The Great ACO Debate: 2014 Edition

With the beginning of 2014 comes another year of the great accountable care organization (ACO) debate.

Is it a model to deliver high-quality, cost-effective care and improve population health management (PHM)? Or, just a passing fad, similar to the HMOs of decades ago?

Many opinions exist, and they’ll continue to be debated, especially during an election year. One thing most of us can agree on about ACOs is they are a work in progress.

We can say with some certainty that ACOs are taking hold; look no further than their growth, which now exceeds 600 public and private ACOs nationwide with the recent addition of 123 ACOs to the Medicare Shared Savings Program. But they still beg more questions than answers. What types and sizes of hospitals are forming ACOs, and where are they located? What does the pipeline of emerging ACOs look like, and how long will their journey take? And what capabilities, investments and partnerships are essential to ACO participation? What is the longer term performance?

Who better to ask than the decision makers running the organizations that participate in an ACO?

In August of 2013 we surveyed 115 C-suite executives– primarily CEOs (43.5%), chief financial officers (17.4%) and chief operating officers (16.5%) – across 35 states to collect data on their perspectives on ACO and PHM.

Survey results support the increase in ACO popularity. According to respondents, ACO participation has almost quadrupled since spring 2012: More than 18% say their hospitals currently participate in an ACO, up from 4.8% in spring 2012. This growth is projected to accelerate, with about 50% of respondents suggesting their hospitals will participate in an ACO by the end of 2014. Overall, 3 out of 4 senior executives surveyed say their hospitals have ACO participation plans.

Since survey respondents also represent hospitals of different locations, sizes and types, we are able to obtain a broader look at current and future ACO participation and found that:

  • Non-rural hospitals (82.1%) are most likely to participate in an ACO overall, followed by hospitals in an integrated delivery network (81.1%).
  • The lowest rates of projected participation are among rural hospitals (70.7%) and standalone hospitals (72.6%).
  • Large hospitals are moving more quickly, as 30.8% said they’d be part of an ACO by the end of 2013.
  • And though they’re equally as likely as large hospitals to ultimately participate in an ACO, small hospitals say they require additional time, with 48.6% planning to join in 2014 or 2015.

But some providers have been more deliberate and cautious about when they start their ACO journey. The pace of ACO adoption has been slower than originally anticipated 18 months ago, when more than half of executives predicted their systems would create or join an ACO by the end of 2013. Current survey results show that about 1 out of 4 will meet that projection.

Now this should come as no surprise – The accountable care transition and managing the health of a population is challenging for all providers. For one thing, it’s expensive to build and implement: organizations beginning the ACO journey need to make significant investments to develop the infrastructure and resources needed.

They also need to reduce costs and utilization through improved chronic disease management and improved health outcomes. However, considering the infrastructure investments required, few providers can afford to sacrifice revenues from reduced utilization without being compensated for the additional care management programs and a portion of the savings these efforts generate.

No single segment of healthcare can address this challenge on its own; consequently, success will be easier to achieve with partnerships that span the care continuum. As more care is delivered in the community, these partnerships must expand beyond traditional care settings to include community groups, employers and payers.

When asked with whom their hospital is partnering to better manage population health, survey respondents cited physician and provider leadership within their organization most often (76.9%).

In addition:

  • Partnerships with local public health departments (53.8%) were also often cited, particularly among small hospitals, rural hospitals and standalone hospitals.
  • Partnerships with large local employers are popular across all types of providers (51%).
  • More than half (51%) of non-rural hospital respondents cited local partnerships with external providers.

Payer partnerships

For providers, establishing healthy payer partnerships is a foundational capability for effective population health management. Among their valuable contributions, payers are able to reward efforts to improve overall health and reduce utilization of healthcare services through shared savings payments to providers, or by paying for interventions that positively affect health, including care management, patient portals and other services that traditionally are not reimbursed but that yield longer term savings.

Moreover, payers can protect providers, who are taking performance risk in improving quality and lowering the cost of care, from unanticipated outlier costs and risks.

Given the critical role of payers in population health management, survey respondents suggest their hospitals are exploring new partnerships with private and public payers. 46.2% overall are partnering with private payers and 40.4% with public payers such as Medicare and Medicaid.

Payer arrangements can take on many different flavors, depending on the payer relationship and appetite for change.

For survey respondents, upside-only shared savings is the most popular arrangement (58%). In this model, key care management programs are established to manage high-risk and chronically ill populations using claims analytics to predict outcomes. Savings that accrue are split equally between insurers and providers, with no penalties for failure to achieve the goals.

Bundled payment arrangements are also popular, cited by 52% of respondents. This form of payment puts all the care providers who touch a patient in the same “bundle.” The bundle can start before a patient enters a hospital and include care provided during and after the hospital stay or any portion of the episode.

This incents all providers to work together for shared financial rewards that result when they are able to efficiently deliver higher quality, more cost-effective care with excellent patient satisfaction, across the entire care episode.

