Gert P. Westert, PhD

 Accountable care organizations (ACOs) are groups of healthcare providers responsible for quality of care and spending for a defined patient population. The elimination of low-value medical services will improve quality and reduce costs and, therefore, ACOs should actively work to reduce the use of low-value services. We set out to identify ACO characteristics associated with implementation of strategies to reduce overuse.

 We used the National Survey of ACOs to determine the percentage of responding ACOs aware of the Choosing Wisely campaign and to what degree ACOs have taken steps to reduce the use of low-value services. We identified characteristics of ACOs associated with implementing low-value care—reducing strategies using 3 statistical models (stepwise and LASSO logistic regression and random forest).

 Responding executives of 155 of 267 ACOs (58%) were aware of Choosing Wisely. Eighty-four of those 155 ACO leaders said that their ACOs also actively implemented strategies to reduce the use of low-value services, largely through educating physicians and stimulating shared decision making. All 3 models identified the presence of at least 1 commercial payer contract and prior joint experience pursuing risk-based payment contracts as the most important predictors of an ACO actively implementing strategies to reduce low-value care.

 In the first year of implementation, just one-third of ACOs had taken steps to reduce the use of low-value medical services. Safety-net ACOs and those with little experience as a risk-bearing organization need more time and support from healthcare payers and the Choosing Wisely campaign to prioritize the reduction of overuse.

Collective risk taking in financial contracts is the most influential determinant for accountable care organizations (ACOs) in taking steps to reduce unnecessary care. Safety-net ACOs are not likely to take steps like educating physicians on low-value medical services and encouraging shared decision making. ACOs with less experience in risk bearing will likely start to prioritize overuse when they acquire more risk as an organization.

ACOs with little experience in risk bearing and safety-net ACOs should be specifically stimulated to reduce overuse with targeted advocacy efforts of healthcare payers and the Choosing Wisely campaign.

Research should focus on identifying efficient strategies for waste reduction with specific attention to audit-and-feedback mechanisms on overuse and underuse.

Accountable care organizations (ACOs) are voluntary groups of provider organizations that are collectively held accountable for both

quality of care and total spending for a defined group of patients through payment contracts. A promising strategy to improve quality and financial sustainability involves the reduction of low-value medical services. Indeed, prior research shows a modest decrease in the use of low-value care, and thus in spending rates, for ACOs compared with non-ACO providers with predominantly fee-for-service payment models.

 While utilization and related spending have decreased in ACOs, quality scores and care satisfaction have remained similar or improved compared with other organizations.

 However, it is not clear what strategies ACOs deploy to lower unnecessary care, nor what features predict a commitment toward overuse reduction.

One way to tackle low-value care is to embrace the Choosing Wisely campaign.

 Choosing Wisely aims to reduce the delivery of low-value medical services by promoting conversations between patients and physicians on the appropriateness of care. More than 70 US specialty societies have defined concise lists of 5 to 10 wasteful interventions that “physicians and patients should question.”

 The synergies of ACOs and Choosing Wisely regarding care improvement and overuse reduction suggest that ACOs committed to reducing low-value care should be aware of this campaign and also work toward actively lowering the utilization of these medical services. In this study, we analyze data from the National Survey of ACOs (NSACO) to determine which strategies are used to reduce low-value care and identify the ACO characteristics that predict the use of such methods.

The NSACO is an online survey designed by researchers at the Dartmouth Institute for Health Policy and the University of California, Berkeley. It questions ACOs (Medicare Shared Savings Program [MSSP] ACOs, Medicare Pioneer ACOs, state Medicaid ACOs, and commercial payer ACOs) on their composition, characteristics, contracts, and capabilities.

 A total of 752 ACOs were identified through public documents, provider surveys, scientific literature, and certification by the National Committee for Quality Assurance and invited to participate. Senior ACO executives, including chief executive officers, executive directors, and chief medical officers, filled out the survey. At the time of our analysis, the survey was fielded in 3 consecutive waves, with each wave questioning newly formed ACOs (wave 1, October 2012-May 2013; wave 2, September 2013-March 2014; wave 3, November 2014-May 2015). The median duration between the implementation of the ACO contract to the time of the survey was 11.6 months (interquartile range, 7.1-13.2 months).

