The thing about the latest buzzword in health care (buzzconcept? buzzacronym?), the accountable care organization or ACO, is that—like the city of Oakland in Gertrude Stein's famous putdown—there's no there there.

Not yet, anyway.

Oh, to be sure, there's an idea there, and one whose time would seem to have come. The structural components of ACOs were outlined in 429 pages of proposed federal rules issued by the Centers for Medicare & Medicaid Services at the end of March, a year after the term ACO and its ramifications were described in the Patient Protection and Affordable Care Act of 2010.

Under the rubric of "Medicare Shared-Savings Programs," an ACO was defined in the PPACA as a group of health care providers—it could be a physician group; a network of medical practices; a joint venture or partnership among a hospital, community physicians and ancillary providers; or a hospital that employs them—working together under shared governance with primary care physicians in the leadership role, managing and coordinating care for at least 5,000 Medicare fee-for-service beneficiaries.

An ACO will need processes to measure and report the quality and cost of its care and to promote evidence-based medicine from outpatient disease prevention and health maintenance, through hospital admission, to post-discharge community follow-up. Mature ACOs will be paid by CMS for episodes of care rather than for à la carte services, and the ACO will be responsible for distributing the payments among its providers, dividing any savings realized through care improvement as bonuses.

"With enhanced cooperation among beneficiaries, hospitals, physicians and other health care providers," said CMS Administrator Donald Berwick, M.D., in unveiling the proposed rules, "ACOs will be an important new tool for giving Medicare beneficiaries the affordable, high-quality care they want, need and deserve."

Needs Work


CMS allowed 60 days—until June 6—for commentary and recommendations on tweaking the ACO regs. The Federal Trade Commission, the Internal Revenue Service and the Justice Department also have asked for feedback on their proposed rules for dealing with antitrust and tax challenges posed by ACO integration. A full-scale launch of the program is scheduled for Jan. 1. Influential close readers of the legislation, however, like Premier Inc., a Charlotte, N.C.-based, knowledge-sharing and group-contracting alliance of some 2,500 hospitals nationwide, are lobbying for a number of adjustments before the ACO experiment goes live.

"The regs need some work," says Blair Childs, Premier senior vice president. Of particular concern, he notes, are the formulae by which CMS will calculate and return savings to ACOs.

Under the proposed rules, organizations can choose one of two models for participation during an initial three-year run. Those who opt for Track 1 assume no performance risk for the first two years and collect 50 percent of any savings realized annually. Those bold enough to select Track 2 at the outset accept downside risk—that is, if their costs exceed an agreed benchmark or they fail to meet quality targets, they have to pay Medicare up to 10 percent back—but, they stand to collect as much as 60 percent of any savings they can wrangle.

Childs thinks those share-back rewards need to be sweetened. He thinks 70 or 80 percent in the beginning, at least, would be more appropriate. Withholds against potential future losses, which are in the proposed rules, should be eliminated, too, he argues. And extra Medicare payments to teaching hospitals and those with a disproportionate share of low-income patients should not be counted against their costs.

"You want more organizations and more competition in the market," Childs reasons, "so you've got to incentivize them. My reaction is that Medicare wouldn't get any savings at all if we didn't move in this direction."

Structuring an ACO to meet CMS technology and quality-measurement requirements is expensive, he points out. Indeed, of 10 large physician group practices that took part in a CMS-sponsored ACO demonstration project between 2005 and 2010, according to a recent study reported in the New England Journal of Medicine, not one practice received a penny in shared savings return-on-investment the first year, only four earned a payment the second year, and half still had not seen any payoff by the third year. On average, the practices had spent $1.7 million just to gear up for the experiment.

Berwick puts a more positive spin on the record, pointing out that six of the 10 sites ultimately logged savings totaling $78 million. Nevertheless, cautions Childs, "short-changing ACOs now will make the program less attractive to applicants and could stifle future innovations."

Bill Thompson, chief operating officer of SSM Health Care, a four-state, 15-hospital system based in St. Louis, echoes widespread opinion that "conceptually, ACOs are a great idea. We're very supportive. But we're still trying to figure out what's in the regs. We'll be busy over the next few months doing analysis to see if there are opportunities we can implement."

There or Not


Let's set matters straight on Gertrude Stein's ostensibly devastating comment about the city in which she'd spent her childhood. The quasi-surrealist poet had returned to Oakland from her home in Paris to give a lecture in 1935. During the visit she went to see the house in which she'd grown up, situated on 10 acres of roses and eucalyptus. But the house had been razed, and in its place stood what she saw as a "shabby" housing development. A rose was not a rose was not a rose now: The "there" of her memory was no longer there.

But all around her were the wooded hills and sparkling bay front of one of America's most vibrant and beautiful cities.

Oakland had sprung from a vision of a shrewd gold rush lawyer named Horace Carpentier. He looked at a muddy section of the Mexican rancho that sprawled along the eastern shore of San Francisco Bay and foresaw a grid of bustling future streets.

Similarly, accountable care organizations are a vision of smoothly interlocked health care delivery mechanisms built on figuratively muddy terrain in which physicians, hospitals and payers now are all too often working at fragmented, inefficient, uneconomical and even adversarial cross-purposes. And despite all the uncertainties, many potentially qualified organizations say they're raring to give the ACO wheel a spin.

