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Lessons Learned from Vermont on Building Community ACOs

Janice Simmons, for HealthLeaders Media, May 20, 2010

Tucked into the new healthcare reform law are provisions to test accountable care organizations (ACOs)—groups of providers receiving set fees to deliver coordinated quality care to a select group of patients. But before most people even knew what ACO stood for, Vermont was ahead of the curve—putting together a strategy to launch three community-based ACOs by 2012.

In 2008, the Vermont legislature instructed its Health Care Reform Commission to assess the feasibility of piloting at least one ACO model as the next phase of payment reform. Along the way, it had some help from the nearby Dartmouth Institute for Health Policy and Clinical Practice, in Lebanon, NH, says Jim Hester, PhD, the commission's director.

Working with Dartmouth's and the Brookings Institution's 50-plus member ACO Learning Network, three ACO pilots have emerged in Vermont. The ultimate goal, as stated in a new report from The Commonwealth Fund on the "Vermont ACO Pilot," is to "achieve delivery system reform based on the development of a true community health system that both improves the health of the population it serves and manages medical costs at a population level."

The project started off by communicating with the providers. "We met with all [13] hospitals in the state at one point or another," Hester says. While several of the hospitals—including those doing medical home pilot work or additional medical work—turned down the initiative, others expressed interest—and became part of finding the way to "bend the medical cost curve" at the community level.

So how to finally pull an ACO together? A working design was developed for each ACO pilot that was built on three major principles:

Local accountability. “Given the natural care patterns of patients and provider referral patterns," no "lock in" of patients to the ACO would be necessary. Instead, the ACO patient population would be determined through "historical patterns of patients" who visited providers in the ACO—using a methodology developed by Dartmouth.

Payment reform. To address misaligned incentives "between fee for service payments and the need to better support providers taking steps to improve quality at a lower overall cost," the ACO model should include payment reforms based on shared savings, the report says. However, this shared savings should reflect an ACO's "varying stages of integration and sophistication.

For instance, the simplest option would be just shared savings—where providers do not assume any of the risk for above target spending. This option is designed for "newly formed entities with little experience managing care or risk."

However, more sophisticated provider organizations—such as Vermont Managed Care (in northwestern Vermont) or the United Health Alliance (in Bennington)—could consider "shared savings plus risk." Here, providers would assume a portion of the risk for above target spending (e.g., 20%) and are eligible to keep a greater portion of the savings.

Performance measurement. Measuring more than just medical expenses will be essential to ensure that appropriate care is being delivered and that cost savings are not the result of limiting necessary care, the report says. ACOs will be reporting patient experience data, in addition to clinical process and outcome measures.

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