 Over all 3 waves, 64% of ACOs filled out the survey. Waves 2 and 3 of the survey were more elaborate, and therefore, ACOs from wave 1 were approached with a follow-up survey asking additional questions during the fielding of wave 3. Questions about Choosing Wisely were not asked in wave 1, excluding from our analysis 93 ACOs that participated in the first wave but not the follow-up survey. Survey questions related to Choosing Wisely included: (1) “Are you aware of the Choosing Wisely program?” and, if the response was positive, (2) “What steps have you taken to reduce the use of Choosing Wisely tests and procedures?”

We divided our sample into 2 groups: (1) ACOs not aware of the Choosing Wisely campaign or aware but not taking steps to support it and (2) ACOs taking steps to actively reduce the use of low-value medical services.

We compiled an a priori list of 62 survey responses that could be associated with the decision to take steps to support Choosing Wisely (the 

] lists these characteristics). Based on existing hypotheses about how these characteristics might affect an ACO’s decision to take steps to reduce overuse, as well as on simple pairwise significance tests, we then selected a subset of 22 variables from this list. We excluded ACO characteristics on quality behavior to prevent potential reverse causality with waste-reducing efforts. To identify the main drivers behind the decision to take steps to reduce overuse within those 22 variables, we used both logistic regression (stepwise regression and LASSO regression) and classification techniques (random forest).

 Stepwise logistic regression was performed both backward and forward. LASSO imposes shrinkage constraints on the variables, resulting in an optimal model with only those characteristics that have a coefficient greater than 0. Random forest stratifies the predictor space in regions with nonlinear boundaries between variables, producing multiple decision trees that are combined into a single consensus prediction. The 3 statistical approaches identified 3 sets of prediction variables, and we subsequently assessed consistency of associations across these 3 models. Furthermore, we evaluated the relative predictive merits of each model by comparing their receiver operating characteristic (ROC)

curves and confusion matrices on the basis of their implied misclassification rates (fraction of false positives and false negatives).

CMS publicly reports shared savings payments and the outcomes of 33 quality measures per performance year for each participating ACO. The quality scores are in 4 domains: patient experience (including a measure on shared decision making), care coordination, at-risk measures, and preventive care. We calculated an overall quality score and a quality score per domain for the first 2 performance years of each ACO (the year in which the ACO filled out the survey) using the CMS sliding scale approach, as described elsewhere.

 We compared these quality scores and the savings per beneficiary attributed to the ACO according to CMS in the first 2 years with reference to historical expenditure benchmarks, between ACOs taking steps to reduce overuse and ACOs not taking steps, using a 2-sample 

Characteristics of ACOs Taking Steps to Reduce Overuse 

Of 305 potential ACOs (wave 1 follow-up, 82 ACOs; wave 2, 95 ACOs; wave 3, 128 ACOs), survey respondents for 267 ACOs answered the question “Are you aware of the Choosing Wisely program?” Of these, 58% (155) reported awareness of Choosing Wisely, but only 31.5% (84) said they had also taken steps to reduce the use of low-value services (the eAppendix Table characterizes these ACOs). Consequently, 183 ACOs (68.5%) did not take such steps, partly because they were not aware of the Choosing Wisely campaign.

Compared with ACOs not taking steps, ACOs that had implemented strategies to reduce waste included more hospitals in their largest contract (

<.01) and were significantly more likely to consider themselves an integrated delivery system (

<.01) (the eAppendix Table compares these 2 groups). Provider organizations within ACOs implementing those strategies had more often jointly pursued risk-based payment contracts in the past (

<.01), and this group of ACOs had previously participated in a higher number of payment reform efforts than ACOs that did not take steps (

<.01). More ACOs taking steps to reduce waste had at least 1 commercial contract (

<.01), and Medicare contracts were less prevalent (

= .03). Although their commercial contracts were more often characterized by both bonus and downside risk (

= .03), this bonus was less often contingent on quality metrics (

= .02). In addition, ACOs that actively reduced low-value services were more likely to allocate shared savings bonus payments across participating members (

= .04), compensate physicians based on clinical quality measures (

= .01), and share cost measures among their physicians (

= .02). A larger proportion of ACOs that were not aware of Choosing Wisely or not actively reducing waste were safety-net organizations (

<.01), defined as having more than 25% uninsured or Medicaid beneficiaries.

