Guest commentary: A prescription for what's ailing ACOs

New payment models adopted by Medicare and many health plans have clearly led to better care for patients. They also might be helping to slow the overall growth of healthcare spending. Whether these gains can be sustained, however, is far from certain. And because many providers are still sitting on the sidelines, uncertainty is a serious threat to progress.

The recent announcement by HHS Secretary Sylvia Mathews Burwell that Medicare will work to accelerate the transition to new payment models was therefore an important step in the right direction. But without significant regulatory—and perhaps legislative—changes to current models, HHS' ambitious goals are not likely to be achieved.

Accountable care organizations—groups of providers held responsible for the quality and cost of care delivered to their patients—are critical to payment reform. For ACOs to work, though, it is clear that we need to make two key reforms: improve the financial model for ACOs and make it easier for them to engage their patients in their own care and in making wise decisions (often referred to in shorthand as “patient engagement”).

Those are the conclusions the three of us reach in a new report (PDF) jointly produced by the Dartmouth Institute for Health Policy and Clinical Practice, Dartmouth-Hitchcock Health, and the Campaign to Fix the Debt.

In September 2014, we convened the Dartmouth Summit on Medicare Reform, bringing together healthcare stakeholders, top policy experts and lawmakers to discuss ways to reform the country's largest healthcare program and surmount barriers to moving away from fee-for-service payment.

The current fee-for-service model encourages unnecessary utilization of healthcare services, contributes to the fragmented, uncoordinated care that many patients experience and provides little incentive to deliver higher quality or more efficient care.

The ambitious goals Burwell has laid out are therefore vitally important. HHS is seeking to tie 85% of traditional Medicare payments to quality or value by the end of 2016 and 90% by the end of 2018; and having 30% of Medicare payments in alternative payment models—such as ACOs—by the end of 2016 and more than 50% by 2018.

Transitioning away from fee-for-service payment at such a pace, however, will require major improvements to alternative payment models and additional reforms, some of which may require Congress to act.

ACOs in Medicare—the largest alternative payment model—continue to grow in number, with 424 organizations now serving roughly 7.8 million beneficiaries, mostly within the Medicare Shared Savings Program. However, while the early results of the Medicare ACO programs are in many ways promising, they also highlight the need for further changes. Initial data on financial performance show that only about one-quarter saved enough money to generate shared savings. Many ACO beneficiaries are unaware that they are receiving care from the ACO and seek it from non-ACO specialists or healthcare agencies, making it difficult for the physicians in their ACO to coordinate and improve their care.

We believe two broad strategies must be pursued to remedy the issues hampering ACOs today.

First, the financial model for ACOs should offer them a greater share of their initial savings (to help fund start-up costs), provide stronger incentives to induce and maintain participation from low-cost provider organizations, and foster alignment of payment schemes across all payer types—not just in Medicare. This strategy will encourage the growth of shared-savings models and motivate high-performing healthcare systems to join the ACO programs.

The second strategy would improve patient engagement in ACOs by modifying how Medicare beneficiaries are assigned to an ACO: Beneficiaries should be given the opportunity to choose to join their ACO; for those not actively choosing, those eligible should be assigned at the beginning of the year (so that their ACO can contact them). Medicare should also test a benefit design that uses modest financial incentives to encourage patients to seek care within their ACO or from providers outside the ACO whom the ACO recommends. Simultaneously, to make such incentives possible, supplemental Medicare plans should be restricted from covering first-dollar beneficiary costs for non-ACO services.

Both providing financial incentives to ACO patients and restrictions on supplemental insurance coverage, in particular, may require congressional action.

By helping Medicare ACOs and beneficiaries maximize use of efficient, high quality providers, these reforms have the potential to greatly improve patient care and achieve significant savings.

Dr. Elliott Fisher is director of the Dartmouth Institute for Health Policy and Clinical Practice; Judd Gregg is a former U.S. senator from New Hampshire and now co-chair of the nonpartisan organization Campaign to Fix the Debt; and Dr. James Weinstein is president and CEO of Dartmouth-Hitchcock Health.