New or different payment processes and structures are common and recurring changes in medicine. One structure that has gained traction recently is the Accountable Care Organization (ACO). In the ACO payment system, the healthcare provider assumes the burden of all health care for a set number of patients.
Healthcare providers may provide this care under several organizational forms. Most are centered around primary care providers. Specialists such as orthopaedic surgeons are necessary but are generally viewed as less central to the ACO structure. To become part of an ACO, orthopaedic practices will need to ally with other providers.
ACOs were created under the Affordable Care Act of 2010 (ACA), which required the establishment of shared savings programs. Bundled payments are also shared savings programs.
Although similar to some older payment systems, such as Health Maintenance Organizations (HMOs), ACOs differ in specific ways. For example, in the HMO of the 1990s, the insurers bore the financial risk. Cost savings accrued from care rationing at the point of primary contact, resulting in a gatekeeper function for physicians. In ACOs, risk is assumed by the healthcare providers who, therefore, all have an incentive to control the cost of care.
The provider entity reaps a portion of the shared savings—depending on the amount saved and the quality indicator level achieved—but the key is how savings are defined. Expected costs and the attainment of quality benchmarks will also affect the portion of shared savings for providers.
The assumption of all care for a set population is similar to capitated payment structures, which also generated financial rewards for providers who achieved savings. Under capitation, the payment is fixed on the front end and the provider assumes all risk if costs exceed this set level. Quality does not affect payment although it certainly can influence costs and, therefore, profitability.
Why the enthusiasm?
Many healthcare analysts believe fee-for-service payment systems are inefficient and drive the high cost of medical care in the United States; hence the interest in alternative payment models such as ACOs.
The success of large, vertically integrated health systems such as Kaiser Permanente in California, Intermountain Health Care in Utah, Ochsner Health System in New Orleans, and Geisinger Health System in Pennsylvania, is another factor. These providers have often achieved admirable results for both efficiency and quality of care. The benefits of vertical integration align closely with the intended benefits from ACOs.
Further vertical integration is achieved by the single-payer health systems of some developed nations. Although the overall effectiveness of this model is arguable, it does provide the possibility of eliminating waste resulting from lack of integration and coordination.
Intended benefits of ACOs
ACOs and alternative payment models are intended to bend the cost curve of health care in this country. Although the rate of increase did slow after the recession of 2008, costs are rising again, and continue to be significantly higher than in other developed nations. The causes are not well-defined, but fee-for-service payment is often blamed.
The alignment of physician interest with cost efficiency and quality would eliminate any financial incentive to overtreat. Vertical integration would allow standardization and eliminate inefficient care that fell outside evidence-based guidelines. With shared savings, physicians would be more financially motivated to prevent complications. The integration necessary to efficiently run an accountable care provider organization would likely include interconnected electronic health record systems (EHRs), which would help improve care within that system.
Some of the adaptations driven by value-based purchasing have included in-office urgent care capacity or immediate care centers. These provide huge savings over expensive emergency department visits for covered patients. Low back pain protocols and accompanying primary care education can greatly reduce expensive imaging and unproductive use of resources—as well as increase value by getting patients back to their prior level of function sooner. Some ACOs have instituted rules about when primary care can order advanced musculoskeletal imaging.
One cost-saving area specific to orthopaedic surgery is in implant selection. Just as in bundled payments, surgeons will have incentive to use the lowest cost implant appropriate for the indication.
Although vertically integrated systems have proven track records of quality care, the ability of ACOs to achieve savings has yet to be proven. In the original Pioneer ACO experiment, nearly half of the original provider groups dropped out due to lack of success. Bundled payments have a much better track record, require much less integration, and are focused on discreet episodes of care.
No recent studies of ACOs and their effect on musculoskeletal care could be found, but one recent study in the area of mental health found that ACOs did not improve outcomes or produce savings when this portion of care was teased out. In addition, a pair of recent articles in the Journal of the American Medical Association examined the pros and cons of ACOs. Even after several demonstration projects, the results of ACOs are debatable. If self-selected organizations cannot achieve clear success, it is unlikely that widespread benefits can readily be had.
The ACO model requires maximizing patient care by physicians and providers who are ACO members, to track quality and control costs. One of the challenges particularly germane to orthopaedic surgeons is keeping patients in the network. Including specialists as ACO members can be a way to address patients' myriad and unpredictable health needs. How out-of-network care is treated is yet to be fully delineated.