Of the 84 ACOs that reported using strategies to reduce low-value care, just 57 (68%) were asked to specify the steps they had taken, because this question was added to the survey after wave 2. On average, these ACOs took 3 different steps. The most frequently reported waste-lowering strategies included educating physicians on low-value tests and procedures (82.5% of ACOs), encouraging discussions between physicians and patients about appropriate care (73.7%), and disseminating Choosing Wisely materials (68.4%) (

). Other strategies included handing out decision guides for patients, pop-ups in the electronic health record reminding physicians of the low value of certain tests and procedures, and audit and feedback on individual physician performance. Few ACOs (3.5%) reported taking steps to reduce waste by changing physician payment incentives.

Predictors for Implementing Strategies to Reduce Low-Value Care

Backward and forward stepwise logistic regression identified the same 6 variables and similar importance for predicting the use of low-value care—reducing strategies (

). The presence of at least 1 commercial contract and prior participation of all provider organizations within the ACO in risk-based payment contracts were the most important factors. These were also the 2 most significant predictors in the LASSO model (

). This model gave only 1 negative predictor, which predicted that an ACO would not actively seek waste reduction. The characteristic, more than 25% uninsured or Medicaid patients, was fourth in order of importance, and also 1 of the 6 characteristics in the stepwise regression (Table 2). In the consensus prediction tree from the random forest, the third model we used, the same 2 variables (at least 1 commercial contract, prior joint experience with risk-based payment contracts) were the 2 highest branches in the decision tree (

). Similarly, having more than 25% uninsured or Medicaid patients was the most influential negative predictor in this model. In conclusion, our working model to predict which ACOs would deploy strategies to reduce low-value care consisted of 2 positive predictors indicating joint experience in risk taking in the form of financial models, as well as 1 negative predictor (namely, a large contingent of safety-net patients).

The 3 models exhibited similar minimum misclassification rates on their ROC curves. The lowest possible misclassification rate for both stepwise regression and LASSO was 24% (

 shows the true- and false-positive rates for the minimum misclassification of each model), whereas it was 26% for random forest (data not shown). This attributes to these models a power to identify 33% to 39% of true positives, or ACOs that take steps to reduce low-value care.

Relationship Between Taking Steps and CMS Data on Quality and Savings

Waste-reducing strategies were not associated with differences in CMS quality measures or savings per beneficiary for the 158 ACOs for which CMS data were available in performance year 1 (46 taking steps, 112 not taking steps) (

). Furthermore, changes in these parameters from performance year 1 to year 2 were similar (32 and 70 ACOs, respectively; data not shown).

Based on 3 waves of the NSACO, we show that just one-third of all ACOs are taking steps to reduce low-value care. The best predictors for an ACO to deploy strategies for waste reduction were consistent across the 3 models with various statistical approaches. ACOs with a commercial contract and those whose provider organizations have jointly pursued risk-based payment contracts in the past are more likely to actively reduce overuse. Our finding is consistent with those of a recent study wherein ACOs with commercial payer contracts were more actively implementing efficiency measures compared with ACOs with public payer contracts only.

We found that ACOs with a large contingent of uninsured or Medicaid patients probably do not take steps to reduce overuse. However, the delivery of low-value care is as common among uninsured or Medicaid patients as among the privately insured.

 In prior research, minorities and those with poor and fair health were notably at a higher risk of receiving wasteful medical services.

 Both groups are overrepresented in the Medicaid population.

 Therefore, safety-net ACOs should pay attention to overuse of medical services. However, with relatively fewer resources for quality improvement, these ACOs may be prioritizing tackling the underuse of high-value practices over limiting low-value practices.

Furthermore, we did not find correlations between taking steps to reduce overuse and CMS quality measures (including the use of shared decision making) or between such steps and overall savings for ACOs participating in the MSSP in the first 2 performance years. Indeed, although waste in healthcare is ubiquitous,

 quality measures and savings are determined by many factors other than waste reduction alone. In addition, the effect of strategies other than clinical decision support and performance feedback to lower low-value care may be limited, certainly if they do not address both patient and provider roles.

