On January 30, New York Times op-ed columnist Ezekiel J. Emanueland Jeffrey B. Liebman, a professor of public policy at Harvard,published what they called “a bold prediction for the newyear.”

“By 2020, the American health insurance industry will beextinct,” they write. “Insurance companies will be replaced byaccountable care organizations—groups of doctors, hospitals andother health care providers who come together to provide the fullrange of medical care for patients.”

Of course, it's impossible to know whether this forecast isaccurate. Talking with others in the health care and insuranceindustries, however, suggests the scenario Emanuel and Liebmanpaint is only one of many possible futures for ACOs and the healthbenefits industry as a whole.

An ACO overview

Simply put, an ACO is any organization of medical providers thatworks together to take accountability for the total cost andquality of care given to a defined population, says Harold Miller,executive director of the Center for Healthcare Quality and PaymentReform, based in Pittsburgh.

“ACOs are about moving from a world where we are paid for thequantity of services to a world where we are paid for the qualityof services,” agrees Sree Chaguturu, medical director of populationhealth management at Partners Health Care in Boston. “Providers gofrom treating people when they are sick to being paid to somedegree for keeping people healthy. Along the way, you ideallyimprove quality and reduce cost.”

Health maintenance organizations tried something similar in the1980s and 1990s, but they worked by using gatekeepers to make itharder for patients to access care. ACOs, by contrast, do much thatwellness programs already address: help prevent and manage chronicconditions and advocate for overall good health. ACO providers alsowork to help patients avoid unnecessary hospitalizations and usethe least expensive, still-effective treatments for ailments andinjuries.

That means gathering a lot of data, Chaguturu says. ACOs musttrack clinical outcomes, understand costs both by population andepisodes of care, see variance in how providers deliver care and inprovider outcomes, and compare providers with their peers.

Developing structures

Private sector ACO forms are still evolving.

“There is no single definition of ACO. They can mean anythingbetween an insurance company and a physician group practice, or agroup practice and hospital,” says Anders Gilberg, senior vicepresident for government affairs at the Medical Group ManagementAssociation in Washington, D.C.

In the government ACO, called the Medicare Shared SavingsProgram, the focus is on cost first and quality second, though “thequality metrics are in place to ensure that quality doesn'tsuffer,” Gilberg says. “The shift has been pretty dramatic in thepast 24 months. There used to be a lot more talk about qualityfirst. Now we talk about cost first, with quality seen asconstant.”

In that model, Medicare pays a fee for service and the programand its providers share in the total savings they generate.

There's no reason, however, that private sector ACOs have to usethe same approach, and there are “a million” other possibilities,Miller says.

That's where the New York Times op-ed piece might have it wrong.Ezekiel and Liebman say ACOs “will typically be paid a fixed amountper patient, along with bonuses for achieving quality targets.”Though this structure, known as capitation, is one possible ACOstructure—there are many others.

An ACO could bundle services across multiple providers, paying asingle fee for an acute health episode. Or an ACO could accept aset amount of money each month or year to care for a givenpopulation, providing all necessary care and keeping—orsharing—whatever money left over.

An employer could pay an ACO a risk-adjusted payment, spendingmore if their employees have more than an average number of anycommon medical problem.  Or businesses could combinestop-loss coverage with an ACO contract or even contract withmultiple ACOs, each specializing in a particular kind of medicalcare.

An ACO could string together multiple individual medicalpractices, connect a hospital and individual providers, or take theform of a single large medical group. Patients might be restrictedto using providers within their ACO or be welcome to use whateverproviders they like.

Benefit design structure will also be a question. Will ACOs haveco-pays, co-insurance or deductibles? Will benefit structures sayyou must get all your care from an ACO, or that you're responsiblefor the difference if you go somewhere more expensive?

“We need to change the benefit structure in a way that makesproviders feel that it's not just them trying to contain costs,”Miller says.

In all these potential setups, ACOs can coexist with third-partyadministrators and risk-bearing insurance companies. ACOs need thedata collection and administrative services that third-partyadministrators often provide. And companies and individuals willstill likely need insurance, whether it's stop-loss coverage forself-insured companies or a combination of insurance coverage plusACO access for fully insured firms.

Potential complications

So far, Miller says, no one has tried a capitation-based ACO, atleast in part because the capitation model is particularlyvulnerable to potential regulatory snags.

