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Accountable Care Organizations Taking Hold And Improving Health Care In California

By Richard Scheffler and Stephen Shortell

There is new evidence that California’s Accountable Care Organizations (ACOs) are growing in size and number, serving more patients, and improving quality of care. Some of the key findings from an analysis done by the Berkeley Healthcare Forum group in the School of Public Health at the University of California, Berkeley shed light on the positive developments in California’s ACOs.

ACOs are moving the state toward achieving the goal of 60 percent of the population receiving integrated care by 2022. This aspirational goal was set by private and public health care leaders representing the major health insurance plans, health care delivery systems, medical groups and state agencies as outlined in the Berkeley Forum Report A New Vision for California’s Healthcare System (Berkeley Healthcare Forum Report).

California has more ACOs (67) than any other state in the country, and the report estimates that more than 1.3 million Californians will be receiving care from ACOs within the next year, with increased growth in nearly all regions of the state (Table 1).

Based on the Integrated Healthcare Association’s (IHA) quality measures, medical groups in the state that also have ACO contracts have equivalent scores for heart disease and asthma, and higher scores for cancer, diabetes, pediatric care, and chlamydia, than other medical groups in the state (excluding the special case of fully integrated Kaiser Permanente). Further, they have significantly higher patient experience score measures in regard to timely care and service, coordination of patient care, communicating with patients, promoting health, office staff helpfulness, and overall ratings of care than other medical groups (Table 2).

Table 1.

Source: Authors’ analyses using linear trend projection from four waves of survey data from Cattaneo & Stroud.

Table 2.

Source: California Healthcare Performance Information System Patient Assessment Survey

*ACO score significantly different from non-ACO score at a 99 percent confidence level

Success Requirements

Aside from the obvious need to effectively engage physicians, the report identifies six factors that appear to differentiate the higher performing ACOs from the others.

Size Or Scale Of The Organization

Recent Medicare legislation requires only 5,000 enrollees to be in the shared savings program, however many are much larger than this particularly on the commercial side. The Dartmouth-Berkeley National Survey of Accountable Care Organizations (NSACO) has identified some ACOs with upwards of 100,000 enrollees or more, bringing to light the consideration of economies of scale in an organization. The more people an organization has under the risk-bearing contracts, the greater the incentive for the organization to invest in infrastructure support such as Electronic Health Records (EHRs) and patient activation and engagement training for providers.

Care Management Capabilities

Physician organizations need to fundamentally redesign how care is provided. This includes greater use of pre-visit planning, development of care transition programs, and increased use of nurse practitioners, physician assistants, and community health workers.

Electronic Health Record Functionality

Electronic Health Record Functionality, with the key word being functionality. Most health care practices now utilize EHRs, but the ability to use EHRs for all of their functionality is variable and limited. The benefits of increased EHR functionality are visible in some ACOs through the use of patient portals and the ability to communicate with other providers that are a part of the ACO.

Effective Partnerships

Within ACOs, the health of an entire population is being managed, placing greater emphasis on the management of post-acute care. The development of relationships between hospitals and skilled nursing facilities, home-health care agencies, and rehabilitation centers requires new partnerships with a common vision and aligned financial incentives. The ACOs that have been more successful are those that are developing such relationships.

Patient And Family Engagement

While patients can go anywhere for their care, the ACO is still accountable for their treatment and the costs incurred, so there is an incentive for the ACO to make specific efforts to engage patients in their own care management and keep them within the umbrella of the ACO. This is particularly important for the management of chronic illness, which requires the involvement of patients and their families to avoid preventable hospital admissions and re-admissions and emergency department visits. There is much to be learned about how best to engage patients and families in their care.

Measurement Standardization And Transparency

Measurement Standardization and Transparency is needed for both external involving public reporting of quality measures and for internal continuous quality improvement efforts. Any one of the six factors alone are unlikely to make much difference. Rather, it is all of these factors used in combination with each other that creates a platform for the successful implementation and growth of Accountable Care Organizations.

Emerging Market Characteristics

As indicated in Table 1, enrollment in ACOs in California is projected to grow significantly over the next two years, by approximately 48 percent, moving California towards the Berkeley Forum overall vision of managing population health with a high value health care system (Berkeley Healthcare Forum ACO Brief). The market characteristics examined in the current report include the concentration of the provider market, hospitals, and medical groups.

It is well-known in California that there have been a number of horizontal hospital mergers and an increase in the size of hospital systems, as well as medical groups. We looked across the state at the market concentration by county for hospitals and medical groups using the Herfindahl-Hirschman Index (HHI), which looks at the concentration ratio of particular providers in given markets.

Through this analysis we found a negative association between the location and the growth of ACOs and the concentration of the market. The more concentrated a market is, the less likely it is that an ACO will form there; this was true for both hospitals and medical groups.

We also discovered a positive correlation between the location of Health Maintenance Organizations (HMOs) and the location and growth of ACOs in these areas. One possible reason for this is that in these regions there is increased knowledge of how to do risk-based contracts and how to manage the covered lives, meaning the infrastructure is already present for a managed care organization. Another possible reason for the formation of ACOs in areas where more HMOs are present is that this is a competitive response to Kaiser Permanente, and one way to compete with Kaiser is to set up an ACO. These market trends will continue to be monitored over time.

Ongoing Challenges

There are several ongoing challenges to creating more integrated systems of care such as those represented by ACOs. Not the least among these is that creating integrated systems of care is difficult work requiring considerable resource investments (the cost of integration) in increasing EHR functionality, workflow redesign, and developing partnerships with others.

Also, in recent years the less integrated Preferred Provider Organizations (PPO) have gained market share at the expense of HMOs. Efforts are now being made to create at least “virtual” ACOs among these provider groups. The state is also hampered by lack of an All Payer Claims Database (APCD) making it difficult to assess comparative performance, which can serve as a stimulus for ongoing improvement. Serving the state’s large Medi-Cal population, which involves addressing issues of health literacy, is an added challenge.

There is also the longer term question of whether there is sufficient clinical and managerial leadership to “stay the course” as further demands are placed on the system. But, as expressed by Tom Williams, immediate past president of the Integrated Healthcare Association and vice president of accountable care operations and strategy at Stanford Health Care: “California is fortunate to have many integrated health care delivery systems at various stages of development. The advancement of these systems into Accountable Care Organizations and partnerships should be viewed as an important and very positive innovation in payment and health care delivery.”

The bottom line is that California’s ACOs are helping to move the state toward achieving the vision of having 60 percent of the population receiving care in integrated systems by 2022, and at the same time reducing the percentage of the state’s health care expenditures paid through fee-for-service arrangements from 78 percent today to 50 percent by 2022.

Steven Shortell is the dean of UC-Berkeley's School of Public Health, and Richard Scheffler is a distinguished professor of health economics and public policy at UC-Berkeley's School of Public Health and Goldman School of Public Policy. This article was originally posted on Health Affairs Blog.