 For example, audit-and-feedback methods are efficient in reducing unnecessary antibiotic prescriptions, but only if the intervention is perpetuated.

 Decision aids—but not shared decision making or the dissemination of educational materials&mdash;have moderate effect on the use of discretionary surgery.

 Although not yet extensively studied, certain pay-for-performance models have resulted in only modest improvements in care processes and outcomes.

 In our study, just half of ACOs aware of Choosing Wisely took active steps to reduce low-value care, and in most of those ACOs, the interventions were low impact and did not include the most promising strategies for waste reduction (namely, decision aids, computer decision support, and audit and feedback on individual physician behavior). To be meaningful, increasing awareness of Choosing Wisely should go hand in hand with practical advice for provider organizations on how to enhance appropriate use of care efficiently. Therefore, more research is needed to determine the correct design of strategies to reduce low-value care, the potential to lower utilization of such care in ACOs, and the numeric effect of reductions on quality and savings in the long run.

Several limitations to studies involving NSACO data have been recognized,

 notably, the fact that survey questions were answered by ACO executives who may not have been aware of efforts to reduce low-value care in their organization and the short period (less than 1 year) between the start of the ACO contract and the survey. Within this time frame, ACOs may not yet have been able to initiate strategies to reduce low-value care. Of note, previous comparisons of ACOs filling out the NSACO survey with those that failed to respond have not shown a significant nonresponse bias in terms of beneficiary or provider composition, organizational structure, overall quality, or savings distribution.

Physicians are an important source of low-value care utilization. It explains the focus chosen by Choosing Wisely on conversations between physicians and patients on appropriate care. However, collective risk taking in financial contracts influences ACOs to actively reduce low-value care more than physician leadership does. It is also possible that other unobserved characteristics in linkage with risk-bearing experience are influencing an ACO’s decision to seek a reduction in low-value care. In addition, reverse causality (ACOs most confident in their capacity to reduce waste signing risk-bearing contracts) cannot be excluded. However, this would not negatively affect the relationship we detected between collective risk taking and waste reduction.

The positive influence of risk bearing on efforts to reduce low-value care may be explained by a combination of resources, incentives, and opportunity. First, ACOs contracting with commercial payers may have more stringent contracting requirements that force them to prioritize waste reduction and more resources dedicated to quality improvement than do ACOs involved exclusively in public payer contracts. Second, ACOs with prior experience in risk-based contracting may have been able to develop the culture, systems, and technical know-how to tackle challenging issues such as overuse over time. Consequently, ACOs with less experience in risk bearing and safety-net ACOs will likely start prioritizing the reduction of overuse as they acquire more risk. In the meantime, those ACOs should be otherwise stimulated to reduce overuse and specifically targeted by advocacy efforts of healthcare payers and the Choosing Wisely campaign. Furthermore, researchers, policy makers, and the Choosing Wisely campaign should focus on defining waste-reducing efforts that are efficient and practical in use, with special attention to audit-and-feedback mechanisms on individual physician performance for both underuse and overuse. With US healthcare spending as high as 18% of gross domestic product, and healthcare outcomes in the United States lagging behind in comparisons with other high-income countries,

 all ACOs should use available levers for waste reduction, including Choosing Wisely materials, and implement strategies with proven efficacy in reducing low-value care to decrease costs and increase the quality of healthcare.

Dr Haverkamp and Dr Peiris, both Harkness fellows 2015-2016, gratefully acknowledge their sponsor, the Commonwealth Fund (New York), which has also supported the work with grant 20160616. In addition, Dr Haverkamp recognizes the Dutch Ministry of Health Welfare and Sport for sponsoring her fellowship. Furthermore, this project is supported by Agency for Healthcare Research and Quality (AHRQ) grants R01HS023812 and U19HS024075. The latter grant falls under AHRQ’s Comparative Health System Performance Initiative, which studies how healthcare delivery systems promote evidence-based practices and patient-centered outcomes research in delivering care.

 Department of Health Policy and Management, Harvard T.H. Chan School of Public Health (MHH, DP, MBR), Boston, MA; The George Institute for Global Health, University of New South Wales (DP), Sydney, Australia; The Dartmouth Institute for Health Policy & Clinical Practice (AJM, CHC), Lebanon, NH; Scientific Center for Quality of Healthcare (IQ healthcare), Radboud University Medical Center, Radboud Institute for Health Sciences (GPW), Nijmegen, Netherlands; Division of General Medicine, Brigham and Women’s Hospital (TS), Boston, MA; Department of Health Care Policy, Harvard School of Medicine (TS), Boston, MA.

