The rise of the ACO and lessons learned from the Medicare Physician Group Practice demonstration

As envisioned in the health reform law, the latest evolution of health delivery system reform involves consolidating the fragmented system of health care providers into efficient groups that take responsibility for a population of patients. Called accountable care organizations, this model boils down to three concepts: providing coordinated care by using all members of the health care team, measuring performance against evidence-based benchmarks, and reforming a payment system that currently rewards quantity over quality and reactive medicine over preventive medicine. The hope is that coordination, performance measurement, and payment reform will allow physicians to improve the quality of care for patients and reduce the cost.

Coordinating care to reduce cost isn’t a new concept. Some liken it to health maintenance organizations of the ’80s and ’90s, others to the patient-centered medical home. There is plenty of literature on both, and we won’t delve into them here.

If you’re looking for guidance on ACOs, one of the most useful sources is the five-year CMS pilot project that began in April 2005 and concluded in March 2010. (When lawmakers were crafting the health reform law, they had access to years 1 and 2. Now we also have 3 and 4, and are waiting for 5.)

In the Medicare Physician Group Practice demonstration, CMS contracted with 10 large multispecialty groups with varied organizational structures to see whether care management initiatives could produce cost savings for the system and improve quality. [Spoiler alert: All of the groups improved quality, and about half produced cost savings. More on this below.]

On top of individual physicians’ fee-for-service claims, groups were eligible for an 80 percent share of Medicare’s savings if they collectively achieved quality and cost targets for the patients loosely assigned to their group. There were no penalties for missing the targets. To qualify for these performance payments, groups had to generate savings for Medicare parts A and B of more than 2 percent of their target expenditures. CMS established the spending targets by creating a comparison group of Medicare beneficiaries in the same geographic area and comparing the organization’s per capita expenditures in its base year with those for the comparison group.

As hinted above, results revealed that all 10 entities achieved significant improvements in patient quality of care and patient satisfaction, with half receiving performance payments of $31.7 million in the fourth year of the program. The groups that earned bonuses attributed the savings to changes in their organizational structure, investments in care management programs and health information technology, and continuing education and feedback for providers.

Interestingly, the four groups that earned performance payments by the second year were affiliated with an academic medical center or were unaffiliated physician groups, and the majority of the savings at all sites occurred in outpatient services. The big winner was the Marshfield Clinic in Marshfield, Wis., which received the most over the first four years—a total of more than $40 million.

The five groups that received no performance payments in the second year were part of integrated delivery systems with hospitals or physician networks sponsored by hospitals. Some were able to turn this around in years 3 and 4, most notably the Geisinger Clinic in Danville, Penn., and St. John’s Clinic in Springfield, Mo.

All of this is to say that implementing ACOs probably won’t produce immediate savings, but they will almost certainly improve the patient experience. And because of that, it’s likely this concept will continue to gain in popularity.

That means that both hospitals and physicians must learn how to function in a new system, which will likely require figuring out how they can align their goals and incentives to drive the highest-quality care in the most cost-effective way. It’s about better managing utilization of services, to provide exactly enough care for patients and cut down on waste and duplication. If that is achieved, we’ll be on the right path.

Watch for more on ACOs in the next issue of TEXAS FAMILY PHYSICIAN magazine. AAFP is currently working on a ACO special section of their website,, that should be available soon. We’ll  post it when it is. For now, check out the Joint Principles for Accountable Care Organizations released by AAFP in November 2010.


2 Responses to “The rise of the ACO and lessons learned from the Medicare Physician Group Practice demonstration”

  • Lloyd Van Winkle, MD:

    As the Payers merge and their numbers shrink, the power each of them has grows. We are individual Docs or small groups as a rule and we will be less and less able to control their directing of the practice of medicine. Already they can set prices and place unfunded mandates on us that raise our overhead without raising revenues a pattern that will eventually take us away as a choice for our patients. Then they will inevitably run clinics which will be the patients only care option. This same future faces the hospitals as well. The ACO looks like the logical alliance of the care giver side to give us the power to balance the payer side. We have traditionally been the patient advocate and if we hope to continue in that role we must look for a position that gives us the power to be effective at the negotiating table with payers. The payers may look for a way to block this but for now it looks like a viable option. We learned how important it is to be at the table in the legislature, we must take that experience and do the same thing with payers.

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