Accountable Care Organisations

In 2017, as outlined in our page on the background of ‘integrated’ or ‘accountable’ care, NHSE required the 44 local health systems (‘footprints’) it had set up across England to morph into Sustainability and Transformation Partnerships, which were then expected to evolve into Accountable Care Systems (ACSs). These, in turn, may become more complex Accountable Care Organisations (ACOs) over time.

The term ‘Accountable Care Organisation’ comes from the USA, where it refers to an organisation, possibly run by an insurance company, in which a group of health care professionals and other providers commit to improving the quality of care while containing the money spent on services: providers take a share of any savings that the ACO achieves. Evidence that ACOs in the US have had any effect on care quality or public expenditure is mixed, at best. And the fact that ACOs were developed in an insurance-based health care industry raises questions about whether they are appropriate models for the NHS, which is premised on social solidarity and universal health care.

In the UK, NHSE’s first reference to Accountable Care Organisations came in its Five Year Forward View (5YFV), where it proposed to introduce new models of care, specifically ‘Multispecialty Community Provider’ (MCP) and ‘Primary and Acute Care Systems’ (PACS), that NHSE likened to ACOs found in the US and elsewhere.

Both ACOs and ACSs are radical new ways of delivering NHS systems, promoted on the basis that they bring together different health and social care organisations in order to provide ‘integrated care’.   The difference between ACOs and ACSs is blurred (Simon Stevens, for example, has been known to use the terms interchangeably) but the main distinction appears to be that an ACO is set up and run by an organisation or consortium that has been given a single contract to provide an agreed bundle of services for an agreed period (e.g. 10 to 15 years).

The structure of an ACO can vary – it can be, for example

  • a single organisation that holds the contract and then sub-contracts with other providers to provide services. Or,
  • a provider that forms a new corporate vehicle – a Special Purchase Vehicle or SPV – that holds the contract and then sub-contracts with other providers. [An SPV is a legal entity, typically set up by a bank or insurance company, that allow the risks faced by providers to be separated out and taken on by investors looking for new opportunities to make profits. Already Private Finance Initiative contracts use SPVs for hospital construction and facilities management. Now ACOs can use SPVs to organise the financial administration of clinical services as well.]

Whatever the structure, the organisations within the ACO agree to share risks and gains. For example, they have to collectively stay within a shared budget or ‘control total’ determined by NHS England. This allows NHSE to take a vice-like grip on costs, in effect by making each provider within an ACO police the spending of its partners. But it also means that financial risk is shared across the whole local health system: individual providers within an ACS must set aside their own interests and allow any surpluses they make to be used to offset losses elsewhere within the system.

This sharing of risk offers attractive new opportunities to a private sector that has become increasingly risk-averse, having found NHS contracts less profitable than expected. For example, Serco decided to pull out early from a contract to provide GP out-of-hours services in Cornwall, and similarly withdrew from running Braintree Hospital in Essex when it couldn’t fulfil the terms of contracts and make money.

A further way in which ACOs will be attractive to the private sector is that, whatever the structure, the lead organisation holding the contract – quite possibly a private company – is given responsibility for deciding how to allocate resources and design care for its local population, including decisions on changing which, where, or how services are delivered.

The service providers within an ACO work together over the period of the contract to take responsibility for the cost and quality of a specified range of health (and possibly social care) services for a defined population for a fixed sum (a ‘whole population budget’). For an individual to be part of this defined population, they will either be registered on the ACO’s list (because their GP’s practice is part of the ACO), or resident in the ACO’s “contract area”. However, an individual will not be part of this defined population if they live within the contract area but their GP’s practice is a member of a CCG which contracts with a different ACO.

The situation becomes even more complex because, as researchers point out, ACOs are encouraged to integrate health and social care, but the funding they’re  allocated for patients registered with the ACO’s GPs and the funding from local authorities will be for different populations. On top of which, ACOs will not have health service funding allocated for unregistered CCG residents who may, nonetheless, be eligible under the ACO contract for local authority social services”!

Concerns about ACOs include

  • That they will be non-statutory, non-NHS bodies—even when are set up by or include NHS trusts or foundation trusts.
  • They will have no statutory accountability or governance obligations, and no clear lines of accountability.
  • Their form and ownership is unrestricted: they can include NHS providers or GPs, but also private companies, insurance companies, banks and property companies.
  • They can be established as off-shore companies.
  • An ACO may need numerous sub-contracts with trusts, general practices, private health companies, voluntary organisations etc to provide services, leading to unnecessary costs, fragmentation and loss of public control.

In response to widespread concerns, plans for ACOs may be undergoing revision. It may be that NHS trusts or foundation trusts will be used to run or lead ACOs. These may be specifically set up, or existing trusts altered, so as to include primary and social care bodies and to allow new governance arrangements.  Apart from aiming to reduce controversy about private sector involvement in ACOs, this type of arrangement could avoid additional VAT charges on non-NHS organisations and reassure staff concerned about moving out of the public sector.

ACOs in practice: the Alzira model

Many of those in favour of ACOs (including NHSE) have pointed to the Alzira model as an example for the NHS to follow.

The Alzira model is a form of public-private investment partnership (PPP). PPP is similar in some ways to the infamous Private Finance Initiative (PFI) where the private sector finances and constructs healthcare infrastructure, such as a new hospital, and manages and maintains that infrastructure throughout a specified, renewable contract period. But where PPP is used in the healthcare sector, it differs from PFI in that the private sector is additionally responsible for the delivery of all health services – curative, preventive, and diagnostic – that take place in the newly built or renovated facilities. This may be in addition to responsibility for the supply of non-clinical support services—such as medical transport, human resources, and facilities management. The private partner involved generally forms a consortium and may sub-contract some of these services.