 This study was funded by the Commonwealth Fund (New York) through grant 20160616, and personal grants to Dr Haverkamp and Dr Peiris (both Harkness fellows 2015-2016). In addition, the Harkness fellowship of Dr Haverkamp was sponsored by the Dutch Ministry of Health Welfare and Sport. Furthermore, AHRQ supported the work with grants R01HS023812 and U19HS024075.

 The authors report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

 Concept and design (MHH, DP, GPW, MBR, TS, CHC); acquisition of data (MHH, CHC); analysis and interpretation of data (MHH, DP, AJM, MBR, TS, CHC); drafting of the manuscript (MHH, AJM); critical revision of the manuscript for important intellectual content (MHH, DP, AJM, GPW, MBR, TS, CHC); statistical analysis (MHH); provision of patients or study materials (CHC); obtaining funding (MHH, CHC); administrative, technical, or logistic support (AJM, CHC); and supervision (GPW, TS, CHC).

 Margje H. Haverkamp, MD, PhD, Department of Health Policy and Management, Harvard T.H. Chan School of Public Health, Kresge Bldg, Rm 431, 677 Huntington Ave, Boston, MA 02115. Email: mhhaverk@hsph.harvard.edu.

1. Schwartz AL, Chernew ME, Landon BE, McWilliams JM. Changes in low-value services in year 1 of the Medicare Pioneer Accountable Care Organization program. 

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2. Nyweide DJ, Lee W, Cuerdon TT, et al. Association of Pioneer Accountable Care Organizations vs traditional Medicare fee for service with spending, utilization, and patient experience. 

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3. McWilliams JM, Chernew ME, Landon BE, Schwartz AL. Performance differences in year 1 of Pioneer Accountable Care Organizations. 

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4. Kelleher KJ, Cooper J, Deans K, et al. Cost saving and quality of care in a pediatric accountable care organization. 

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5. Choosing Wisely: promoting conversations between providers and patients. Choosing Wisely website. choosingwisely.org. Accessed November 11, 2016.

6. Colla CH, Lewis VA, Shortell SM, Fisher ES. First national survey of ACOs finds that physicians are playing strong leadership and ownership roles. 

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7. Peiris D, Phipps-Taylor MC, Stachowski CA, et al. ACOs holding commercial contracts are larger and more efficient than noncommercial ACOs. 

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The Elements of Statistical Learning: Data Mining, Inference, and Prediction

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Experience with risk-based contracting best predicts active engagement of accountable care organizations in reducing low-value medical services, mainly through physician education and encouraging shared decision making.

ACOs With Risk-Bearing Experience Are Likely Taking Steps to Reduce Low-Value Medical Services

Accountable Care Organizations (ACOs) need to reconsider their provider configuration and make it capable of managing clinical and financial risk. To that aim, their management must decide which medical procedures are done by the ACO itself, and which are contracted out to market providers. Making this decision requires a balanced treatment of market and firm organization, recognizing that each has properties that can turn into relative strengths. Such a balanced treatment is lacking in the ACO debate. Using the transaction cost theory, we provide such a balanced treatment of market and firm organization, and discuss implications for the design of ACOs and accountable care initiatives in general.  

 Market and firm organization need a balanced treatment in the accountable care debate. The urgency of such a balanced treatment is 3-fold: 

		Care providers’ lack of knowledge on the workings of market and firm organization impedes the effective implementation of accountable care.

		Accountable care initiatives will not reach their full potential when there is a mismatch between the strategy of participating care providers and their contract management. Such a mismatch may occur when market and firm organization do not get a balanced treatment in decision making.

		Balanced treatment would allow for a more refined view of coexisting volume and value incentives that characterize many accountable care initiatives.