Another challenge will be changing patient expectations, particularly when evidence-based medicine has shown that expensive or popular treatments are ineffective. For example, many patients expect to undergo an MRI sooner, rather than later. Not ordering those studies can potentially decrease patient satisfaction.
Joining an ACO
Many AAOS members may be looking into joining an ACO. Because so much of musculoskeletal care is nonsurgical, orthopaedics is one of the most important specialties in an ACO. Under the ACA, ACOs may be structured in the following ways:
- group practice arrangements
- network of individual practices
- joint venture of hospitals and physicians
- hospital employment of physicians
- any structure approved by the Secretary of the Department of Health and Human Services
The 2011 primer published by the AAOS Health Care Systems Committee includes detailed information on factors to consider before joining an ACO. It also outlines several legal questions that should be answered by counsel before any member joins an ACO.
The pressure to join an ACO may differ, depending on the location of a practice. If most of the practice's patients come from primary care providers who are part of an ACO, joining that ACO will be an obvious consideration.
Primary care providers are limited to participating in a single ACO. In some regions, specialty practices such as orthopaedic surgery are courted to join several ACOs. While this may be appropriate for orthopaedic surgeons who code and bill as specialists, midlevel providers in the practice may be billing under primary care codes. Practices that are considering joining more than one ACO should investigate this issue before making a decision.
Data from January 2016 show 838 ACOs across the country with service areas in all 50 states. These ACOs are estimated to cover 28.3 million lives, or approximately 9 percent of the American population. Of covered patients, 60 percent were in commercial plans. High penetration was driven by competition in regions with many ACOs or monopoly in regions with a single dominant system.
A personal experience
Rick F. Papandrea, MD, practices with Orthopaedic Associates of Wisconsin, a 13-surgeon group that is part of an independent practice association. Soon after the ACA defined ACOs, the group established an ACO structure but did not implement it until it formed a hospital alliance in 2014.
Dr. Papandrea sits on the ACO board. Although the hospital has controlling votes, he says that the board has been fair and functions well. In his opinion, trusting the health system partner is key. The ACO has become so popular with payers that almost all the group's contracts, both private and government, are run through it.
The ACO's high quality and low costs have created leverage that enable the practice to negotiate higher rates. The greatest benefit from the ACO has been the ability to generate data. All participants must use the same EMR system, which facilitates effective communications. This year, the group will earn a 5 percent bonus, based on its high use of alternative payment models. Dr. Papandrea believes that ACOs can be successful.
What does the future hold?
With a new administration, the future of many parts of the ACA are in question. Whether this will include ACOs is unknown at this time, but support for a shift to value-based care has been bipartisan. Based on previous Republican proposals and President-elect Trump's statements, a shift to more market-based reforms, with emphasis on Health Savings Accounts and tax credits for health insurance purchased by those not covered by employer- or government-provided coverage, may be expected. The commitment of the private insurance industry to ACOs has been much more variable than the government's. If a large number of covered lives with poor health move to private plans, pressure to maximize care efficiency will increase.
Neal D. Lintecum, MD, is a member-at-large of the AAOS Health Care Systems Committee.
- Song Z, Fisher E: The ACO Experiment in Infancy – Looking Back and Looking Forward. JAMA 2016; 316 (7):705–706.
- Schulman K, Richman B: Reassessing ACOs and Health Care Reform. JAMA 2016; 316 (7): 707–708.
- AAOS Health Care Systems Committee: Accountable Care Organizations: A Primer for Orthopaedic Surgeons. AAOS February 2011.
- Dale S, Ghosh A, Peikes DN, et al: Two-Year Costs and Quality in the Comprehensive Primary Care Initiative. N Engl J Med 2016; 374 (24): 2345–2356.
- Busch AB, Huskamp HA, McWilliams JM: Early Efforts By Medicare Accountable Care Organizations Have Limited Effect On Mental Illness Care And Management. Health Affairs 2016; 35 (7): 1247–1256.
- McWilliams JM, Landon BE, Chernew ME, Zaslavsky AM: Changes in Patients' Experiences in Medicare Accountable Care Organizations. N Engl J Med 2014; 371 (18): 1715–1724.
- Wilensky G: Time to Hit the Pause Button on Medicare's Payment Demonstration Projects? JAMA 2016; 316 (15): 1535–1536.
- Muhlestein D, McClellan M: Acountable Care Organizations in 2016: Private and Public-Sector Growth And Dispersion. Health Affairs Blog. April 21, 2016.