Numerous attempts to reform health care payment models over recent years have focused on the transition away from the traditional fee-for-service (FFS) health care reimbursement model, which financially rewards the quantity of services provided instead of quality, toward incremental layering of process and quality metrics on top of a FFS system. The results of policy interventions have been mixed, without lasting financial and clinical outcomes improvement identified. Current alternative payment structures, including ACOs, may have a long-term positive effect as they are optimized over time. However, understanding the path to ACOs is vital to moving forward.

With the desire to control health care costs and improve clinical outcomes, the origins of ACOs arguably began with health maintenance organizations, or HMOs, in the late 1980s and early 1990s. HMOs took a managed care approach, whereby patients would have lower premiums in exchange for only having insurance coverage when they sought care with physicians or other health care professionals who contracted with that specific HMO. Thus, clinical care was only covered if it was provided by health care professionals who were in network.¹⁰ HMOs also focused on preventive services and wellness as a means of reducing overall cost of care for a given patient population. Many managed care organizations struggled early in their evolution for a variety of reasons. First, many had poor financial management, with revenues far underperforming outlays.¹¹ These financial issues caused notable strain, ultimately resulting in many HMOs falling behind on payments to physicians, among other problems. These effects cascaded, as physicians and other health care professionals severed ties with HMOs as reimbursements faltered. Second, in many cases, patients suddenly became severely limited in their choice of doctor,¹² causing severe backlash and discontent. Many health care consumers who previously had much greater freedom of choice now found themselves in narrow-network HMOs. Third, the
goal of HMOs to manage patient populations in their respective networks efficiently and effectively demonstrated the need for robust health-related information technology that simply was not available.¹³ Fourth, HMOs were not tied to clinical outcomes, limiting any incentive for physicians or health care providers to truly drive “better health.”

Based in part on some of the challenges faced by HMOs in the 1990s, a key step toward an ACO-type model was the Medicare Physician Group Practice (PGP) Demonstration, the first physician pay-for-performance initiative introduced by CMS.¹⁴ Beginning in 2005, the 5-year program included 10 physician groups. This initiative was the first of its kind to begin to shift risk to health professionals by offering financial bonus incentives if preestablished cost reduction and/or 32 quality measures were achieved. Although a step in the right direction toward value-based health care, it is important to note that 7 of these quality metrics were claims-based and 25 were medical record-based; therefore, they did not accurately measure the outcomes most important to patients. For example, patients are more likely to care about their ability to resume activities of daily life or have decreased daily pain, and less likely to be concerned with whether antibiotics were given on time or whether certain safety protocols and regulatory requirements were met.¹⁵ Although all outcomes measures (eg, claims-based, medical record-based, or patient-reported) can be of value, it is crucial to remember that the patient should be the focus of health care so outcomes most important to the individual should be measured. However, the requirement of measuring any metrics was a pivotal innovation and continued the transition toward a value-based health care system. As part of this transformation, it also provided the framework for transition to the ACO model of care.

The term ACO was first coined by Elliott Fisher, MD, MPH during a Medicare Payment Advisory Committee (MedPAC) public meeting in 2006 and further described in an early 2007 Health Affairs article.¹³,¹⁶ Ultimately, the idea was to ensure that the accountability of patient care be shared across all health care professionals involved. The goal with the ACO approach was to accomplish the “triple aim” proposed by Donald M. Berwick, MD, MPP – “improving the experience of care, improving the health of populations, and reducing per capita costs of health care.”¹⁷

In 2009, MedPAC moved beyond discussion and recognized ACOs as an alternative approach to traditional Medicare reimbursement structure. MedPAC recommended a reimbursement structure that utilized FFS but also created financial incentives to try to drive decreased cost and improved quality of care.¹⁸ The desire to drive higher-value health care in the United States paired with favorable scoring of key ACO components by the Congressional Budget Office led to the ACO model of care being included in the Medicare program in the Patient Protection and Affordable Care Act (ACA) of 2010 (colloquially known as Obamacare). Specifically, ACOs were included in Title XVIII of the Social Security Act (42 USC §1,395 et seq.).

A more recent CMS program also created through the ACA is the Medicare Shared Savings Program (MSSP), which enables and encourages the creation of ACOs. Since its inception in 2012, the program has resulted in notable growth of 220 ACOs covering 3.2 million assigned beneficiaries to 517 ACOs covering 11.2 million beneficiaries.¹⁹ In addition, CMS has continued to innovate further in the ACO space with the introduction of the Next Generation ACO Model in 2016,²⁰ which was designed for experienced ACOs seeking the potential for higher financial reward than that which was available under the MSSP. A key feature of this model is that it allowed its member ACOs to improve care for and better engage with patients by waiving certain Medicare services rules, allowing for telehealth and home visits following discharge, for example. However, the Next Generation ACO Model also requires participating ACOs to assume higher levels of financial risk through their payment mechanisms and cost benchmarking. Currently, 41 ACOs participate in the Next Generation ACO Model.

Overall, the use of ACOs across the United States continues to increase. When examining hospitals currently engaged in ACOs, 59% (1,625 of 2,749) of nonfederal general hospitals across the United States are active in an ACO, either as a lead or a participant.²¹ This varies from no reported participation in Alaska to 100% participation of non-federal, general hospitals in Vermont and Rhode Island.²¹ Indeed, these data demonstrate the growth and widespread use of ACOs as a care delivery model in the United States; therefore, it is important for orthopaedic surgeons to understand them and how they may affect musculoskeletal care delivery and reimbursement.

After establishing an understanding of how ACOs became part of the health care fabric of the United States, an ACO can be clearly defined. From a more practical standpoint, ACOs are financial entities that provide all health care for a cohort of patients over a period of time in exchange for a capitated payment. The ACO is held to a fixed per capita payment and therefore holds the risk for the utilization of resources while also holding the ACO accountable for quality, and in some cases, clinical outcomes. When designed in a true value-based health care fashion, ACOs can allow physicians, including orthopaedic surgeons, the capability to be rewarded financially when clinical outcomes are optimized in an efficient manner but also be held accountable for the financial cost of inefficient care and/or poor clinical outcomes. However, not all ACOs are built the same, and the key design differences have significant effects on the underlying incentives of the ACO.