There is a new and significant paper in the New England Journal of Medicine by J. Michael McWilliams and colleagues presenting evidence that Accountable Care Organizations (ACOs) can both reduce health care costs and improve the quality of care (see also commentary by Austin Frakt). This has implications for health care reform in Canada.

First, what is an ACO? The ACO is a scheme for paying for health care that originated in the US. Much health care in both the US and Canada is paid for on a fee-for-service basis. But if a provider gets a fee for each service provided, her incentive is just to provide more care. That’s a problem when provinces can’t or won’t increase their health care spending. Moreover, fee-for-service payment schemes simply reward delivering more treatment, regardless of whether the treatment delivered is what’s best for the patient.

An ACO is a health care organization that contracts to care for a population where the contract has an incentive to reduce costs. If the per capita spending of the organization falls below a contractual benchmark, the payer and the provider organization split the difference between the benchmark and what was actually spent. This is a win/win: the entity paying for health care (in the US, Medicare or Medicaid) saves money and the health care organization makes money. The danger, clearly, is that this creates an incentive for the health care organization to stint on care. But crucially, the ACO contract also includes incentives to improve the measured quality of health care.

An ACO is an appealing idea, if it works (and unfortunately lots of appealing ideas in health care do not work). We need more evidence about ACOs before we know whether they work, but thus far analyses from a group I am part of and those from others are encouraging.

McWilliams and his colleagues looked at 32 health care organizations that were part of a large study funded by US Medicare.


In a difference-in-differences analysis of Medicare fee-for-service claims, we compared Medicare spending for beneficiaries attributed to Pioneer ACOs (ACO group) with other beneficiaries (control group) before (2009 through 2011) and after (2012) the start of Pioneer ACO contracts, with adjustment for geographic area and beneficiaries’ sociodemographic and clinical characteristics.

For cost-saving, they found that


Adjusted Medicare spending and spending trends were similar in the ACO group and the control group during the precontract period. In 2012, the total adjusted per-beneficiary spending differentially changed in the ACO group as compared with the control group (−$29.2 per quarter, P=0.007), consistent with a 1.2% savings. Savings were significantly greater for ACOs with baseline spending above the local average, as compared with those with baseline spending below the local average (P=0.05 for interaction), and for those serving high-spending areas, as compared with those serving low-spending areas (P=0.04).

They also found that the quality of care and patient outcomes either stayed the same or improved modestly.

So the effects of the ACO were not revolutionary: the changes in both cost and quality were small. But the history of fee-for-service care was that costs were increasing rapidly with little discernible improvement in the quality of care. Relative to that history, the Pioneer ACOs achieved a significant win.

Before discussing what this means for Canada, let’s acknowledge that US health care is grotesquely wasteful and cruelly unjust. Having agreed on that, it’s also possible that in their struggles with those problems, the Americans might have come up with a couple of useful ideas.

Much of Canadian health care is paid for on a fee-for-service basis. And many hospitals are funded on a ‘global budgeting’ scheme, in which the hospital gets a budget that more or less tracks what it got in the past, regardless of what patients were seen, what needs those patients had, or whether the hospital delivered high quality care. These schemes provide no incentive to either save costs or improve quality.

Canadian jurisdictions could instead fund health care through schemes that made the dollars a health care organization receives conditional on the numbers of patients the organization serves, the needs of those patients, and the quality of care that the organization provides. Changing the incentives is only a small part of what we need to do. But money is to health care systems what adenosine triphosphate is to physiology. The emerging ACO literature suggests that if we reset our payment systems to appropriately favor cost savings and quality, we would get better care at a better price.

This course of reform is so eminently sensible that it is possible to mistakenly believe it is easy. It’s not. Making an ACO-like scheme work well would require that government ministries, health system leaders, and health care providers both work together closely and accept accountability for the cost, quality, outcomes, and equity of care. In particular, Canada has to up its game on the measurement of health care quality and population health outcomes and on documenting whether every group in the population is adequately served. Better measurements of health outcomes, quality, and equity are prerequisites of any successful health reform effort.



William Gardner
William Gardner is a child psychologist at the Children's Hospital of Eastern Ontario and Professor of Epidemiology at the University of Ottawa. He writes professionally on children's mental health, on statistical methods in social research, on Canadian and US health policy, and on ethics. He also blogs at The Incidental Economist. @Bill_Gardner

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