1. Summary
Can Accountable Care Organizations Improve the Value of
Health Care by Solving the Cost and Quality Quandaries?
Timely Analysis of Immediate Health Policy Issues
October 2009
Kelly Devers and Robert Berenson
Introduction type of incentive system, an ACO needs Five issues under
to be able to:
One of the major issues being debated in
discussion
current health reform discussions is how • Care for patients across the
Although authors and legislative
to slow rising health care costs and still continuum of care, in different
proposals describe the broad outlines of
achieve quality health care for patients. institutional settings.
the ACO concept, policy-makers are
Policy-makers have discussed debating many specific program options
accountable care organizations (ACOs) • Plan, prospectively, for its budgets
and resource needs. and design features. Decisions about
as tools to slow rising health care costs these options and features will affect:
and to improve quality in both the
• Support comprehensive, valid and
traditional Medicare program and in • The shape of the ACO program.
reliable measurement of its
private insurance programs. A new
performance.
policy brief released today by the Urban • Its implementation: scale, pace,
Institute and the Robert Wood Johnson challenges, and necessary supports.
Foundation provides a comprehensive
What is new about the
look at ACOs. ACO concept and • Short and long-term outcomes in
proposals? cost reduction and quality
The following is a brief summary of the improvement.
areas covered in the policy brief, which ACOs make the people and organizations
covers: that actually provide care accountable for Five key issues are being discussed:
the quality and the cost of that care.
• The definition of an ACO 1. How ACOs will be designed.
Previous health reform initiatives
involved insurers and made them 2. Whether provider participation will
• Design issues that still need to be
ultimately accountable. The concept be voluntary or mandatory.
tested and resolved
driving ACOs is that it is providers, not
• Implementation challenges insurers, who are best placed to make the 3. How patients will be brought into an
changes that will address the cost and ACO.
• Reasons for skepticism. quality problems resulting from the
U.S.’s current system of fragmented 4. What provider payment method
care, variation in practice patterns and should be used.
What is an ACO?
volume-based payment systems.
5. How quality will be assessed.
An ACO is a local health care
organization and a related set of Current proposals for ACOs allow great
providers (at a minimum, primary care flexibility in both the types of ACO design questions
physicians, specialists, and hospitals) organizations that could serve as an ACO
and the methods by which providers Legislative proposals in the House and
that can be held accountable for the cost Senate define ACOs quite broadly,
and quality of care delivered to a defined would be paid. This flexibility allows
local markets to develop ACO primarily because there is no consensus
population. over a number of design issues,
organizational models and payment
The goal of the ACO is to deliver approaches that match the nature, suggesting the need for testing various
coordinated and efficient care. ACOs strengths and weaknesses of those local ACO approaches. Design questions
that achieve quality and cost targets will markets – making it more likely that the under discussion include:
receive some sort of financial bonus, and ACO will work.
• Must an ACO be physician-led?
under some approaches, those that fail Physician decisions drive most
will be subject to a financial penalty. In health care services (and costs), so
order to meet the requirements of this certainly physicians must actively

2. engage with the ACO, but will support what they value in health Implementation
independent and small group care: strong relationships with their
practices may not be large enough to health professionals, sufficient freedom
challenges
be held accountable for the quality of choice of provider, and access to the There are additional issues involved in
and cost of care across the health care services that they and their the implementation of ACOs that go
continuum of care. physicians determine they need, beyond the specifics of any given
consistent with evidence-based medicine. program. The two most critical involve:
• What other types of provider If patients come to view ACOs as solely
organizations may or must be a cost-control measure, political support • The participation of, and impact
included? Should hospital for the concept will likely evaporate. on, private payers. Do ACOs
participation be mandatory? Can provide potential value for self-
collaboration between physicians Provider payment funded employers and commercial
and hospitals be achieved in most
communities?
methods and financial insurers, as well as for the Medicare
incentives program? Some purchasers and
plans are concerned that the
• What specific ACO qualifying
The current House legislative proposals enhanced collaboration between
criteria should govern participation?
propose two very different types of ACO physicians and hospitals within a
Should there be size or structural
payment methods for Medicare: a shared geographic area could increase
minimum requirements? Can the
savings program (SSP) based on fee-for- providers’ market power and result
concept of a “virtual ACO” in a
service payments, and partial capitation – in higher costs to payers.
local delivery system be sustained?
based on what some call population-
based payment (PBP). The legislation • New roles and responsibilities for
• Do patient-centered medical homes
calls for each to be pilot-tested. As with providers and for government
complement, or conflict with,
other elements of ACO design, there are agencies. ACOs are a new type of
ACOs?
