Medicare Announces 27 ACOs. A New Species?

I’m surprised and intrigued by Medicare’s announcement of 27 new Shared Savings model ACOs.


I had been anticipating this announcement as a defining moment for Medicare’s thrust into accountable care. My expectations had been that we would see either:

Boom — a big splash of new Medicare shared savings ACOs announced, including big name hospitals and medical groups that were starting large scale ACOs, perhaps with hundreds of thousands of patients.

Bust — no one showed up at the party. Providers would have concluded that Medicare ACOs were too risky, bureaucratic, and high effort.


What we got is something in the middle:

  • Very small ACOs. Many only meet Medicare’s minimum of 5K patients; most are in the 8 to 25K range; and the largest ACO anticipates 70K patients. Collectively these 27 ACOs plan to serve 375K patients, less than 1% of the entire Medicare population.
  • 13 are smaller, physician led
  • Only 10 hospitals are involved across the 27 ACOs
  • Very few household names

My biggest question: can they capitalize and develop the infrastructure needed to play in the ACO marketplace?

This isn’t the defining moment I thought it would be.

But that defining moment might be just around the corner. Medicare’s announcement included a mention that they have 150 more Shared Savings ACO applications waiting in the wings. Is the boom around the corner? Expect more information early in July.

A New Species?

Are we seeing the emergence of an entirely new species in the ACO forest?

One that promises to be lean, entrepreneurial, and small enough to be closely in touch with its patients?

One that senses the opportunity to create a new business and clinical model by tightly coordinating care and having no second thoughts about emptying hospital beds?

That’s my hunch. We’ll see.

Vince Kuraitis JD, MBA, is a health care consultant and primary author of the e-CareManagement blog, where this post first appeared.

22 replies »

  1. Everyone is grasping at straws. Hopefully something will change drastically in the next few years. With the large onslaught of baby boomers, which is almost one third of the population, reaching retirement age the need for medical care is going to take a huge jump over the next couple of decades.

  2. I’d like to see more competition among companies involved in Medicare to reduce costs and promote efficiency. While this step may not be ideal, so long as we are working toward these goals it’s a positive step at least.

  3. Margalit, Thank you. For anyone wondering, spend the $1.99 to get a copy of this. It describes Universal American’s deal with 9 of the newly announced ACOs. UA is a publicly traded Medicare Advantage company; they own 51% of each ACO.

    Unique business model…new species!

  4. Margalit, Thanks..the link you provided requires a print subscription. Can you provide a brief summary, pls? I understand MA plans, I understand star ratings, but I don’t understand the inference you want me to draw from your comment. V

  5. For the sake of the country lets hope they don’t replicate Cleveland. If you thought our spending was bad now take a look at a couple of their bills.

  6. Thanks for the feedback. I’m by no means any expert so anything I say has to be taken as brainstorming. As an old guy in retirement I have followed the health care reform debate for the last several years, not encumbered by anything more than family and personal issues, as well as having worked with and among the working poor my whole career as a cafeteria manager.

    Your blog is excellent. That collection of links in the sidebar is the best organized and most comprehensive I have come across. (Maggie Mahar is no longer at Health Beat, incidentally. Both she and Naomi Freundlich have gone elsewhere. Maggie is posting at several places and Naomi has her own blog, http://reforminghealth.org/. I didn’t read the whole list but I also didn’t find Joe Paduda http://www.joepaduda.com/ )

    My impression is that the ACO model is an attempt to replicate the economy, efficiency and outcomes of outfits such as Mayo, the original Kaiser clinics, Cleveland, Geisinger and a few others that have been around for years. It won’t be easy but if Western technology and production can be replicated in Asia, nothing is impossible. The old HMO plans were a ham-fisted effort on the part of third parties to do the same thing, but it’s damn hard to curb the cost of health care when there are so many NON-health-care interests trying to ride the same train. After a while the revenue stream forms a bubble.


