Accountable care organizations present a unique challenge for hospital executives. Designed to be an integrated care delivery model, ACOs are responsible for care cost; quality for a given population is shared across the continuum of care—as is any cost savings. ACOs try to improve care through more preventive efforts and fewer hospital admissions.

So, the natural question for hospital executives is, "How can this seemingly detrimental operational model be advantageous?" The answer is encouraging and significant.

For those hospitals that act quickly and decisively, the ACO is an opportunity to solidify future market position. By becoming an integral part of the early framework for improving population health, a hospital can help secure its own long-term competitive advantage.

The ACO is Medicare's first full-scale attempt to move away from volume-based, fee-for-service reimbursement and toward value- and quality-based payments. Unlike the physician hospital organizations of the past, which were simply a competitive reaction to managed care plans, ACOs are tightly woven into health care reform law. They will not soon disappear.

Changing the Business of Medicine

Traditional reimbursement models are unsustainable; it is likely that in the near future hospitals will not be paid based on the number of beds they fill. Hospitals on the vanguard are aware of some vital facts:

  • Hospitals participating in ACOs are more likely to gain the benefit of shared savings sooner.
  • Early adopters will have a greater choice of profitable, premier medical groups with which to partner.

The pressure to phase out fee-for-service compensation makes it imperative for hospitals to shape a new reimbursement environment. With the impetus on integrated care groups, ACOs may be a safe harbor. Those that try to go it alone may face considerable financial obstacles. ACOs provide a proactive response to the changing economic milieu.

What makes an ACO most attractive, however, is its marriage of cost with quality for the advancement of patient care. Ultimately, it is the patient who reaps the benefits from ACOs.

Forging a Successful Partnership

Hospitals and physician groups have a long history of working together to provide better patient care—imaging centers and ambulatory surgery centers are two prime examples. While there is no doubt that quality assurance and cost metrics make ACOs a more complex proposition, Medicare's recently concluded physician group-practice demonstration shows they can be workable. Much of the ACO legislation, in fact, was drawn from lessons learned during the demonstration.

The key to ACO success, however, is building a culture of mutual inclusion. Hospitals and medical groups alike must be open to joint governance, joint leadership and joint responsibility. For some, it will mean a fundamental cultural redesign.

The two core objectives of an ACO—improve the quality of patient care and lower its cost—cannot be achieved by hospitals or medical groups alone. The power to transform patient care by realizing both goals is possible only through a truly collaborative culture.

Physician groups bear the greatest responsibility for accomplishing quality goals simply because most proactive health maintenance and coordination efforts take place in the ambulatory setting. Hospitals necessarily drive cost reduction because expenses typically are highest in the acute setting. The hospitals that will become leaders in providing low-cost, high-quality health care, therefore, will be those that succeed in fostering a completely new mind-set.

A shared culture on quality and cost is necessary in all care settings, among all providers and with all leaders. Old models of ownership must give way to partnership. Buy-in to the ACO concept from every participant cannot be underestimated.

Connecting the Continuum

The central tenet of the ACO legislation is patient-centric care coordination. This emphasis on synchronization means that all health care entities will have roles to play in the patient care process; the job of the ACO is to link the already-existing pieces together.

Consider the requirement that an ACO assume responsibility for a minimum of 5,000 Medicare beneficiaries. It would be hard for a small community hospital to comply, yet team that hospital with a larger group practice and the full spectrum of community care needs becomes easier to meet.

Perhaps medical groups will start to buy beds or days from their local hospitals. Admittedly, this is an unconventional idea, but one that could prove a possibility. The health reform law requires coordination of care, but does not specify how it is to be done.

Achieving full, continuum-wide care will require cooperation among more than hospitals and physician groups, however. It entails coordination with nursing facilities, mental health providers, home health and therapy services, and more. Primary care practices often are well-suited to the care coordination task, especially if they are:

  • experienced working with the full spectrum of ancillary care providers;
  • already using complex infrastructure (e.g., registries, EHRs, diabetes educators, RNs) to coordinate care; and
  • trained in disease prevention and early intervention efforts central to ACO quality care mandates.

The organizational model that perhaps is most readily adapted to the ACO concept is the integrated delivery system. Typically, these systems work under a shared leadership and foster a shared culture, so the crucial collaborative foundation already is laid. The greatest challenge would be deciding how to assign hospital financial losses. Several integrated delivery systems in Medicare's physician group-practice demonstration counted on shared savings amounts to combat hospital revenue decline, albeit with varying degrees of success.

Another collaborative possibility is pairing hospitals with stand-alone practices, especially if those medical groups already possess an EHR and promote a strong team-based culture. The key difficulties confronting this operational model include aligning corporate cultures and determining payment flow. Who, for instance, will collect reimbursement, and how will it be distributed? Internal compensation, both for the medical-group physicians and hospital departments, will require a distribution methodology that takes into account the quality measurement efforts of all parties.

Shaping the Future

On initial inspection, many hospitals see little business benefit from the ACO model. Yet forward-looking hospitals have begun to examine how to make the leap from today's system of acute, fee-for-service care to tomorrow's vision of preventive care. ACOs provide a way to ensure that hospitals remain a vital part of the care continuum.

Make no mistake. Creating an effective ACO poses many daunting challenges for hospitals and physician groups alike, but the marriage of cost and quality afforded by the ACO model makes it both dynamic and transformative.

As ACOs prove successful at improving care quality and lowering expenses, reimbursement necessarily will follow. Hospitals that get in on the ground floor will hold the best prospects for profitable partnerships.

Abe Levy, M.D., is the chief medical officer and chief quality officer of Mount Kisco Medical Group in Mount Kisco, N.Y. Aric Sharp, F.A.C.H.E., C.M.P.E., is the chief executive officer of Quincy Medical Group in Quincy, Ill. Scott Hayworth, M.D., is the president and chief executive officer of Mount Kisco Medical Group.