Interest in ACOs as a model to deliver high-quality, cost-effective care and improve population health has increased significantly over the last few years. But providers face challenges in forming ACOs, including determining the pace of adoption, as well as forming the payer partnerships necessary for financial health. It’s understandable and appropriate that some providers have been more deliberate and cautious about when they participate in an ACO.

Whether or not they’re in an ACO, it’s clear providers are building the infrastructure and core capabilities essential to ACO formation and population health improvement. This includes the development of partnerships with other providers, local organizations and payers. The key appears to be aligning the new payment and care models with a focus on improving health, enhancing quality and patient engagement, and lowering cost.

Survey results imply a new wave of ACO participants will likely emerge in future years as these partnerships mature.

Joseph Damore is vice president of Population Health Management, Premier, Inc.
Wes Champion is senior vice president of Premier Performance Partners, Premier, Inc.

12 replies »

  1. “healthcare continues to be the only major US industry in which the predominant operating principle is that if you keep turning on more of the same dim bulbs you will find day find yourself bathed in sunlight.”

    LOL. ouch.

  2. There are three kinds of fictional stories that people like to tell: myths, which typically explain a natural phenomenon or convey a particular set of values; legends, which are embellishments of facts intended to make someone or something heroic; and fairy tales, which are fantastic, magical, pit good vs. evil and usually have a happy ending. The ACO story is that of a fairy tale. ACO adovcates, such as these posters, posit that their hero (or heroine, as the case may be) will save the (medical cost and quality) day by doing something that medical care providers have heretofore never done: effectively manage both clinical risk and finances.

    The concept of ACOs — dropping bags of money into the laps of provider-based care systems, the same confederacy that’s given us 50 years of bloated, arrogant, entitlement mentality inefficiency and mendacity — is the worst kind of fairy tale because it lacks any of the redeeming elements of the others kinds of fiction. ACOs as an idea were virtually non-existent before the ACA.

    In order to manage risk successfully, ACOs will need medical directors, P&T committees, review committees, etc…all the administrative tools that physicians have come to hate when arrayed against them through managed care plans. Shifting the financial risk downstream to [ACOs] who not only have no history of managing it successfully, but no heritable of values and skills regarding risk management is a search for fool’s gold. And, they will be very well compensated fools. I have seen the financials for ACOs, and their medical directors, who will spend most of their days pontificating and ordering other physicians to do things that contain costs, will get paid base salaries approaching a half million dollars in the bigger systems, and that’s before bonuses in these almost exclusively non-profit entities.

    In the end, I predict that, in order to preserve their precious quality-based bonuses, ACOs will need to recruit from the insurance industry. The only way to ensure the financial viability of ACOs is to have them import the skills and experience at managing healthcare dollars they don’t have. Somehow, healthcare continues to be the only major US industry in which the predominant operating principle is that if you keep turning on more of the same dim bulbs you will find day find yourself bathed in sunlight.

  3. Nice article… As stated they are certainly a work in progress. Those who have the infrastructure and size to support these models will likely do well (Kaiser/ Mayo etc). I do think that if they are successful further consolidation with Medical groups joining Hospital systems will be a side effect. (Probably not unintended).

  4. “It’ll make no participant happy”

    I think the top executives will be very happy with their share.

  5. ACO’s will lead the patient to constantly question whether his doctor is witholding care in order to line his pocket…..or whether the doctor’s employer is forcing the doctor to withold care.

  6. ACO = HMO + EMR

    Those organizations that have successful HMO’s ( Kaiser) will probably have successful ACOs

    As for the rest – it will be interesting to see what happens. I think the transition (if it occurs) will not be smooth or easy.

  7. For an ACO to work for payers, the total cost of care has to be less than it would have been under a traditional fee for service payment model.

    Bundled payments are a fine idea, I think, for services that lend themselves to the concept. Surgical procedures appear to be the best fit for this approach. Hospitals are most likely to have the management infrastructure to carve up the bundled payment among the various providers in some acceptable manner.

    I think the ACO approach would work best if the same organization, presumably a hospital or a hospital system, controlled the entire continuum of care. Ideally, all of the providers, especially the doctors, would be paid a salary with bonus compensation based on achieving utilization, cost and quality metrics. One commonly used current metric for determining physician bonus compensation is relative value units billed. That works in a fee for service arrangement but not a capitated approach.

    In the end, successful ACO’s will probably look like Kaiser in miniature. To the extent that there are realized savings vs. the current fee for service model, patients will presumably benefit through lower insurance premiums or at least slower growth in premiums than they experienced historically. Hopefully, their care will also be better coordinated with less duplication of testing and less risk of adverse drug interactions.

  8. I think the ACOs have two fatal difficulties:
    1. They appear to patients as a collusion between their agent providers to feather their own pocketbooks by cheapening their healthcare experience.
    2. When payments arrive at the ACO their division and allotment for the various providers–according to each’s responsibility for the cost savings and for each’s responsibility for added beneficence in care– is fraught with warfare. It’ll make no participant happy. In fact, even patients will surely jump in and say “Hey, why don’t I share in these savings refunds?”