The Alzira version of PPP is named after the town in Valencia, Spain, where the model was first introduced  in 1999. Spain operates a federal system of government, with each autonomous community having complete authority regarding healthcare issues. What appeared to be initial success of the Alzira initiative led to the establishment of new PPPs in four other health districts in Valencia, and a similar model being implemented by the regional government of Madrid, most with the company Ribera Salud as their parent. It has to be said that not all were successful.

The  original Alzira initiative represents the first time that the private sector in Spain could enter into contracts to self-manage hospitals. In the late 1990s the regional government of Valencia awarded a ten-year contract to UTE-Ribera (an SPV of Ribera Salud – a health management enterprise, an insurance company and construction firms) to finance, build and run a new public hospital in the town of Alzira.

A central feature of this model was a ‘payment by capitation’ system. Under the contract, the government of Valencia paid UTE Ribera an annually adjusted fee for each resident for the duration of the contract. This figure had to cover all the expenses needed to provide the service, including payroll, drugs and other medical consumables, utilities, depreciation of assets and the cost of loans. Research suggests that this system has built-in ‘perverse’ incentives, such as encouraging managers to ‘cherry pick’ the most lucrative specialities or to  choose less expensive treatments (such as the prescription of medicines rather than admission to hospital) that may not be in patients’ interest.

UTE-Ribera’s tender for the contract turned out to miscalculate the capitation payment (the fee for each resident) required to provide services.  The contract was terminated after four years due to financial losses.

Nonetheless, the Alzira model was introduced in other regions, including Madrid, while in Alzira the UTE-Ribera SPV was refinanced, and a new contract put in place, this time giving UTE-Ribera a 15 year ‘management concession’, with responsibility for all health care – now both both primary and secondary – for the local population.

Hospital doctors and many GPs working within the Alzira model were employed by the operating company (rather than the public sector as is usual in Spain’s public hospitals). Generally, in Spain, private sector contracts of employment have worse terms and conditions, including less job security, lower pay scales and longer working hours, meaning increases in productivity of around 20 – 30% over the public sector. In Alzira, medical salaries had a fixed component (80%, or 90% for GPs) and a variable component dependant, for example, on how staff responded to certain ‘incentives’.

Notably,  in June 2017 the new coalition government in Valencia passed new legislation to return the Alzira health concession to direct public management. At around the same time, one of the main players involved in the Alzira PPP – the Ribera Salud Group – came under police investigation for embezzlement and corruption. In Madrid, following mass strikes by  health workers and other difficulties, the  regional government abandoned its plan to use the Alzira system for six public hospitals.

Nonetheless, Ribera Salud has emerged in the UK: now 50% owned by transnational health insurance company Centene Corporation, they are involved in developing an accountable care system for Greater Nottingham. Centene is expanding in the UK, where they already own 75% of The Practice Group, a private company involved in providing a wide range of NHS funded services, mostly in primary and community care. Centene has been contracted not as a provider but as a  ‘care integrator’ for the vanguard ACS in Greater Nottingham,  responsible for developing the ACS and establishing works streams concerned, for example,  with patient pathways, population health, social care, and information management.

There are concerns about importing the Alzira model into the NHS. For example, it could transfer significant power from NHS service commissioners (usually Clinical Commissioning Groups or CCGs) to private providers: the Alzira model requires commissioners to take quite a different approach to their role, using contracts to state the outcomes they want but giving little detail and direction about how to achieve these. There is also some anxiety about the potential closeness between the contract holder and their suppliers in Alzira, suggesting less than rigorous oversight of sub-contractors. In addition, it’s feared that this model could squeeze out some types of providers with serious consequences for social enterprises and charitable providers.

 Models like Alzira are promoted largely on the grounds that they reduce costs yet maintain quality. Yet research into the Alzira project in Spain suggests that, once these types of organisations become operational, there is a lack of public accountability, with monitoring limited by the terms of the contract. The same analysis also suggests that it’s hard to learn from the experience of other nations’ health systems because of different institutional factors. This means that it can’t be assumed that the claims made about the Alzira model of lowered costs while maintaining quality can be taken at face value.


ACOs pose problems in that they rely on collaboration between providers and the pooling of budgets within an ACO in the context of Section 75 of the Health and Social Care Act (2012), which imposed competitive tendering for the provision of NHS services. NHSE is anticipating secondary legislation that allows regulations like Section 75 to be changed without Parliamentary scrutiny, and in the meantime says it will work with commissioners “to ensure the current exclusions to Section 75 agreements are not a barrier” to implementing these models of care.

In addition, due to growing concerns about ACOs and ACO contracts – not least from members of Parliament’s  Health Select Committee – and requests for judicial reviews on the legality of ACOs, NHSE announced a public consultation on ACO contracting arrangements and delaying the introduction of secondary legislation that attempts to make ACOs legal. However, when the details were made available in August 2018, it transpires that consultation will be on a draft contract for  ‘Integrated Care Providers‘ or IPCs (another new term). NHSE states that an ICP is not a new type of legal entity (and therefore presumably believes it does not necessitate new legislation), and the new contract is simply the means for CCGs to commission services from a provider organisation (and therefore presumably does not mean radical transformation of service delivery).

Critics fear that IPCs are ACOs by another name and that, as provider organisations, will be able to function outside any of the control and accountability mechanisms of the NHS.

See also our pages on ‘Integrated Care Systems‘ and ‘Implications of integrated care


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