Reforming Accountable Care Organizations

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Experts explore opportunities to reduce costs and promote health equity.

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When the U.S. Congress adopted the Medicare and Medicaid programs in 1965, it sought to provide health care to older individuals throughout the United States. But studies show that many beneficiaries still lack access to quality health care services. What explains the gap between the programs’ aspirations and the realities for its recipients?

According to some experts, the traditional fee-for-service structure used by these programs, in which the government pays providers separately for each particular service rendered, fails to provide adequate care for participants. As health insurance increasingly becomes unaffordable for taxpayers, the Biden Administration has indicated it will seek to issue regulations that aim to reduce health care costs and expand access. The Administration hopes to accomplish this in part by encouraging access to accountable care organizations (ACOs).

ACOs are a prime example of what is known as a value-based care structure, according to which providers are paid based on patient health outcomes for services rendered. ACOs are groups of health care providers that voluntarily agree to coordinate delivery of quality care to Medicare and Medicaid recipients. ACOs lower health care costs by holding providers collectively responsible for the quality and costs of their patients’ care.

By replacing the traditional fee-for-service payment systems, ACO models are thought to improve efficiency and equity by reducing wasteful spending and setting payment according to population needs. In 2018, the Centers for Medicare and Medicaid Services (CMS) issued a final rule that encouraged ACOs to increase savings and accelerate the transition to value-based care models. These models, however, also require ACOs to reimburse the government if spending exceeds their target. As a result, many ACOs dropped out of the CMS program when their costs increased.

In response, CMS recently announced plans to modify Medicare-sponsored ACO programs in an attempt to improve system efficiency and promote health equity. The proposed changes aim to expand participation, minimize ACOs’ accumulation of financial risk, and equalize access to health care services. The ACO REACH Model, a pilot program beginning January 1, 2023, will test equity-enhancing features to improve ACOs’ delivery performance.

Despite ACOs’ potential to bridge the chasm between CMS’s aspirations and realities, health care providers report facing difficulties in implementing ACOs. Critics contend that ACOs hinder quality of care and fail to cut costs adequately. But others hold out hope that, with some tweaking, ACOs may still deliver on their promise of improving value-based care. While the ACO controversy persists, CMS is still trying to find ways to salvage its accountable care ideal of lowering health care costs and improving quality of care.

In this week’s Saturday Seminar, scholars discuss whether ACOs have fallen short of attaining their goals and how regulatory reforms might improve their performance.

  • CMS should draw on empirical findings of ACOs’ performance from the past decade to expand access to high-quality, low-cost health care, argue Todd Zigrang and Jessica Bailey-Wheaton of Health Capital Consultants in an article published in The Health Lawyer. The U.S. Department of Health and Human Services’ Office of Inspector General conducted a study in 2019 of 20 high-performing ACOs which, Zigrang and Bailey-Wheaton contend, CMS may use to guide future regulatory reforms. Drawing on the report’s findings, Zigrang and Bailey-Wheaton conclude that CMS should issue new regulations requiring ACOs to develop robust primary care programs, which offer comprehensive, patient-centered care, reduce costs, and improve quality of care.
  • In a study published in The American Journal of Managed Care, Nate C. Apathy of the University of Pennsylvania Perelman School of Medicine, Jay Holmgren of University of California, San Francisco, and Rachel M. Werner of the University of Pennsylvania Leonard Davis Institute of Health Economics explain that ACOs aim to improve coordination across individual health care programs, but they often fall short of this goal. Apathy, Holmgren, and Werner found that ACO participation increases health information exchange between providers but that this effect depends on the density of ACOs in a particular market. Apathy, Holmgren, and Werner conclude that policymakers should regulate data sharing more directly to facilitate ACO coordination, as the U.S. Department of Health and Human Services did previously under the 21st Century Cures Act by establishing new centers to coordinate and accelerate medical product development.
  • In a study published in Population Health Management, Brandon W. Yan of the University of California, San Francisco School of Medicine and several coauthors draw a distinction between urban and rural ACO adoption rates. They contend that, even though ACOs grew steadily across the country, organizations in rural areas face unique challenges to formation and participation. An analysis of relevant market factors—including physician concentration, Medicare Advantage coverage, and commercial insurance enrollment—reveals that ACO presence is more likely to be found in urban areas with lower physician concentrations and moderate Medicare Advantage participation. The Yan team explains that national regulations must promote ACO models that decrease barriers to rural providers’ participation.
  • Despite ongoing efforts to integrate into their programs various social determinants of health, such as education and economic status, Medicaid ACOs currently have limited means of accomplishing these goals, according to Genevra F. Murray of Boston University School of Medicine, Hector P. Rodriguez of the University of California, Berkeley, and Valerie Lewis of the University of North Carolina’s Gillings School of Public Health. In a study published in Health Affairs, they sampled 22 ACOs to assess the status of social service integration. Murray, Rodriguez, and Lewis conclude that barriers to integration will persist unless CMS issues guidance on how Medicaid dollars can be used for nonmedical programs and builds in social needs spending requirements.
  • In an article in The Milbank Quarterly, Stephanie M. Kissam of RTI International and several coauthors assess CMS’s State Innovation Model, which provided six states $250 million in total to test regulatory innovations aimed at transitioning to value-based care models, such as ACOs. States regulate their health care systems by providing oversight of health insurers, health care professionals, and health insurance products, according to the Kissam team. They found some policy levers proved consequential to a state’s performance: compelled participation by state law, regulations on insurers to require primary care investments, and required minimum expenditure on health information exchange systems. The Kissam team concludes that state regulatory action compelling health care stakeholders to reform existing practices promotes health system change more effectively than financial investments.
  • Health care fraud and abuse laws impede transition to value-based payment models, such as ACOs, according to Marilyn Uzdavines of Nova Southeastern University in an article published in Texas A&M Law Review. Uzdavines suggests that changes to the Stark law, a federal statute that prohibits physician referrals to health care entities when a financial relationship exists between the referring physician and entity, could improve the cost and quality of care. By clarifying key terms, amending technical requirements resulting in inadvertent noncompliance, and creating a new value-based exception for ACOs, a reformed Stark law may help to counteract legal barriers to improved health care delivery, argues Uzdavines.

The Saturday Seminar is a weekly feature that aims to put into written form the kind of content that would be conveyed in a live seminar involving regulatory experts. Each week, The Regulatory Review publishes a brief overview of a selected regulatory topic and then distills recent research and scholarly writing on that topic.