For example, PPACA requires health insurance companies spendeither 80 percent or 85 percent (depending on the insured group'ssize) of premium dollars on claims. It's unclear whether that rulecould apply to ACOs, Miller says. As long as an ACO accepts a feefor each service, they're not selling insurance. But undercapitation, “the upfront-payment system kind of looks likeinsurance,” he says, because it takes on both performance andfinancial risk.

If a capitation-based ACO is subject to PPACA rules aboutpremium usage, must it also be licensed and regulated as aninsurer? Or should it be otherwise regulated? An affirmative rulingcould force a capitation-based ACO to follow rules for investmentsand cash reserves, among others, that medical providers may not beready to tackle.

Other potential regulatory problems could affect bothcapitation-based ACOs and those employing other structures.

Anti-trust issues could come into play, says Beth Kase, anattorney and chairperson of the regulatory and transactionalpractice at Fenton Nelson, a Los Angeles law firm.

“There's a certain amount of consolidation in making an ACO. Ifyou're going to have competitors bid together or do pricingtogether, you have a potential price-fixing or anti-trust concern,”she says.

More business integration also could mean fewer consumerchoices, which might worsen existing cost problems.

It's not clear how entities that work together in an ACO shouldshare savings, Kase says. If a referring physician retains moresavings than do other practitioners, anti-kickback laws mightapply.

Medicare's ACO program has rules to ensure that providers offerpatients necessary care. Private sector ACOs would need ways tomake sure the system doesn't save money by ignoring patient needs,Kase says, and new regulation likely would need to govern thequestion of whether ACOs are allowed to offer patients incentives,such as free goods or services, to choose them as providers.

ACO use could be an issue for tax-exempt organizations, becausethe combination could be considered a joint venture between anon-profit and a for-profit organization. In addition to thepotential tax complications, the two could have divergent interestsand competing needs to govern an ACO.

Right now, ACO contracts being inked are concerned withaccountability systems, and less so with organizational structures,Gilberg says. Eventually the marketplace will need to flesh outACOs' organizational details. Its many possible structures mean itwill take time to sort out those details.

“This is going to stress out insurance companies and statedepartments of labor. If there are 700 versions of this, are all ofthem OK?” Miller asks.

A place for insurers

Though they might not expect capitation-model ACOs will renderthem obsolete, hospitals, doctors and insurers still expect ACOs togain substantial market traction. All three entities are vying toshow the marketplace they're the ones to manage ACOs.

Insurers are leading the race to head these organizations, saysFelicia Wilhelm, CEO of Prairie States Enterprises, a TPA offeringhealth management services.

“With some notable exceptions, the accountable care movement hasmorphed into a model dominated by large insurance companies thatengage with hospital systems,” Wilhelm says. 

“Independent physician practices and group practices aredisappearing as the costs of simply maintaining such practicesincreases, the malpractice insurance premiums have becomeprohibitively expensive, and the bureaucratic demands of insurerscoupled with the reduction in reimbursement levels have created aperfect storm.  More and more physicians are becomingstaff members of hospital-owned practices.

In this triad, the insurance companies play the dominant rolebecause they have more financial resources and play the paymentrole,” she says. 

Insurers who don't want to direct ACOs outright might add valueand help physicians maintain solo or small practices bycoordinating care, Kase suggests.

“I'm starting to read about insurance companies saying they'llbegin to pay for care coordination,” she says. “That would be avery good thing for doctors. Coordination is enormously timeconsuming.”

Care coordination is also a place where third-partyadministrators might find a additional market niche.

“I see that you could have individual providers working with aninsurance company to look at the totality of patient care and havesomebody quarterbacking the care. I'm not talking about agatekeeper—I don't think that's a good idea,” Kase says.

Insurers and third-party administrators might also continueproviding administrative functions, paying claims, reconcilingbudgets, recommending stop-loss coverage, or managing the datacollection that's crucial to an ACO's effectiveness.

Like Wilhelm's Prairie States, many TPAs have expertise inmanaging employee wellness, making them natural partners for ACOs.And of course other current market players want to stayrelevant.

“We're scrambling to find out how we can be of help,” Wilhelmsays. “We want to make sure we play a valid role. How can we holdhands with a provider community and improve the employeeexperience?”

That partnership's ultimate form, however, will be a while inthe making. “It's going to be at least ten years before we learn todo ACOs right and they have a substantial market presence,” saysRobert Berenson, an institute fellow at the Urban Institute inWashington, D.C. For insurance companies and third-partyadministrators, that's a decade to prove Emanuel and Liebmanwrong.