WSJ: What is an ACO?

By AVERY JOHNSON

The 2010 health-care law encourages the development of accountable-care organizations as a way to improve care and reduce costs.

So what exactly are accountable-care organizations, anyway?

In broad outline, these entities propose to unite doctors and clinics or hospitals in groups that pool their resources with the goal of trimming spending while boosting the quality of care. When the group can show that it is improving care and delivers it for less than the cost projected—arrived at by crunching historical patient data for that market—a share of the savings goes to the ACO's bottom line.

ACOs exist more on paper than in reality, for now. But a few organizations up and running for decades do closely resemble how the concept can work. One of the most prominent is Atrius Health of Newton, Mass., an alliance of five medical groups comprising more than 800 physicians, about 700,000 patients and 30-plus care centers in eastern Massachusetts.

"An ACO is like a unicorn; everyone thinks they know what one is, but no one has ever seen one," says Gene Lindsey, president and chief executive of Atrius Health. "A few months ago, I announced to our organization, 'We are an ACO.' "

The term was invented only in 2006 and was just recently worked into the 2010 health-care reform law. Regulations for ACOs from the Department of Health and Human Services are pending, and the National Committee for Quality Assurance, a nonprofit that accredits health-care organizations, is in the process of developing ways to accredit the groups.

Roots in the '60s
Doctors, nurses and technicians at Atrius Health, part of Harvard Community Health Plan back in the 1960s, constantly strive to shave costs and improve quality. The group saved $62 million in 2010 from improvements that lowered costs.

A committee of doctors and other employees reviews operations looking for specific ways to make them more efficient. A few months ago, for example, the panel noted it was taking MRI technicians and nurses 10 minutes to turn over exam rooms between patients. After making some adjustments, such as removing cabinet doors so technicians could get at supplies more easily, it now takes five minutes. The result: an increase of two MRI patients a day, or 700 scans a year. Atrius Health recorded roughly $3.5 million in savings last year from this change alone.

Other innovations adopted include an electronic medical records system that helps measure quality and identify problems in patient care. Atrius Health also uses case managers, who help patients with chronic conditions coordinate care using multiple doctors and medicines; and pharmacists who review patient records to identify problematic drug interactions or cheaper alternatives for persons on multiple medications.

Two years ago, the group's doctors started a monthly process of sharing and discussing patient records. Physicians performing near the bottom of the pack thus can learn from peers who are seeing better results. Atrius Health executives say the practice has improved quality of care across the organization.

Quality measures are showing improvements, too. Atrius Health reports it has been able to boost the number of patients receiving cholesterol screenings to 88% from 80% and the number of diabetics getting a certain blood test to 79% from 68%.

An Adoptable Model?
Still, some critics argue that the ACO concept is not widely adoptable.

The health-care law calls for paying providers for the services they use and for rewarding them for any savings, initially in the Medicare program.

Atrius Health is paid by health plans with traditional fee-for-service deals for about 50% of patients. For the rest, when cost of a patient's care exceeds the limit set by the payor, Atrius Health has to cover the difference. The group has enough scale that it is able to improve quality, wring out waste and absorb losses on certain cases.

But smaller ACOs might not be able to get to that scale.

"It's so much like the old managed care that people really didn't want," says Jeff Goldsmith, a professor at the University of Virginia. That model, tried extensively in the 1990s, led to outcry over care rationing and caused some providers to lose money. Mr. Goldsmith worries that patients could find themselves in ACOs without being given a choice.

Organizations can try to limit their risk, as Atrius Health does, by accepting pay from some insurers for total care, and pay for services as performed from others. But critics say it also could be confusing for doctors in an ACO if they're paid different ways by different insurers.

Payor Problems
Atrius Health admits having multiple payor sources can be a problem, as it can create conflicting agendas for care. For instance, the group's global payments cover care coordinators for patients, while its fee-for-service payments do not. It has resolved this problem, it says, by allowing the global payments to subsidize the fee-for-service patients. But Chief Physician Executive Rick Lopez acknowledges that not every group would be able to do that.

Another concern: "Hospitals and doctors don't work together well," says Mr. Goldsmith. Hospitals' incentive is to maximize revenue through admissions, Mr. Goldsmith says, while doctors aim to keep their patients at home or in outpatient facilities.

Dr. Lopez agrees: "It absolutely is a tension that underlies the concept." Atrius Health has ended preferred relationships with hospitals when they didn't share its collaborative approach, he says. But the group has saved roughly $5 million in 2010 from its hospital partnerships.

Atrius Health is unique in some ways. It's a large and sophisticated group that is able to pull off care coordination because it can afford to invest in information technology and other costly improvements.

By contrast, so many mom-and-pop medical groups and small hospitals lack these kinds of resources, Mr. Goldsmith says, "the idea that this could scale to the rest of the health system is seriously flawed."

Elliott Fisher, the Dartmouth Medical School professor who helped coin the term ACO, and who worked with members of Congress to draft the ACO concept into the health-care law, concedes that "there are some really important questions about whether this will work."

But, Dr. Fisher adds: "I think it's the best hope we have."

Ms. Johnson is a reporter for
The Wall Street Journal in New York. She can be reached at
avery.johnson@wsj.com.