1. Affordable Care Act: Delivery System Change
Moving Towards
Accountable Care
Mark Zezza
Senior Policy Analyst
The Commonwealth Fund

2. Agenda
• Vision for Health Care Reform
• How Accountable Care Organizations (ACOs)
help achieve that Vision
• Early Evidence on ACOs
• How ACOs fit with Other Reform Efforts

3. Current State of Vision for Future:
Health Care in US Reflected in Affordable Care Act
• Unclear Aims: conflicts about what • Clarify Aims: better overall health and
trying to produce experiences at lower costs for patients
• Fragmentation: no accountability • Care Coordination: foster accountability for
for capacity, quality or costs full continuum of care
• Lack of information: leaves • Better information: supports improvement;
practices unexamined informs consumers for best care
• Wrong Incentives: Rewards • Payments to support efficient care: Align
fragmentation and inefficiency financial incentives with professional aims

4. Accountable Care Organizations Central to
Achieving Vision
Medicare Shared Savings Program (MSSP)
 Set to begin April 1, 2012
 CMS estimates 50-270 ACOs (1-5 million beneficiaries)
will participate between 2012 – 2015
 https://www.cms.gov/sharedsavingsprogram/
Pioneer ACO Program
 Began January 1, 2012 – 32 organizations selected
 Designed for more advanced ACOs
 http://innovations.cms.gov/initiatives/aco/pioneer/
Advanced Payment Model
 Upfront payments to help provider groups ramp up for ACO initiatives
 Focused on smaller physician groups or small hospitals serving rural or
underprivileged communities
 http://innovations.cms.gov/areas-of-focus/seamless-and-coordinated-care-models/advance-
payment/

5. Agenda
• Vision for Health Care Reform
• How Accountable Care Organizations (ACOs)
help achieve that Vision
• Early Evidence on ACOs
• How ACOs fit with Other Reform Efforts

6. Simple Definition of ACOs
local (and legal) entity, comprised of a group of providers that
can be held accountable for the cost and quality delivered to a
defined population of patients
Not Mythical No One
Creatures Size Fits All
“itsabout
accountable
care, not just
organizations”
– Stu Guterman
ACOs are real but not a Flexible model
Panacea fosters local
accountability

7. ACO Core Features
 Strong primary care foundation
 Able to manage patient services across the full continuum of care.
 Enough primary care to support generate population-level impacts
• Sufficient size to support meaningful measurement of cost and
quality impacts
— MSSP - Assignment for at least 5,000 Medicare beneficiaries
— Pioneer – 15,000 (rural Pioneers can have 5,000)
 Strong organizational, legal and governance structure
 Capable of prospectively planning budgets and resource needs as
well as internally distributing payments (shared-savings)
 Leadership is key to change culture of physicians
 Accountability for total cost of patient care
 For all services (even by non-ACO providers) and patient co-pays
 Ability to report on a robust set of Performance Measures

8. How are Patients Assigned to the ACO?
Basic Patient Attribution
Approach:
Step 1. Providers sign agreement
to participate with ACO
• ACO sends list of participating
providers to partnering Payer
Step 2. Payer assigns members
to providers based on plurality of
patient’s primary and
preventative care utilization (or
charges)
• If assigned provider is in an
ACO, the member gets
assigned to the ACO
• CMS first assigns to primary
care providers, then others
(specialists and nurses)

9. Patient Attribution Issues to Consider
 Attribution versus Attestation and Member Notification
 Attribution is most used, but Attestation is useful when no recent primary care
• Attestation may be tested in Pioneer ACO Model
 CMS requires notification of data-sharing and opt-out (but still counted in ACO)
• ACOs must also make informational materials available
 Providers used for attribution must be exclusive to one ACO
 Easier to attribute ACO performance and limits concerns about patient
selection/dumping
 Concerns over locking in a specialist to a specific ACO
 Prospective versus Retrospective
 Both approaches have pros and cons, for example:
• (Theoretically) greater incentive for ACO to treat all patients equally under
retrospective approach, whereas prospective allows better budgeting
 CMS tries to achieve best of both worlds
• Initial prospective attribution with final reconciliation at end of
performance period
• Pioneers may test prospective assignment

