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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  2. 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.

  3. 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 HMO world.

  4. 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 its history (or in comparison to private sector payors and most states), but there is more work to be done to overcome institutional inertia, and concerns regarding the “privacy of providers”.

    -How is the MSSP different from an HMO?
    A major similarity between managed care and “shared savings” programs is that physicians that make decisions about treatment, diagnostic, and referral options do have an incentive to reduce cost. I was trained in an era where we were not supposed to think about (or even be aware of) the cost implications of our care recommendations. I now believe that we need physician engagement in addressing the truly unsustainable rise in healthcare costs that threaten to bankrupt our nation.

    However, policymakers have learned a few lessons from the backlash against managed care:

    -Quality Matters
    Reducing cost cannot be the only outcome. In the MSSP, in the first year only can you qualify for savings simply by reporting quality measures. In future years, ACOs will have to not only reduce total cost but also perform well on measures of patient satisfaction, clinical quality, and utilization (such as ambulatory care sensitive admissions) to collect shared savings payments.

    -What about patient choice?
    If the patient doesn’t like the care they’re getting, they can get care elsewhere. This is a sore point for many ACOs, especially those that have been successful in managed care arrangements, but the current regulations in no way limit patients’ ability to seek care elsewhere. MSSPs are required to notify patients that they have formed an ACO, and patients have the option of opting out of the sharing of their claims data with the ACO.

    -Shared Savings versus capitation
    Finally, the MSSP program is indeed layered on top of fee-for-service payments (versus prospective payments/ capitation), and most MSSPs have opted for the “upside only” track for the first three years. We acknowledge that where the ACO includes a hospital sponsor, they must contend with “demand destruction” on their fee-for-service lines of business if they reduce procedures, admissions and emergency department visits. However, physician-led ACOs are not similarly encumbered, and this model provides them with a “safe” transitional path towards taking risk. It is also worth noting that “one-sided risk” during the riskiest early transition period would tend to reduce the likelihood of a physician having to choose between limiting needed care and going bankrupt.

    -Intentions and Actions of the ACOs
    I have interviewed dozens of physician-led ACOs, and am working with a smaller group to learn together how to succeed in this movement. What these ACOs are trying to do is better chronic disease management, identifying and better serving at-risk patients, improving care transitions, communicating better with patients, and coordinating care better with specialists and other providers. We have better tools today to perform these tasks than we could have dreamed about 20 years ago, and there are plenty of savings to be wrought without stinting on needed care.

    There are many valid concerns about any new payment and delivery model, but I believe that we are obligated to measure them not against a platonic ideal, but against the current “do-more, bill-more” perverse incentives and the perverse responses that they have in turn induced(bureaucratic barriers, price controls). The Medicare Shared Savings Program is only one of a number of ways in which CMS is moving “from volume towards value”, but it is an important step in the right direction, particularly for primary care networks that are able to deliver higher value through population health management.

    If you have a workable alternative, or suggestions for improving the Medicare Shared Savings Program, please email me at


  5. 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.

    Doctors and other caregivers in this system will have no reason not to do what is in their patient’s best interest, maximizing quality. There will be no mechanism for doing less or more to pad their wallet.

    Crazy idea, I agree, but please tell me why it wouldn’t work.


  6. 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 become the only country in the developed world where patients’ access to doctors and to treatments is determined by payors? Elsewhere, patients may have to wait to see a specialist, and the most expensive treatments may not always be available, but any patient can see just about any doctor, and every doctor can prescribe just about any available treatment for any patient.

    In the US, healthcare providers and patients have become commodities to be traded by healthcare organizations and insurers. But instead of saying “wait a second, how did we get to this point?”, doctors are figuring out which ACO to sell their practice to, and consumers are expending every effort figuring out which plan will best cover their medical needs.

    It doesn’t look like this lemmings march can or will be stopped. But, lemmings, can we at least pause for one second and take an honest look at what we’re doing and where we’re going?

    And then of course go back to debating the ACO’s and risk sharing and incentives and penalties and meaningful use and narrow networks and …

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

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

  7. 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 ACO gig.

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

    Gotta love those buzz-words.

  9. “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.


      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 in no way accountable to me, as a Medicare patient, nor do I get a penny of the savings. This is a huge design defect, and if it were widely known (e.g. if this works and they spread it to everyone in Medicare) a huge political liability.

      • ” 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

        • 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.

          • “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.

          • 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 lot like health maintenance organizations. “Some people say ACOs are HMOs in drag,” says Devers. But there are some critical differences – notably, an ACO patient is not required to stay in the network.

            ACOs are set forth in Section 3022 of the PPACA. I’ll have to look for specific “benes can vote with their feet” provisions.

        • 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?

  10. 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.

    • 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 reality, NO risk, other than that you lose the invested set up costs.

      • “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.

      • 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.

        • 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.

  11. 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 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.” But even THAT this-will-take-more-time caveat contains not one word about outcomes and patient satisfaction.

    Freudian, much?

  12. 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 are doing by making a full, transparent disclosure: all participants by name, costs, savings and bonuses earned, along with enrollment, set up costs and on-going support expenses. The secrecy only raises suspicions. . . .

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