Health system reforms in several countries have changed accountability relationships in healthcare. Traditional payers of healthcare, like governments and health insurers, have now started sharing the accountability for healthcare costs and quality with care providers. The introduction of accountable care organizations (ACOs), as laid out in the Affordable Care Act and in regulations issued by the Centers for Medicare & Medicaid Services, will change accountability relationships in a similar fashion. ACOs are held financially and clinically accountable for the costs and quality of the entire spectrum of care provided to a defined patient population, and share in the savings or losses relative to a spending benchmark. Thus, ACOs bear a financial risk similar to that of traditional payers of healthcare. In order to manage this financial risk, ACOs will have to reconsider their provider configuration.

ACO provider configurations are commonly described in terms of the medical specialties involved,

 but attention must also be paid to how ACOs plan to organize their contractual relationships with these providers. Broadly speaking, ACOs can opt for either firm organization or market organization. When an ACO opts for firm organization, it extends its organizational boundaries to include a newly employed physician or medical discipline. A typical market contract is one in which physicians remain autonomous and are paid a fee-for-service (FFS).

When should ACOs prefer firm organization over market organization and vice versa? The question we refer to as the “boundary problem” has now become more pertinent as care providers—organized into ACOs&mdash;are held financially and clinically accountable for all care provided to their patient population.

The Unbalanced Treatment of Market and Firm Organization in the ACO Debate

A solution to the boundary problem requires a balanced treatment of market and firm organization and the recognition that each has properties that can turn into relative strengths. It is unfortunate that the ACO debate is therefore largely devoted to the anticompetitive properties of firm organization alone, as is evident from discussions on the employment of primary care physicians by hospital-led ACOs and physician self-referral.

 Now that it is recognized that providers’ lack of knowledge regarding organizational structures impedes the effective implementation of accountable care,

 a balanced treatment of market and firm organization is even more urgent.

: A Balanced Treatment of Market and Firm Organization

ACOs and individual providers maintain contractual relationships in a volatile market characterized by technological change

 Turnover in assigned patient populations, as will be experienced by ACOs participating in the Medicare Shared Savings program,

 will additionally increase this volatility.

Market volatility implies that contracts must continuously be adapted to the current landscape. To that aim, ACOs’ management will need to (1) remain informed regarding the care providers’ value as contract partners, (2) resolve contractual gaps, and (3) determine a form of reimbursement such that care providers are incentivized to act in the spirit of the contract. These 3 processes have to be organized in such a way that the resulting costs—“transaction costs”&mdash;are minimized. The transaction cost theory concerns itself with the efficient organization of contractual relationships. An efficient organization of contractual relationships is one that minimizes transaction costs. The theory distinguishes 2 different methods of organizing a contractual relationship: the price system and hierarchy. When an ACO opts for the price system, its care providers remain autonomous. The ACO will go by market prices when determining a care provider’s value and reimbursements are based on output valued at market prices. Under hierarchy, care providers transfer their right to make productive decisions to the ACO’s management in exchange for receiving an income independent of volume (eg, a fixed salary).

Markets and firms are economic institutions that use a different mix of organizing methods. Markets predominantly rely on the price system and firms on hierarchy.

 The differences between the price system and hierarchy have implications for transaction costs. To understand why, one must know the 2 human traits believed to lie at the bottom of these costs. The first trait is contract parties’ limited ability to collect and analyze all information necessary to make optimal decisions. The second trait is a tendency to opportunistically exploit these situations of imperfect knowledge. This can manifest in multiple ways. ACOs may need to confront supplier-induced demand and stinting on care by some of their contracted providers. Furthermore, the FFS reimbursement system which remains in place does not by itself incentivize individual providers to practice in congruence with an ACO’s policy of cooperation, task substitution, and evidence-based care.

To minimize transaction costs, one must curb these opportunistic behaviors. As the price system rewards for volume, it addresses stinting on care. However, this volume incentive of the price system sometimes gets in the way of effective care. This happens when a lack of transparency prevents ACOs from monitoring whether demand for care has been induced and fulfilled properly. Market prices then fail to reflect the value of the underlying medical service, which may incentivize providers to induce demand. A hierarchical organization of contractual relationships lowers this incentive because itcomplicates the relationship between the volume of services and income. A range of options is available—bundled payments, global payments, and traditional capitation all complicate the relationship between volume of services and income by acting as price ceilings. However, under these payment options, volume of services and income are still linked through the marginal costs of providing care which are borne by the providers themselves. Only under a fixed salary contract are providers’ incomes independent of volumes. The fixed salary these care providers receive also make them more willing to follow directions regarding cooperation and task substitution, as these activities will no longer have an impact on their income through a lower volume of services.

