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ACO: Frequently Asked Questions



Simply stated, an ACO is a group of health care providers who agree to take on a shared responsibility for the care of a defined population of patients while assuring active management of both the quality and cost of that care.
Whether you participate in an ACO or not, there are clear signals that the current payment environment will move away from pure fee-for-service (FFS) and toward a formula that promotes value for patients and efficiency for the system overall. In short, we are moving towards a system that pays for value, rather than paying for volume, and ACOs are expected to be an important element in that system.

Success in the future will require that you monitor and manage quality and efficiency. As a family physician, you should work toward implementing the patient-centered medical home (or PCMH) which includes the use of patient registries, team care, care coordination and health information technology. These capabilities will be rewarded in the new payment environment with enhanced payments and incentives.
The ACO framework is primarily a conceptual model for improving health care quality and efficiency through clinical and financial integration. In implementations, CAFP has witnessed ACOs taking different forms to meet local market conditions and levels of existing competition among providers. Sources such as Becker’s Hospital Review are actively tracking ACO announcements.


Unless an ACO is able to reduce fragmentation of care, waste and variability, it will not be successful in the long term. Organizations seeking to form an ACO are initially designing the organizational structure to participate in the Medicare ACO Shared Savings Program (MSSP). The Centers for Medicare and Medicaid Services (CMS) has proposed specific rules of conduct for this program. The AAFP’s summary of the final MSSP rules are available to read online.

Physicians constitute a majority of the governing board in approximately 78% of ACOs. Physician associations, particularly independent practice associations (IPA), are recognized as a critical component for launching successful ACOs.
IPA stands for independent practice association and is typically a group of physician practices that have a contractual agreement to work together to provide health care for patients in a health plan network or integrated system. IPAs are important because they have existing infrastructure, management, information technology, and organizational components that can serve as the basis for a physician-sponsored ACO.
Preferably, an ACO receives a global payment for services to the defined patient population it serves. Payment and incentives within the ACO should be structured to foster a shared sense of responsibility for both cost and quality. This may provide an opportunity for a higher earning potential for physicians providing care in these ACOs.


CAFP supports a blended payment model which includes a fee-for-service component, a care-management fee, and performance incentives based on clinical measures. The three components must be appropriately balanced – such as 50 percent fee-for-service, 20 percent care-management fee and 30 percent performance incentives – to achieve the desired results.
The idea of shared savings is that, by working together, a group of providers can deliver care at equal –or better – quality while reducing the cost below projections.


There should be some savings to be shared between the payer – the government or the employer – and the providers. How that savings is calculated and distributed to the various players should be specified in the contracts between the parties. If shared savings are the only source of funding for incentives or infrastructure support, there is a danger that the amount of money for those purposes will diminish over time as the ACO achieves higher efficiencies resulting in diminished savings.
Sure, but it takes a lot of time and effort to get everyone on the same page and with the same goals in mind. If you are already associated with a coverage group or an IPA with some infrastructure, you can at least have a running start.


The MSSP rules cite the potential of establishing "virtual ACOs," particularly for rural health care environments. A virtual ACO might be characterized as a group of providers, loosely organized to achieve the goals of quality care and reduced cost. They would be united primarily by their willingness to be consolidated for purposes of the computer analysis that determines the relative contributions to efficiency and the distribution of the savings. In the virtual ACO model, there is no requirement for contractual agreements among the participants in the ACO, but many expect these organizations to grow around IPAs or other central, physician led, convening organization, which may require some form of contractual relationship.
There are similarities, especially when it comes to the goal of cost savings. However, the ACO model is designed to achieve those savings through improvements to care quality and population health care as opposed to restricting utilization of health care services.


Significant changes, in terms of information technology and performance measurement, now allow for better monitoring of quality. The health care industry has been fundamentally altered by the growing prevalence of data on nearly every aspect of care delivery and purchasing.
It is important to distinguish between insurance risk and performance risk, or utilization of unnecessary services. Insurance risk spreads the financial burden of disease, accident, or injury over a large number of people. Insurance companies or health plans are regulated by state law and have required financial reserves to take on the insurance risk. Providers should not take on insurance risk but should be responsible for managing the rates of utilization of services along with the quality and availability of those services.
Risk adjustment helps to determine if a particular population of patients is sicker than another similar group. We have all heard physicians say, "My patients are sicker, and that is why they cost more." Risk adjustment is an objective way to determine the illness burden of a group of patients.


A simple example of risk adjustment might be differential payment levels based on age and gender. Proper risk adjustment should discourage ACOs or providers from shunning sicker patients or "cherry picking."
Insurance companies or health plans may be important partners for an ACO effort because they can provide an information technology infrastructure, data analysis and actuarial capabilities. Since the central function of an ACO is to deliver care to patients in an efficient and effective way, it makes more sense for the ACO to be physician-led. In some jurisdictions, insurance companies and health plans are prohibited from providing direct patient care.