Some 259 systems have signed onto a Premier-sponsored "readiness collaborative" whose members receive independent evaluation of their performance in the 200 standard operating activities supporting 40 key capabilities in six core competencies that Premier has pinpointed as necessary for a successful ACO. After the assessment, each gets a "road map"—an action plan and a monthly punch list of work needed—so they will be ready to launch an ACO when CMS rings the opening bell Jan. 1.

Marquette (Mich.) Health System is a member of that collaborative. "We made a decision to proceed with ACO development because it's in the [reform] legislation, but also because it's the right thing to do," says CEO Gary Muller. "We have an obligation as providers to spend less and treat patients better. And we feel like we're out in front because we have a real collaborative group of hospitals in the Upper Peninsula. We have an electronic medical record fully implemented at Marquette General Hospital and at five of our 15 clinics. We've done quite well with physician engagement. We see them really being able to lead the effort at improving quality and service at lower cost.

"The thing we need now is rules, so we know where to go," says Muller. "We want to find out if we can test the waters before we move too far ahead."

In southeastern Michigan, Dearborn's four-hospital Oakwood Healthcare System has forged its own ACO development path. A year ago, says CEO Brian Connolly, the organization formed an interdisciplinary advisory panel of some 25 physicians and dispatched them to study other systems whose features could be emulated in establishing Oakwood's own 900-doctor ACO, incorporated last November as a limited-liability corporation. That's important, because to qualify under CMS rules, an ACO must include a fully independent element that can collect Medicare payments and parcel them out as merited to participating physicians, hospitals and other providers.

"Our ACO is structured so that the board of directors has a majority of physicians—nine primary care physicians, four specialists and four hospital members," notes Connolly. "It's a physician-dominated-and-controlled entity."

Oakwood clinicians now are embarked on a fundamental ACO activity, he says: aggressively refining treatment protocols to shave costs through better care for patients with several key diagnoses, starting with reduction of readmissions for congestive heart failure.

"This is actually very exciting," he says. "The fundamentals of what our ACO is doing are correct, and I believe much of this is just going to be the standard practice of medicine in the years ahead. I'm not particularly worried about what the legislation is going to specify. Purchasers looking for value in health care are going to see what we're doing, and we're going to be fine."

Snowball Effect

A few health systems nationwide are structured to conform to the ACO blueprint out of the box, without further assembly. Twenty-eight of them, encompassing about 120 hospitals, have joined an "implementation collaborative" under the Premier aegis. Those organizations already have adopted functioning EMRs, have acquired robust health information exchange technology to aggregate critical population health data on the 1.5 million "accountable lives" they serve, have set work groups to the task of disseminating and monitoring evidence-based medical practice by their 5,000-plus physicians, and are poised to register as formal ACOs the minute CMS gives the go-ahead.

"The only reason we wouldn't," says Craig Samitt, M.D., president and CEO of Dean Health System in Madison, Wis.—a participant in the Premier implementation collaborative—"is if no one else was an ACO … if the whole principle was somehow flawed. But then we'd simply do what we're doing now even more aggressively."

Dean is exceptionally well-positioned to be a high-performing ACO, says Samitt, because for more than a decade it has been a "virtually integrated delivery system" comprising a multispecialty group of more than 350 physicians in 60 locations, the Dean Clinic, and—in affiliation/partnership with SSM—two Wisconsin hospitals and its own Dean Health Plan with more than 300,000 covered lives.

"Hospitals or physician groups that have historically owned health plans are effectively ACOs," Samitt adds. "There's alignment within the four walls of the hospital arm, the physician arm and the insurance arm. They don't struggle with turf battles and external dynamics among physicians and hospitals or hospitals and health plans. At Dean, we're unique because we can all sit down together multiple times a week to determine the goals and interventions to achieve better care at lower cost—and then go ahead and do them."

Many provider-owners have divested themselves of their health plans in recent years, usually for economic reasons. But that needn't be regretted in hindsight, Samitt says. "You can rely on vendor support. You don't have to own or implement your own health plan, but find one that can help you with the principles of accountable care."

While CMS is the major spur at this moment for dabbling in ACO waters, many commercial insurers are keen on fostering such alignments among health care providers for their members as well. That, in fact, may be where the real future of ACOs lies, says Premier's Childs. "Our hospitals are going to continue to push this in the private sector no matter what," he declares. "The more we can lead the way, the more it will create a snowball effect."

The proposed CMS regulations "raise almost as many questions as they answer," recently wrote John K. Iglehart, national correspondent for the New England Journal of Medicine. And it remains to be seen how many organizations will bite the bullet once the final rules are issued. CMS itself expects that as few as 75 organizations may claim ACO status at the outset, serving maybe 4 percent of the nation's 35 million fee-for-service Medicare beneficiaries. So clearly, where ACOs are concerned, there is no there there anywhere yet.

But ask proud Oaklanders. There is and there will be a there…

OK. You get the gist.

David Ollier Weber is the principal of The Kila Springs Group in Placerville, Calif., and a regular contributor to H&HN Daily. He has lived and worked in Oakland, and has written a history of the city, Oakland: Hub of the West.