10. Basic Shared Savings Model
ACO Launched Projected Spending
Target Spending
Shared Savings
Actual Spending
 Project benchmark spending in the performance period from
the historical baseline amounts
 Incorporate a savings threshold (e.g., 2%) to determine the
spending target for calculating shared savings
• Thresholds used to ensure no random winning
 If actual spending is below target then ACO would be eligible for
shared savings
• Only paid out if quality threshold is met/exceeded

11. Shared Savings Offers a
Wide Range of Approaches
One-Sided Two-Sided Capitation
 Continue operating under  Payments can still be tied to  ACO receives prospective fixed
current insurance current payment system, payment
contracts/coverage models although ACO could receive
 If successful at meeting budget
(e.g., FFS) revenue from payers and
and performance targets,
distribute funds to members
 No risk for losses if spending greater financial benefits
exceeds targets  At risk for losses if spending
 If ACO exceeds budget, more
exceeds targets
 Most incremental approach risk means greater financial
with least barriers for entry  Increased incentive for downside
providers to decrease costs
 Attractive to new entities,  Only appropriate for providers
risk-adverse providers, or  Attractive to providers with with robust infrastructure,
entities with limited some infrastructure or care demonstrated track record in
organizational capacity, coordination capability and finances and quality and
range of covered services, demonstrated track record providing relatively full range
or experience working with of services
 MSSP – offers a two-sided
other providers
track with 60% savings. All  Ultimate goal for most ACOs
 MSSP – ACOs can participate ACOs must participate in 2-
 Pioneer – in 3rd year, high-
in one-sided model, with sided model after 3rd year
performing ACOs have option
50% savings for 1st 3 years.
 Pioneer – Offers greater for partial capitation for Part B
 Pioneer: Offers a 1-sided potential (up to 75%) for services or full capitation,
option for one year shared savings earnings including Part A and Part B

12. Risk Adjustment, Corridors and Thresholds
 CMS will risk adjust spending estimates using demographic factors,
diagnoses and procedure codes from historical claims (CMS-HCC model)
 Problems with “up-coding” in pervious ACO demonstration
• Participating providers have greater incentive to code fully
 Decision to update risk scores for newly assigned beneficiaries to account for
differences in health status relative to continuously enrolled
• Reduces incentive for ACO to avoid sicker patients
 For currently enrolled, will use Age-Sex factors to update risk score
 Cap on savings (losses)
 Vary from 5% – 15% with higher risks aligned with greater reward potential
 Minimum savings (loss) thresholds to ensure paying for intended
improvements rather than random chance
 MSSP – varies from 2.0% - 3.9% depending on size for one-sided model and
flat 2.0 percent for two-sided model
 Pioneer – typically flat 1.0%
 Share on 1st dollar basis once surpass the threshold

13. Performance Measurement
 Critical to ensure that ACOS are not just stinting on care to stay
under budgets
 33 measures with 4 domains:
– Patient/caregiver experience (7)
– Care coordination/patient safety (6)
– Preventive health (8) and,
– At-Risk Populations (12)
• diabetes (6), hypertension(1), IVD (2), heart failure (2), CAD (2)
 Phase-in Approach
– Year 1: Pay for reporting (all 33)
– Year 2: Reporting(8) Performance(25)
– Year 3: Reporting(1) Performance(32)
 ACO must surpass threshold on 70% of measures within each
domain

14. Agenda
• Vision for Health Care Reform
• How Accountable Care Organizations (ACOs)
help achieve that Vision?
• Early Evidence on ACOs
• How ACOs fit with Other Reform Efforts

15. ACO Movement
2009 January 2012
Private Sector Public Sector
= Brookings-Dartmouth Pilots (5) = AQC (9 in Massachusetts) = Beacon Communities (13)
= Premier Implementation (23) = AMGA Collaborative (16) = PGP, MHCQ (13)
= CIGNA (12) = Other private-sector ACOs = Pioneer (32)
Notes: AMGA = American Medical Group Association; AQC = Alternative Quality Contract; PGP = Medicare Physician Group
Practice Demonstration; MHCQ= Medicare Health Care Quality Demonstration.
Source: Brookings Dartmouth ACO Learning Network Collaborative.