One of the most significant developments of the ACO model is that major national insurance carriers such as Aetna, WellPoint/Anthem, and UnitedHealthcare have announced that they will be rolling out or supporting the development of ACO networks across the country.
There are no guarantees, but you can increase your likelihood of participating if you move toward the PCMH model of care in your practice. The PCMH features supported by the AAFP are exactly the same features that will make your practice attractive to an efficient, integrated system like an ACO.
Efficiency can be measured in a number of ways, but it is convenient to think about an episode of care. If you see a patient for pneumonia, the tests you order – as well as imaging type and frequency, antibiotic choice, and hospital versus ambulatory care – all affect the cost of that episode of pneumonia.


In addition, numbers like the average total cost per patient, length of stay, bed days per 1000 patients, emergency department visit rates, and hospital readmission rates will all be important determinants of efficiency.


Health plan medical directors often have access to this type of information and should be willing to share it with you. It is most valuable if they can also show how you compare to aggregate numbers for peers in the community.
The right answer to this question will depend on the current status of your practice and the local market conditions. Look for indications that the entity approaching you appreciates the value of primary care and is not just looking to expand its referral base for specialty and hospital services.


Is the entity willing to support infrastructure improvements, such as electronic health records, registries, care coordination, and team care? Will your pay be based only on relative value unit production, or will there be more balanced incentives? Will there be some way for you to participate in profits from the overall efficiency of the organization?


As with any potential new position, look carefully at the total benefit package, including insurance coverage, disability coverage, retirement plan, time away from the practice for vacation and CME opportunities, work hours, and call schedules. Unfortunately, the practice itself will be valued based on accounts receivable, facilities, furniture, and equipment, all priced at discounted or depreciated levels.
The federal government realizes that consolidation of health care services within a market carries a high risk of monopolistic behaviors with resulting higher costs and controlled access. On the same day that CMS published the proposed rules for ACOs, the Justice Department and the Federal Trade Commission also published rules that allow a certain level of consolidation and market share for health care organizations.
ACOs may or may not be here to stay, but the imperative to control health care costs and improve the overall efficiency and effectiveness of our health care system will remain in either case.


CAFP encourages all family physicians to engage in clinical performance measurement and to move their practices toward the PCMH model. The payment system must change, and comprehensive, capable primary care practices will be valued higher than those practices that do not move toward the medical home model.
If the underlying payment methodology for physicians is still predominantly fee-for-service, the answer is "no."

Fee-for-service payment has clearly been shown to drive volume of services without regard to quality or necessity. If 90 percent of physician compensation comes from fee-for-service, 5 percent for a care-management fee and 5 percent for efficiency and quality, there will be no substantial change in behavior.

A more balanced ratio is required; for example, compensation should be a mix that is more like 50 percent fee-for-service, 20 percent for a care-management fee and 30 percent for quality. The money available to individual physicians as a result of shared savings is likely to be a small percentage of their total compensation and may come at a time far removed from the point-of-care decisions. As a result, the amount of money may have little effect on current behaviors and choices.

A primary care physician should be able to participate in more than one ACO if patients clearly designate you as their primary care physician.


The current CMS MSSP does not limit primary care physicians to one ACO. Family physicians will be able to participate in multiple ACOs, including MSSP participating ACOs.
Ideally, patients should be required to choose a primary care physician or usual source of care, so the attribution of quality measures and expenses for that patient is easily determined.


The CMS MSSP does not require patients to designate a particular primary care provider and, instead, relies on the use of a preliminary prospective attribution model which will identify Medicare beneficiaries on a quarterly basis.
CAFP has been a tireless advocate of fair payment for primary care and the recognition that the PCMH should be at the center of a redesigned health care system. Our current policy promotes a blended payment approach, combining fee-for-service, a care-management fee, and clinical performance incentives such as Pay-for-Performance programs.


CAFP members and staff have participated on numerous work groups for both quality measures and payment issues. CAFP has also been an active contributor to the Patient Centered Primary Care Collaborative, an organization that has advocated for health system reform that puts primary care in a central role with appropriate payment.
Keep seeing patients to optimize your revenue in the current payment environment. Proper coding, good billing procedures, and attention to accounts receivable are still critical in a transition period.


At the same time, you should be making the changes and installing the systems suggested by the PCMH model so that you can respond quickly as the incentives change. Pay attention to what is happening in your market, and determine which players seem to value primary care as more than just a referral hub for hospitals and specialists. Read as much as you can about evolving models of payment and be aware of incentives currently available in your market.