Economics

The ACO Hypothesis: What We’re Learning

Last month, the Center for Medicare and Medicaid Services (CMS) reported first-year results from the Medicare Shared Saving Accountable Care Organization Program (MSSP).

As noted in a previous post, shifting to an accountable care model is a long-term, multi-year transition that requires major overhauls to care delivery processes, technology systems, operations, and governance, as well as coordinating efforts with new partners and payers.

Participants in the MSSP program are also taking much more responsibility and risk when it comes to the effectiveness and quality of care delivered.

Given these complexities, it is no surprise that MSSP’s first year results (released January 30, 2014) were mixed. The good news? Of the 114 ACOs in the program, 54 of the ACOs saved money and 29 saved enough money to receive bonus payments.

The 54 ACOs that saved money produced shared net savings of $126 million, while Medicare will see $128 million in total trust fund savings.

At the time, CMS did not provide additional information about the ACOs with savings versus those without.

While a more complete understanding of their characteristics and actions will be necessary to understand what drives ACO success, the recent disclosure of the 29 ACOs that received bonus payments allows us to offer some preliminary interpretations.


1. Physician-owned practices are NOT disadvantaged.

When the program was launched, there was much skepticism among policy experts as to whether physician-only ACOs could generate cost savings. After all, they accounted for only a small fraction of the total health care utilization, and many wondered if primary care providers could reduce costs without the active partnership of a hospital system.

They also lacked the capital, operational sophistication, and staff resources of larger well-capitalized hospital-sponsored ACOs. Their smaller size also indicated they would have to demonstrate savings at a higher level (the “minimum savings rate” or MSR) to receive shared savings payments.

However, 21 of the 29 successful ACOs were physician-led. While the difference is not statistically significant, 29% of the physician-led ACOs achieved savings greater than their MSR, versus 20% of the remaining participants (mainly hospital-sponsored). The reason why is unclear. However, it’s possible that physician-led ACOs tend to be more nimble in execution, or perhaps the “one foot in two canoes” problem is less acute for primary care providers than hospitals.

For example, improvements in care coordination, chronic disease management, and prevention result in more primary care services, whereas hospitals must contend with “demand destruction” on their fee-for-service lines of business if they reduce procedures, admissions and emergency department visits.

2. Is it working? The “Underpowered” Advanced Payment Pilot

If asked the most common barrier to a successful ACO transition, physician-led ACOs will usually reference the lack of financial resources to adopt necessary technology or practice transformation assistance / infrastructure. While the MSSP program is a permanent program administered through the Center for Medicare, the Center for Medicare and Medicaid Innovation (CMMI) gave 35 small and rural ACOs (including 20 of the 114 ACOs for which Year One results are now available) upfront and monthly payments as part of an Advanced Payment Model.

Six of the 20 (30%) Advanced Payment ACOs achieved shared savings, comparable to the 15/53 (28%) of other physician-led ACOs. The problem is, with such small numbers the true difference between the two groups may actually be significant, but there are not enough Advanced Payment ACOs to compare the two groups.

CMS recently released a Request for Information about ways to support clinical transformation in small practices, to encourage participation in alternative payment models.  CMMI has not indicated whether any participants will be added to the Advanced Payment pilot, but we believe it should be considered in order to generate more evidence on how to best assist smaller ACOs.

3. It’s easier to cut costs if you start high

While individual ACO benchmarks have not yet been released (something we strongly encourage), there is some evidence that ACOs in the highest cost states are more likely to be achieve shared savings. The states with the most expensive (risk adjusted and standardized) regions for Medicare are Florida, Louisiana, Mississippi, and Texas.

ACOs in these states account for 25 of the 114 ACOs (22%) but include 10 (34%) of the 29 ACOs with shared savings (p~ 0.07). While reducing costs in high-cost areas is an important policy objective, achieving physician participation in alternative payment models nationwide may require CMS to consider modifications to the baseline calculation formulas in the next round of ACO rulemaking (expected this fall).

It remains to be seen if these trends continue as more experience with the program accumulates, but the first year results from MSSP suggests Medicare ACOs are on the right track and with prudent evolution, can continue to move providers closer to greater accountability for health care costs and quality.

Farzad Mostashari, MD, ScM (@Farzad_MD) is a visiting fellow of the Engelberg Center for Health Care Reform at the Brookings Institution. He was previously the National Coordinator for Health Information Technology at the U.S. Department of Health and Human Services.

Ross White is project manager of economic studies at the Brookings Engelberg Center for Health Care Reform.

This post originally appeared in the Brookings Up Front Blog.

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Guest

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Guest

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Arthur Puff
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Arthur Puff

Having worked for Ellwood and a few courses in Economics at the U of Chicago, I can see no way that ACOs will succeed. Like most Marxist ideas (yes it’s centralized control), failure is imminent. No other industry in the history of the US has created/supported/succeeded with a business plan that limits its profits/revenues. Doctors cannot manage/restrain Hospital spending/medical devices/pharma which is the big deal. This is mere philosophy (bad philosophy at that) and we need more economics to describe how the free markets will right itself. Did we learn nothing from the housing crisis on government interventions.