16. Medicare Physician Group Practice (PGP) Demonstration
Provides Early evidence on shared savings in multispecialty groups
Background: 10 integrated multispecialty provider groups testing care reforms for
Medicare beneficiaries under a shared-savings payment model (started 2005)
Quality performance: After 5 years, all 10 sites achieved benchmark performance on at
least 30 of 32 measures
– Share in more savings with better performance
– 5- year percentage-point average increases:
• 11% on diabetes measures
• 12 % on heart failure measures
• 6 % on coronary artery disease measures
• 9 % on cancer screening measures
• 4 % on hypertension measures
Cost Performance: Achieved over $134 million in savings relative to similar cohort of
patients. Nearly $110 went back to the providers.
Measure of success: All groups agreed to a 2-year extension (through 2012)
Source: https://www.cms.gov/demoprojectsevalrpts/md/itemdetail.asp?itemid=CMS1198992

17. BCBS Massachusetts:
Alternative Quality Contract
• The BCBS AQC is an innovative global payment model with
substantial performance incentive payments
– Negotiates budgets with each organization based on historical spending
• Over time, budgets linked to growth in overall economy
– Groups still paid based upon Fee-for-Service with end-of-year
reconciliations
– Groups bear between 50% - 100% of the risk for excess costs
– Performance bonuses available up to 10% of budget
• 8 diverse organizations signed a 5-year contract in 2009
– Represented more than 25% of the state’s providers and 305,000 BCBS
members
– Up to 12 groups and 470,000 members (as of 1/2011)
– Caveat – HMO members only
• Initial results show that all groups are hitting quality targets and
there is evidence for reduced costs

18. AQC Associated with Smaller Spending Increase:
6.8% vs. 8.8%
Average total quarterly spending per enrollee,
in dollars
Source: Z. Song, D. G. Safran, B. E. Landon et al., "Health Care Spending and Quality in Year 1 of the Alternative Quality
Contract," New England Journal of Medicine, published online July 13, 2011.

19. How do Providers/ACOs Succeed at improving
outcomes, care and costs?
ACOs in the Alternative Quality Contract:
 Price decreases from shifting care to providers that charge
lower fees
• Reduce network leakage
– Helps coordinate care more effectively
– Replace lost patient volume from more efficient care
– Direct care away from more expensive places
 Managing high-risk patients
• Reduce services with limited value (avoidable admissions,
readmission and ER visits)
• Expand home visits, better discharge planning, etc…
• Better patient education and medication/therapy compliance
• Predictive Risk Models
Source: Z. Song, D. G. Safran, B. E. Landon et al., "Health Care Spending and Quality in Year 1 of the Alternative Quality
Contract," New England Journal of Medicine, published online July 13, 2011.

20. How do Providers/ACOs Succeed at improving
outcomes, care and costs?
 Through systematic efforts to improve quality and reduce
costs across the organization:
– Reduce avoidable admissions and ER visits
– Using appropriate workforce (increased use of NPs)
– Improved care coordination
– Reduced waste (i.e. duplicate testing)
– Internal process improvement
– Better patient adherence to recommended care
– Point of care reminders and best-practices
– Savings in hospital supply costs
– Actionable, timely data
– Choices about capacity
 Initiatives will vary with each organization

21. Risk Sharing Within ACOs
 ACO framework transfers financial risk from payers to ACO
 Individual providers are indirectly affected
 Ideally Shared Savings should at least support investments for shared
resources (i.e., HIT, discharge planners, etc…)
 ACOs taking on greater risk (e.g., capitation) should have better care
management expertise
• State licensing and regulatory requirements to protect solvency
 Wide variation in how ACOs pay and share risk with its providers
 Can take capitation from payer, but pay providers on FFS basis
 Bonus potential (up to 1/3 of compensation)
 Tradeoffs between exposing individuals to risk of non-performance by
others and rewarding only individual performance
 Individual incentives aligned with overall ACO aims
 Challenge in achieving shared vision of leadership team and
governing boards to support move toward accountable care
 Changing provider culture and patient behavior
 Medicare: No enrollment, no lock-in, no change in benefits
 Shared Savings is likely a modest financial incentive, especially for
ACOs still working with FFS payment
• Money is not only motivator
— Improve ability to practice better health care
— Better quality of life (greater fulfillment)

