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Accountable Care Organizations: A New Cure for Spiraling Health Care Costs?

Under this health care program, physicians and hospitals work together with Medicare to provide coordinated care to beneficiaries in exchange for shared savings.

May 14, 2012
Related Topics: Top Stories - Frontpage, Health Care Costs, Benefits

Two years ago Catherine Dodd, director of the San Francisco Health Service System, saw a bleak future for the city's and county's health care costs.

With 105,000 covered lives, the system's expenses were rising year over year. Municipal budget cuts meant no new hires and covered employees and retirees were just getting older. About 66 percent of workers had elevated body mass indexes, about half were pre-diabetic or diabetic while 12 percent were smokers.

"It's a population just as sick as any employer has," says Dodd, a registered nurse, who decided to make a change.

In her request for proposal to health insurers bidding on the city and county's HMO contract, she included the wish to start an accountable care organization, or ACO. ACOs require payers—i.e., insurers—and health care providers to better coordinate care for members, especially those with the most medical needs, with the goal of improving cost trends and patient outcomes. Providers typically share in savings reaped from better coordinated care and lower costs and they must meet and maintain quality standards.

Blue Shield of California was the only insurer out of the four finalists bidding for the contract that agreed to launch an ACO, Dodd said. Not surprisingly Blue Shield won the contract.

So in July 2011, the city and county of San Francisco began its two ACOs involving 26,000 employees, dependents and retirees. Results won't be available until the end of the year but preliminary findings are promising, those involved say.

"We've already seen a dramatic decrease in our trends," Dodd says.

For instance, cost trends have been cut in half during the past nine months for one ACO involving city and county employees treated at the University of California at San Francisco, Dignity Health, a San Francisco-based hospital system, and Hill Physicians, a local medical group, Dodd said. It's still unknown how much of this downward trend is a direct result of the ACO, she cautions.

ACOs are getting a lot of buzz these days, in part because of Medicare's Shared Savings Program, which was included in the federal health care reform law. Under this accountable care program, physicians and hospitals work together with Medicare to provide coordinated care to beneficiaries in exchange for shared savings. Providers must meet quality measures to reap the savings.

On April 10, Medicare announced that 27 organizations have been selected to participate in the program, serving 375,000 people in 18 states. A total of 65 groups are now involved in the Medicare Shared Savings Program.

In the private sector, ACOs are springing up across the country.

Emma Hoo, director of the Pacific Business Group on Health, says ACOs are taking off as employers seek to control the rising health care costs.

Hoo says that interested employers should first look at their cost drivers. "This creates an opportunity to have a more direct conversation with provider groups," Hoo says.

That's what happened in San Francisco. Dodd worked closely with Blue Shield of California and participating providers to look at the data and opportunities to improve care coordination. Changes to date include embedding a case manager at local hospitals to support participating patient needs and daily care coordination meetings.

"We've broken down silos and created relationships," says Kristen Miranda, vice president of network management at Blue Shield of California, which now has seven ACOs up and running across the state and more in the pipeline.

For instance, care transitions from the inpatient to the outpatient setting are better coordinated, with medications and other special needs recognized by everyone on the care team, she says.

The employers' role is to keep a close eye on trends and listen to employees, those involved say.

"As an employer we are going to incentivize everything we can to get people the right care in the right place at the right time," Dodd says.

Dodd has relied on Blue Shield to provide informatics on how the program is going, she says. She has not hired additional employees to manage the ACO. She says she is fortunate in that the chief financial officer at San Francisco's Health Service System is also a pharmacist and well-versed on medical informatics.

"It's been a learning curve, and it's been extra work," Dodd says. "But we are beginning to bend the cost trend."

Miranda agrees. "It's very resource-intensive, and it's time-intensive," she says. The city and county of San Francisco was at the table from Day One, she says. "They are much more aggressive in advertising this to employees."

She adds that employers should be patient about getting results.

"This kind of work is a multiyear journey," Miranda says. "I hope employers keep that in mind."

No matter whether the Supreme Court overturns the federal health care reform law, ACOs in the private sector will continue to flourish, says Hoo of the Pacific Business Group on Health.

"I think there's a lot of momentum around these models and a desire to drive system reform," Hoo says. "The cost increases are not sustainable."

Rebecca Vesely is a freelance writer based in San Francisco. Comment below or email

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