RBH
Guest
RBH

The pay for value model is fastly approaching. If you do not buy that, you will be left in the dust. Give Farzad a break, he is not lobbying for the ONC position or anything like that. The goal is to ensure that the patient is “guided” through the healthcare process via care coordination. No really our responsibility, but it is the right thing to do. If you build the ACO with the proper patient interaction, analytics, and proof of improved outcomes, the payers will pay. These are the differentiators in the ACO market that were not present in the… Read more »

Farzad Mostashari, MD
Guest
Farzad Mostashari, MD

Commenters have raised several points regarding the early results of the Medicare Shared Savings Program that bear further discussion and clarification: -The need for more details on the participants by name, along with their characteristics, actions, and outcomes. I agree. We strongly encourage CMS to release more detailed information about the results of the program to date. As someone who’s been on the other side, I can attest however, that lack of transparency can occur despite the intentions of leadership, and even when there’s nothing to hide. CMS has taken great steps towards open data in recent years- unparalleled in… Read more »

@BobbyGvegas
Guest
@BobbyGvegas

Excellent comment. I will respond in detail on my REC Blog.

@EJSMD
Guest
@EJSMD

All of us are subject to perverse incentives when it comes to money. If we are paid by the encounter, we may create more encounters. If we are given bonuses for spending less money, we may do less encounters. Given the lack of sophistication in our current metrics, it’s entirely possible for either of these systems to show equivalent quality. Why not find a way to remove the financial bias entirely? How? Simple: Randomize patients in a blinded fashion to 1/2 fee for service (make more for doing more), 1/2 captivated (i.e. make more for doing less). Keep measuring quality.… Read more »

Perry
Guest
Perry

Seems to me we just keep putting more layers between the physician and patient.

mj md
Guest
mj md

Narrow networks on the healthcare exchanges. ACO’s managing the risk of entire population groups. Doctors losing access to groups of patients; patients losing doctors’; formulary changes each year (“we will cover one month’s supply of your medication; after that your doctor will have to either prescribe a medication on our formulary, or submit a request for…”). All of these problems are acknowledged and hotly debated. But the debate is about how to tweak the system, how to minimize damage from limitations imposed by large oranizations, be they ACO’s or insurers. No one asks the real question anymore: how did we… Read more »

Trudy Lieberman
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Trudy Lieberman

How do patients know they’re in an ACO? Who tells them? Can they decline to participate?

Granpappy Yokum
Guest
Granpappy Yokum

That’s my question: does anyone tell the patients that their docs will now make money by withholding care?

Bobby Gladd
Guest

The intent and goal is for the docs to provide better care. Not the old HMO paradigm. Whether it’ll happen is a separate issue.

Curly Harrison, MD
Guest
Curly Harrison, MD

The health care reformers are trying to replicate the great medical clinics of the US by spawning these organizations that are called accountable. But as stated, it is unclear to whom they are accountable. Who is counting the deaths and adverse events from neglect and withholding tests deemed too costly? @Farzad, you are cheering for these unaccountable programs as you cheered for unproven #HIT systems when you were the head HIT honcho. No outcome data to support the program and for the doctors, just a one in four chance of “collecting” after denying care to patients as part of the… Read more »

Perry
Guest
Perry

“The ACO has all sorts of criteria to determine if it is “patient centered”. ”

Gotta love those buzz-words.

Perry
Guest
Perry

“Accountable to WHOM?”

Thus, the question. My accountant, car mechanic, attorney, plumber, etc. are all accountable to me because I pay them.
In the old days, doctors were accountable to their patients. We have muddied the waters so much with institutions, organizations and government rules, it’s hard to tell who’s accountable to whom.

Jeff Goldsmith
Guest
Jeff Goldsmith

HEART OF THE MATTER. The ACO is a, more or less, secret deal between Medicare and the ACO to divvy up savings by rearranging my care. I do not choose to be in the ACO (!!). I can withhold my information from the ACO, but the “membership” in the ACO is actually a statistical construct- the population “attributed” to the ACO after a program year is completed. As Dave Barry would say here, “I’m not making this up!” The ACO has all sorts of criteria to determine if it is “patient centered”. Thanks for that, Don Berwick! But it is… Read more »

Bobby Gladd
Guest

” But it is in no way accountable to me, as a Medicare patient, nor do I get a penny of the savings.”
__

Ding, ding, ding, we have a winner.

HMO v2.0

Jeff Goldsmith
Guest
Jeff Goldsmith

I can disenroll in an HMO if they stint on my care or provide my lousy service. I cannot disenroll from an ACO. And I get my savings upfront from an HMO, in lower premiums and reduced out of pocket spending. And I’m going to defend HMO’s- there are a bunch of great ones. Kaiser, Group Health of Puget Sound, Harvard Pilgrim, Geisinger Health Plan. HMO’s have been shrinking as a percentage of total health plan enrollment the past fifteen years, but the survivors are formidable, high quality outfits for the most part. They are not all cheeseball operators.