  7. John, very interesting speculation.

    I spent 15 years working for and with hospitals. Hospitals (akin to banks) have an incredibly high fixed cost structure. The ER operates 24x7x365. The MRI and many other medical tehnologies have to be replaced or updated every few years. Many hospital staff are highly trained and command high wages, and many are in short supply. Under fee-for-service, hospitals have to attract physicians with the latest technologies, medical directorships,income guarantees, office space deals, and/or outright employment. Not an easy business to be in.

    A physician run ACO has none of this overhead. Potentialy very lean.

    Do the math on what you need to pull together a panel of 5,000 Medicare patients. A family doc has a panel of 2,500 patients, let’s say 1/2 are Medicare. An internist might have a smaller panel, but the percentage of Medicare patients will be higher.

    You can begin to paint a picture of a handful of docs getting together to form an ACO. What they lack in IT and infrastructure likely can be made up for by a personal knowledge and relationship with their patient base.

    The game plan is simple — do everything you can to avoid the high cost hospital and share in the savings. Quality of care will be better.

    A different species.

  8. Medicare might be the largest but it is also the slowest and least flexible.

    How many businesses expirment with their largest client? There are penalities in ACOs, do you want to pay back 3% of your largest chunk of income while you learn to do something or pratice and perfect on a small sliver that is quick to react and adjust?

    I don’t recall Medicare being the driving force behind PHOs, IPO, and such back in the 90s.

  9. Medicare is by far the largest payer for hospitals. From any hospital’s point of view it is a big part of “the market.” Private payers often wait to ride Medicare’s coattails because of its size and ability to drive change. It would be silly for Medicare to keep waiting for smaller, disorganized private payers to drive change. But you have made a prediction and perhaps we will even remember it in a couple years and assess its truth.

  10. I heard yesterday that in the midst of the ongoing housing foreclosure trend the number of new mortgages continues to decline except for one segment of the financial market — credit unions.


    Look for anguished cries of “no-fair” from investment banks and other carrion birds who see non-profits as existential threats.

    In the health care ecosystem perhaps ACOs are to health care what credit unions are to lending. Looks like a no-brainer to me. Done right they are a serious existential threat to several layers of non-medical parasites that have infested the healing arts over the last several decades. Whole departments are at risk of being amputated — advertising, sales, legal, designer drugs, stents, ICDs and other devices.

    As a patient I prefer the lean, mean model to one with an entertainment center, heated seats and leather upholstery. The basic model is okay by me, (even something from last year’s trade-ins) as long as it’s reliable.

  11. it would be better for ACOs if it was struck down. Way to many restraints and requirements. They would get off the ground better outside of governments regualtions. I have seen more then 23 groups forming ACOs but just not under the PPACA regulations.

    I wouldn’t be surprised to see the private market feed the successful ones first then Medicare will revamp after they are proven.

  12. Note the 51% involvement of Universal American in very many of the 27 organizations. Perhaps they are the industry’s advance party?

  13. Great question on PPACA. Simple and logical conclusion might well be that Medicare ACO initiatives are out if SCOTUS throws out entire ACA.

    Harold Miller, CEO of Network for Regional Healthcare Improvement, raises an intriguing option — CMS can continue ACOs w/o new legislation under its authority to do demonstration projects. See http://www.kaiserhealthnews.org/Stories/2012/April/10/ACO-Medicare-Shared-Savings-Program.aspx?p=1

    However, even if this is possible, my understanding is that much of ACO experiment funding comes from $1B provided to the Center for Medicare and Medicaid Innovation (CMMI) under ACA.

    Uncertainty reigns, and it gets crazier every day when you look at this unexpected batch of new ACOs.

  14. I don’t think it’s very likely that the whole thing will be struck down, but it very well may be that such doubts are responsible for the strange makeup of these early ACOs. Most have lots of managed care experience and are already operating in a capitated model, which means that they did not have to create new infrastructure or models of care.
    They are already at risk anyway, and if they realize any additional savings, they get to keep them all, instead of sharing back to Medicare.