22. Culture Change
• Early and critical step for accepting accountability
• Requires evolution in relationship between providers, payers and
patients
• Providers and payers must move beyond adversarial negotiations around
payment rates toward collaborations for more efficient care. Not only
about payment reform, but also data analytics and benefit redesign to
support higher-value care.
• Providers and other providers need to become better at working with each
other to coordinate care – includes sharing expert opinions and
synthesizing patient-centered outcomes research to develop practice-
changing innovations.
• Providers and patients also need to work better together. Requires time to
equip patients, and their care support team, with the information needed
to feel confident about making efficient and effective health care decisions.
• ACO movement is a great signal that the cultural change is happening -
“Intellectual Energy”
• Will not be easy, there will be failures as well as success
• Need strong commitment and vision

23. Agenda
• Vision for Health Care Reform
• How Accountable Care Organizations (ACOs)
help achieve that Vision?
• Early Evidence on ACOs
• How ACOs fit with Other Reform Efforts

24. Health Reform is Much More than ACOs:
Activities in Center for Medicare & Medicaid Innovation
1 Advance Payment ACO Model Provides upfront capital to rural and small providers to
help them become ACOs
2 Pioneer ACO Model Tests advanced ACO models
3 Bundled Payments for Care Tests 4 bundled payment models covering physician,
Improvement hospital and post-acute care services
4 Comprehensive Primary Care Multi-payer initiative to strengthen primary care.
Initiative
5 Federally Qualified Health Center Advanced Primary Care Practice Demonstration
6 Multi-payer Advanced Primary Multi-payer medical home pilot in 8 states
Care
7 Financial Models to Support State Efforts to Integrate Care for Medicare-Medicaid
Enrollees
8 State Demonstrations to Integrate Provides $1M planning grants to states to develop new
Care for Dual Eligibles ways to meet the needs of the dual eligible population
9 Innovation Advisors Program Creates a network of delivery system reform experts
10 Reducing Preventable Hospitalizations Among Nursing Facility Residents
11 The Health Care Innovation Makes up to $30 million available to support providers in
Challenge their reform efforts
12 Partnership for Patients Aims to prevent preventable hospital admissions and
complications

25. Strategic Implementation of Reforms
 Payment models are complimentary -
 ACOs – Accountability of all services for an entire population,
which helps ensure no cost-shifting and overall policy goals of
better health and lower total costs are being met
 Bundled Payments – Accountability for select services and
conditions, which helps ensure important gaps in care are
addressed and specialists are included in efforts to better
coordinate care
 Need to experiment with different approaches
 Not sure what works best
 Vary with local market characteristics and provider experience
with care management
 Providers will need to leverage multiple payment reform
provisions to maximize returns on clinical transformation
efforts

26. How can ACOs fit in a National Health System?
(from a US perspective)
 Who should assume accountability for value of care?
 Accountability requires coordinated care over time, as well as across multiple
providers and institutional settings
1. Individual providers? may have to narrow a focus – on specific
patient provider interactions – and not enough resources
2. Health Plans? In good position to facilitate care coordination and
accountability for patient outcomes, but historically have been more
focused on costs than value
• 60% of Americans with employer-sponsored insurance
companies work for self-insured employers
3. ACOs? Seems like the right fit
 ACOs offer a global budget approach with flexibility to accommodate various
underlying payment and delivery models
 Potential to align payment models and incentives across payers
• Critical Mass of volume and types of providers needed to have significant
impact on care and enough financial support to implement reforms
 Anticipates increasing challenges of FFS payment environment while preserving
or increasing net revenues - with a progressive approach