Bobby Gladd
Guest

“I can disenroll in an HMO if they stint on my care or provide my lousy service. I cannot disenroll from an ACO.”
__

I don’t think the latter half of that is true. Been a while since I looked at the statute, but, IIRC, the patients can in fact vote with their feet at any time. You don’t “enroll” in an ACO.

Bobby Gladd
Guest

From Kaiser Health News: How would an ACO work for a patient? Doctors and hospitals will likely want to refer patients to hospitals and specialists within the ACO network. But patients would still be free to see doctors of their choice outside the network without paying more. Providers who are part of an ACO are required to alert their patients, who can choose to go to another doctor if they are uncomfortable participating. The patient can decline to have his data shared within the ACO. If I don’t like HMOs, why should I consider an ACO? ACOs may sound a… Read more »

Granpappy Yokum
Guest
Granpappy Yokum

But, before they go to see any provider, are patients informed that they have been “enrolled” in MegaCorp ACO, and provided with a list of doctors (so they can avoid them if they wish) participating in that ACO who will benefit financially by limiting the care they provide?

Bobby Gladd
Guest

Remember the “Chickens for Checkups” lady?

http://www.bgladd.com/LowdenKFChealthPlan.jpg

Perry
Guest
Perry

Bobby, that’s classic! (but sad).

legacyflyer
Guest
legacyflyer

ACO = HMO + EMR

Ezekiel Emmanuel’s recent article contains the obvious and unoriginal observation that by paying physicians on a capitated basis, expenditures can be reduced. This qualifies him as one of the greatest health care minds of the 1980’s.

Some ACOs (54/114) are also capable of saving money through capitation as Mostashari points out above.

However, no one has revealed the recipe of the “secret sauce” that turns a (capitated) HMO into a (capitated) ACO. Nor, as Bobby Gladd has pointed out has anyone shown any improvement in outcomes.

Jeff Goldsmith
Guest
Jeff Goldsmith

FYI- that’s an inapt formula. Look closer. HMO’s actually require assuming risk. You have a fixed amount of premium dollars and have to allocate them in a sensible way or you lose money. The fixed premium dollar pool is what forces you to make choices. ACO’s are like managed care without the risk (gin and tonic w/ no gin). 95% of ACO’s are “on the come” deals where if you manage to achieve savings (calculated after a program year is finished), you get a bonus. It is euphemistically called “one sided risk” but everybody continues getting paid. There is, in… Read more »

Bobby Gladd
Guest

“You have a fixed amount of premium dollars and have to allocate them in a sensible way or you lose money.

The fixed premium dollar pool is what forces you to make choices.”
__

One choice is that of denying or cheapening up on care right up to the edge of unprofitably landing your ass in court enough times. HMO v1.0.

Medical economist JD Kleinke said of meaningful reform “manage the diseases, not the money.”

The Beltway wonks appear to not be listening. Imagine my surprise.

Accountable to WHOM?

Asked and Answered.

Bobby Gladd
Guest

A picture is always worth 1,000 words.

http://tinyurl.com/o4wla2v

Gotta love me Photoshop.

legacyflyer
Guest
legacyflyer

Jeff,

I defer to your superior knowledge, however ….

I think you are making a distinction without a difference. Considering all the un-reimbursed expenses and difficulty associated with setting up an ACO, not getting a bonus is in fact a loss. In effect, you would have been better not setting up the ACO.

Jeff Goldsmith
Guest
Jeff Goldsmith

A lot of those expenses are being actually being borrowed from the federal government (!), e.g. from us. Guess what’s going to happen there?

What I meant by risk is that an HMO is a corporation that assumes both financial AND moral responsibility for a define population who voluntarily enroll in their health plans. The risk is that they can expend more money on services than they take in in premium.

Bobby Gladd
Guest

OK, I re-read this post 3 times looking for data on / discussion of significant improvement of clinical outcomes and patient satisfaction. Nyet, Zip, Zilch, Nada. Maybe those data were collected, but they are not even mentioned here. That WAS, recall, the entire distinction proffered to distinguish ACOs from merely being Suits-in-Charge HMO 2.0 zombies? Sadly, it always ends up just being about the money. I suppose in the prevailing federal policy ADHD world, that’s just reality. Flit impatiently from one initiative to another every couple of years. Now to be fair, the authors do note that “shifting to an… Read more »

Jeff Goldsmith
Guest
Jeff Goldsmith

If these results are as “promising” as ACO advocates claim, why has CMS confined its reporting on the results of the Pioneer and regular MSSP demos to two press releases and a single one page checklist on the MSSP “winners” with no numbers? Even the research report written by an independent agency hired to evaluate the Pioneer’s first year blinded the results, so you couldn’t tell who the participants are. This is how you manage a turkey, not a burgeoning success. Let the rest of the healthcare community, the press and the research community judge for themselves how these demos… Read more »