) have launched several different ACO models for managing Medicare patient populations (ie. care for patients who are eligible for government funding). These models allow ACOs to take on different levels of risk and savings, depending on their stage of development. These Medicare ACOs are similar to arrangements that already exist between providers and commercial health plans in the US.

Clinicians in the US typically operate independently. ACOs, which are based on collaboration, are set to significantly change the way that doctors interact with each other and other provider groups. There have been many efforts to promote greater integrated care – Kaiser Permanente and the Geisinger Health System being two well-known examples. However, co-ordination of care has been difficult to achieve while medical professionals, hospitals and health plans operate independently. It is likely that ACOs will initially develop in areas where there is already some degree of integration or collaboration. But what challenges will they face?

Despite their best intentions, there is still the issue that the way different ACO partners are paid will be inconsistent. With the exception of fully integrated systems (which are few and far between), most ACOs are comprised of independent practitioners and organisations, which operate on a fee-for-service payment model. Revenue for one provider is at the expense of another.

Another significant challenge for ACOs is how to involve hospital partners in a meaningful way. ACOs aim to reduce unnecessary hospital admissions and A&E visits by increasing preventive care and access to primary providers. As such, hospitals have very little motivation to participate in a process that intends to reduce their revenue. Calculations suggest that any savings they might share will be miniscule compared to lost revenue. Such tensions between providers that are incentivised by value and those incentivised by volume have the potential to derail the ACO model.

There is confidence on the ground that hospitals will increasingly invest in population-based preventive care with clinician groups. By not engaging with ACOs, hospitals risk losing income in the long term, for example through referral reductions or changing patient flows. Now is the time for hospitals to participate in the design and implementation of ACOs.

Making provider reform successful requires all involved groups to be pulling in the same direction, driven to achieve a shared goal. This is where our two countries may be able to learn from each other. In England, it is imperative that all parts of the system are motivated to achieving a common objective. The experience of ACOs in the US demonstrates that if parts of the system continue to operate with different (and conflicting) motivations and payment mechanisms, there is the strong possibility that the ambitions of integration and improving quality will fail.

Find out more about our work on integrated care and quality of care.

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