strongly held differences of opinion on organization, and will require
provider organizations to develop
Voluntary or mandatory which approach is likely to be more
new skills: skills to support both the
provider participation successful and under what
circumstances. development of new ways of
providing care and the ongoing
On the one hand, voluntary ACO operation and management of the
programs offered by established Assessing quality
new entities. ACOs will need the
organizations might initially have a capacity to support cultural change,
higher likelihood of success and require As already emphasized, ACOs seek to
improve value, that is, the relationship of teamwork, health information
fewer resources to administer its impact technology, and care management
on health care delivery across the quality to cost, so both costs of care and
the quality of care need to be measured. process redesign and improvement,
country. On the other hand, a mandatory while also strengthening managerial
program, that is, based on assigning Possible methods for measuring quality
have been proposed: perhaps a weighted and physician leadership.
providers to an ACO based on patterns of
care available from claims data analysis, single score, or performance on a proven
set of quality indicators. But the specific Reasons for skepticism
while challenging to administer – would
have broader scope and offer greater measures have not yet been defined.
As ACOs have drawn increased
potential for generating savings and Also, the ACO will need to be able to attention, some experts have highlighted
improving quality – assuming providers assess its overall quality, rather than the reasons why the concept is not likely to
prove willing to alter practice patterns on quality of individual physicians or other succeed. They assert:
a broad scale. providers. This will require measures
that capture issues in care coordination • Previous attempts to manage care,
Patient participation: across providers; issues that an ACO (as via risk-bearing provider
passive or active? opposed to individual physician organizations that imposed
practices) actually could work to restrictions on patients’ freedom of
Should patients elect to participate in an improve. A benefit to measuring quality choice, failed miserably, due both to
ACO or should they be assigned based at the ACO-level is that enough data will the serious problems of execution
upon their patterns of care? Should their be available to have statistical validity. that plagued these organizations and
freedom of choice be limited or also to employers and patients
influenced in any way? In order for ultimately preferring open panels
ACOs to be successful, patients will need managed by health insurers to closed
to be confident that the ACO program panels managed by providers.
Timely Analysis of Immediate Health Policy Issues 2

3. • The ACO model that is receiving the Conclusion Lessons from previous reform efforts can
most attention now – the shared help resolve the legal and regulatory
saving payment approach that does The way health care is currently paid for issues ACOs face and provide insight
not restrict patient choice or require in the United States, especially in the into the trade-offs among program
any providers to take financial risks traditional, fee-for-service Medicare options. Current legislative proposals
– also is inherently flawed. In many program, does not support coordinated envision pilot tests of the ACO concept,
medical markets, the physician care and the establishment of a delivery ensuring that Medicare policy-makers
community has drawn away from system with appropriate capacity and will be able to learn from experience and
the hospital and functions utilization. Proposals for ACOs seek to make program modifications as
increasingly independently on a day- address this situation. necessary. In such a scenario, the
to-day basis. The weak financial potential benefits of ACOs surely
incentives in the SSP payment Many important questions remain, outweigh the risks; the concept deserves
model will not bring together these however, as to exactly how ACOs should a chance, although expectations of
increasingly independent be structured, given the culture of health immediate success should be tempered.
professionals. care, existing legal requirements,
political realities and the legacy of
previous attempts at payment reform.
The views expressed are those of the authors and should not be attributed to any campaign or to the Robert Wood Johnson
Foundation, or the Urban Institute, its trustees, or its funders.
About the Author and Acknowledgements
Kelly J. Devers, Ph.D., is a Senior Fellow and Robert A. Berenson, M.D., is an Institute Fellow at the Urban Institute.
This research was funded by the Robert Wood Johnson Foundation. The authors thank Stan Dorn and John Holahan for their
comments and suggestions.
About the Urban Institute
The Urban Institute is a nonprofit, nonpartisan policy research and educational organization that examines the social, economic, and
governance problems facing the nation.
About the Robert Wood Johnson Foundation
The Robert Wood Johnson Foundation focuses on the pressing health and health care issues facing our country. As the nation’s largest
philanthropy devoted exclusively to improving the health and health care of all Americans, the Foundation works with a diverse group
of organizations and individuals to identify solutions and achieve comprehensive, meaningful, and timely change. For more than 35
years, the Foundation has brought experience, commitment, and a rigorous, balanced approach to the problems that affect the health
and health care of those it serves. When it comes to helping Americans lead healthier lives and get the care they need, the Foundation
expects to make a difference in your lifetime. For more information, visit www.rwjf.org.
Timely Analysis of Immediate Health Policy Issues 3