Although hierarchical organization addresses several perverse incentives that failing markets for medical services introduce, they may reintroduce stinting on care and on-the-job consumption. Depending on the medical service that is contracted, however, ACOs may be better able to monitor these behaviors rather than demand inducement.

Apart from the incentives resulting from different forms of reimbursement, transaction cost theory also discusses the differential effects of organizing methods on the information collection process and bargaining under different competitive environments. The theory’s contribution to the ACO debate would be that ACOs’ provider configurations be viewed in terms of the organizing methods they employ and that each organizing method has a different impact on care providers’ behavior and eventually, transaction costs. This has several implications.

ACOs’ provider configurations are made up of contractual relationships with care providers. When deciding on ways to organize these contractual relationships, ACOs must consider the incentives that each organizing method brings along. These incentives must be compatible with ACOs’ strategies for fulfilling their financial accountability. A strategy of preventive medicine requires a different way of incentivizing care providers than a strategy of task substitution. Evidence from The Netherlands, where organizations similar to ACOs called “care groups” have been held accountable for the cost and quality of chronic care as of 2007,

 suggests that this match between contractual organization and strategy is overlooked in practice.

 For example, care groups experienced difficulties realizing task substitution in fundus examinations for diabetic patients. Care groups wanted to shift this procedure from ophthalmologists (specialist care level) to optometrists (primary care level). However, because ophthalmologists were paid on the FFS-base by the care group, they were not incentivized to cooperate, as the shift would lower the number of patients that returned to them for an extensive eye examination. This example illustrates how ACOs could potentionally miss out on savings when contractual organization is not compatible with their cost-containment strategy.

The idea that the price system and hierarchy each have a different way of incentivizing parties to a contract further refines the discussion regarding coexisting volume- and value-based reimbursement systems that characterize so many accountable care initiatives. Berenson

 approaches this issue from the perspective of risk management and concludes that direct FFS payments compare favorably with uncertain future shared savings. A transaction cost approach refines this statement in 2 ways. First, ACOs will only collect FFS payments from their employed care providers. The ACO then maintains a hierarchical relationship with its care providers which may make it problematic to order these care providers—for whom volume and income may only be weakly related&mdash;to maximize volumes and profits. Second, patients of ACOs that do not extend their organizational boundaries will sometimes need to go outside the ACO’s network. For these ACOs the value incentives of shared savings&mdash;determined over the total spectrum of care&mdash;may overrule the volume incentives, which have partially leaked onto independent providers. Contractual organization at the physician level thus plays an important role when hypothesizing about whether the value incentives of shared savings will counter any parallel volume incentives of FFS payment system.

For each contractual relationship, ACOs must determine whether or not to extend their organizational boundaries. Apart from the lack of transparency previously discussed, the instances of market failure for which firm organization could provide relief are well documented.

 Viewing firm organization solely as a means to secure patient referrals (or to secure a shift to outpatient care under population-based payment)

 does not do justice to the economics of firm organization, the hierarchical organizing method on which it relies, and the instances of market failure it will address. An unbalanced treatment of market and firm organization in either policy, practice, or the public debate could therefore limit ACOs’ potential in successfully taking on clinical and financial accountability for patient outcomes.

From Tilburg University (AH, MJVDB, BRM), Tilburg, The Netherlands; Radboud University Nijmegen Medical Centre (GPW), IQ Healthcare, Nijmegen, The Netherlands.

The authors (APH, MJVDB, BRM, GPW) report no relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Concept and design (APH, MJVDB, BRM, GPW); drafting of the manuscript (APH); critical revision of the manuscript for important intellectual content (APH, MJVDB, BRM, GPW); provision of study materials or patients (APH); and supervision (MJVDB, BRM, GPW).

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Accountable care organizations will be more successful in taking on accountability for patient outcomes when market and firm organization get a balanced treatment.

Gert P. Westert, PhD

Articles

ACOs With Risk-Bearing Experience Are Likely Taking Steps to Reduce Low-Value Medical Services

Accountable Care Organizations: How to Dress for Success