California – ACO
In its role as a health care purchaser, the California Public Employees’ Retirement System (CalPERS) launched an accountable care organization (ACO) pilot in partnership with Blue Shield of California and select providers in 2010. CalPERS is an executive branch agency in California that is responsible for providing retirement and health benefits to public employees, retirees, and their families. While CalPERS is the nation’s second largest health care services purchaser, covering 1.6 million beneficiaries as of January 2013, the ACO pilot covers 41,000 of its members.
While exploring ways to meet its responsibilities to ensure access, quality, and affordability of health care for its members, CalPERS accepted Blue Shield’s suggestion that an ACO be piloted for CalPERS. Planning for the project began in 2007 and agreements between CalPERS, Blue Shield, the Dignity Health hospital chain and Hill Physicians Medical Group were signed in April 2009. The pilot launched on January 1, 2010. The ACO pilot has several goals, including:
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Re-aligning incentives between the participating payer and providers to foster the creation of a new delivery model;
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Achieving an immediate premium credit to CalPERs by reducing cost growth to zero in the first year of the pilot;
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Improving the quality of health care provided by participants; and
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Creating a sustainable model for expansion to other geographic areas.
Last updated November 2013.
| Project Scope |
Scope of services: California Public Employees’ Retirement System (CalPERS) members participating in the accountable care organization (ACO) pilot are receiving a range of health services, which are divided into “cost categories” for the purpose of assigning risk to Blue Shield and the participating providers. The cost categories of financial risk that fell under the pilot’s target cost cap were: facility costs (partner hospital, out-of-area non-partner hospital, and other non-partner hospital), professional costs, mental health costs, pharmacy costs, and ancillary costs.
Provider population: The pilot extends only to select practices and hospitals: Hill Physicians in three counties and four Dignity Health hospitals.
Eligible patient population: Roughly 41,000 CalPERS members are participating in the ACO pilot, all via their enrollment in Blue Shield NetValue and Access+ HMO health plan in four counties. CalPERS offered a premium discount for selection of the plans participating in the ACO demonstration.
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| Authority |
The California Public Employees’ Retirement System (CalPERS) Board of Administration has long-standing authority under state law to contract with health insurance carriers to secure health benefit plans for its enrollees.
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| Governance |
The California Public Employees’ Retirement System (CalPERS) accountable care organization (ACO) pilot utilizes a shared governance model based on a Pilot Board. The board includes members of the executive leadership of the payer and provider organizations involved in the pilot: Blue Shield of California, Dignity Health, and Hill Physicians Medical Group.
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| Criteria for Participation |
Participation in the California Public Employees’ Retirement System (CalPERS) accountable care organization pilot is limited to a specific hospital chain and physician group.
Participating providers agreed to hold 2010 costs for participating members no higher than 2009 levels, without sacrificing quality or patient satisfaction.
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| Payment |
The California Public Employees’ Retirement System (CalPERS) accountable care organization (ACO) pilot relies on a hybrid of shared savings and global payment approaches: the pilot has a global spending target and offers shared risk and savings among Blue Shield and the participating providers, the hospital chain Dignity Health and Hill Physicians Medical Group. Blue Shield and the two provider organizations operate under a three-way per member per month budget; each shares in the savings achieved under the target, and each bears financial risk for spending in excess of the target.
Risk was not evenly distributed among Blue Shield, Dignity Health, and Hill Physicians Medical Group for all services. Services were broken into broad “cost categories”: facility costs (partner hospital, out-of-area non-partner hospital, and other non-partner hospital), professional costs, mental health costs, pharmacy costs, and ancillary costs. Each partner assumed greater risk for cost categories over which it had the most influence on per member per month costs.
However, the underlying reimbursement mechanisms for participating providers did not change during the pilot. The hospitals were still paid for services on a fee-for-service basis and the participating physician group was still paid on a capitated basis.
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| Support for Infrastructure |
While the California Public Employees’ Retirement System (CalPERS) in its role as purchaser is not directly providing infrastructure supports to Blue Shield or the participating providers, the insurer and provider organizations have worked together to build the infrastructure for a better integrated system between them.
Six key strategies being used by these partners to coordinate care were identified by the National Business Coalition on Health in a case study of the CalPERS accountable care organization pilot:
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| Measurement and Evaluation |
Blue Shield of California commissioned the actuarial firm Milliman to evaluate the accountable care organization (ACO) pilot’s savings and performance during its first year (2010). The evaluation showed that health care costs for the California Public Employees’ Retirement System’s (CalPERS) members in the ACO pilot declined by 1.6 percent in 2010 relative to the 2009 baseline; at the same time, costs for CalPERS members not participating in the ACO rose by 9.9 percent in 2010 relative to the 2009 baseline. The pilot’s savings came from a mix of reductions in health care resource use by members and deceleration of the rate of increase of unit cost reimbursement.
Research published in September 2012 showed that the total savings to CalPERS over the course of the first two years of the pilot (2010-2011) was $37 million.
While the evaluation looked at factors such as inpatient days and hospital readmissions, payment for the pilot is not specifically tied to a particular set of quality metrics. Instead, the participating parties have agreed that no cost containment initiatives expected to have a negative impact on quality would be implemented, and several quality improvement strategies and initiatives have been launched in association with the pilot. These include steps like educating and monitoring physicians on accepted protocols, developing presurgical checklists for patient calls prior to procedures, and defining and implementing evidence-based guidelines for surgeries in high-volume, high-cost hospital stays. The partners have also worked to develop a dashboard of quality measurements to keep them apprised of how well they are performing.
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