The Complete Picture on ACOs


HHS released data last week about results from the Medicare Shared savings Program’s Accountable Care Organizations (ACOs) performance in 2012:

·       114 Medicare ACOs participated 2012: 54 reduced Medicare costs, 29 will share in $126 million savings and CMS saved $128 million.  One ACO, the Palm Beach Accountable Care Organization, will distribute $11 million savings to its providers based on management of 30,000 Medicare enrollees.

·       32 Pioneer ACOs generated $147million in savings: 13 will split $87.6 million, 9 quit the program (6 of these reverted to the less risky Section 3022 model)  (1)

And in a timely Health Affairs blog, Leavitt Partners’ David Muhlestein calculated there are now more than 600 public and private ACOs serving 18 million consumers: 200 in the MSSP program and 400 in other arrangements. Per Muhlestein’s data, most are sponsored by independent medical groups (260) or a physician-hospital partnership (238); health plans are sponsors of 55 (though they are business partners in many others per news releases from the companies). (2)

These facts don’t lie: there’s a flurry of ACO activity, but in most communities, it isn’t a notable effort and hasn’t resulted in dramatic results. It’s still an “inside baseball” strategy: hospitals and medical groups betting that incentives will change from volume to value, wishing to test the murky risk waters with the aid of a friendly health plan or local employer, and hoping the savings adequate to justify the organizing effort.

When the 429 page proposed rule for the Medicare Shared Savings Program was released by CMS March 31, 2011, it was complicated: one and two sided options, 65 quality measures and so on. In my April 11, 2011 Monday Memo (Deloitte Center for Health Solutions, Washington DC), I wrote:

“Is the U.S. system ready to tackle risk? Hard to say. Historically, the system’s risk aversion has been rationalized: physicians and hospitals can’t control outcomes. Consumers and employers insist on large open networks of physicians and hospitals in dealings with health insurers when smaller high performing networks might otherwise provide more value. And the patent system and regulatory hurdles facing life science organizations makes risk shifting necessary for survival. The reform law seems a gradual step in the direction of shared risk: it challenges the system’s stakeholders to do more with less and be paid for results not volume. But it misses in one huge area where risk is not adequately shared: individual behavior…

“The March 31 CMS rule indicated it anticipated modest participation in the ACOs: between 1.5 and 5 million Medicare enrollees, and between 75 and 150 ACOs. But that’s not the end game. Coupled with episode-based payments, value-based purchasing, the medical home, penalties for avoidable readmissions, increased quality reporting requirements for hospitals and physicians, and increased scrutiny of physician-owned ambulatory and acute facilities, it’s clear the fundamental design of the system is shifted by PPACA toward physician-hospital alignment wherein payments are based on value (quality, outcomes, user satisfaction, costs). So ACOs are a critical piece of a bigger puzzle” (3)

Through the summer of 2011, our team examined the proposed rule. We advised caution against participation, especially the two-sided option. Though CMS had advised that start-up costs would be $1.7 million, we estimated it could cost up to $5 million to ramp up in most settings, with operating costs to report data the quality measures a major hurdle. We met with CMS officials to share our analysis and encourage simplification. In October, 2011, the final rule addressed those issues: the options were simplified, the formula for shared savings changed so providers could keep more of the upside, and the numbers of quality measures necessary to share in the savings was reduced to 33. They listened, and they improved the Medicare ACO program.

The HHS report last week confirmed there’s widespread participation in ACOs. It also confirmed that the majority of ACOs  in the first wave will not get a check from CMS reflecting the savings they produced. Nonetheless, there are three reasons I think ACO activity will increase in the next 3 years, not withstanding their mixed results to date:

1-Health costs increases will spark increased ACO activity… Annual total health spending increases had averaged 6% but slowed from 2010-2012 to less than 4%. More notably, Medicare per capita spending shrank to less than 1% annually. As a result, pressure to reduce costs has not been as intense in the recent years and savings in the Medicare ACOs were less than what “might have been”. But the CBO forecast annual spending will increase at least 5.6% annually for the next several years-- employers and health plans will push harder for savings. To date, employers and consumers have not demanded that care delivered be through ACOs, bundled payments, medical homes and value-based purchasing structures. The flurry of ACO activity has been more defensive than offensive: in most communities, these efforts were opportunistic—a chance to organize providers to share risk, but not a wholesale shift to risk taking. As health plans and employers transition the majority of their enrollees to risk-capable provider networks, ACO activity will accelerate. Those that participated in the first wave will have an advantage, but no guarantee of success.

2- ACOs will benefit as the focus on the ACA shifts from ‘repeal and replace’ to ‘fix and repair’: Until Justice Roberts’ Supreme Court ruled it constitutional June 28, 2012, many in the health industry imagined ACA might go away, or at least be substantially disabled. The emergence of private exchanges and continued cuts in Medicare and Medicaid were more urgent issues to providers. But 2014-2016 will see the convergence of market dynamics and ACA implementation: expanded coverage in Medicaid and subsidized enrollment and the shift from volume to value a la the ACA will collide with deficit reduction and the fed’s monetary policy as it slows quantitative easing. So the ACA will undergo changes to make expanded enrollment less costly: that means pilots and demonstrations including ACOs that reduce costs will be expanded as a key element in “fix and repair”.

3-Improvements in ACO operations will reduce the risk of start-up and operating costs: When proposed March 31, 2011, CMS estimated start-up costs for a Medicare ACO would be $1.75 million. The fact is, unless an organization already operated its own plan or otherwise had the information systems and operating procedures in place to bear risk, the costs were much higher! But three sources have emerged of late to mitigate some of the costs: (1) national health plans like Aetna and others offer ACOs opportunity to rent their infrastructure or partner, (2) ACO best practices from HFMA, AMGA, AHIP, AHA and others provide risk newcomers useful best practices and case studies and (3) some of the major consulting firms have hired ACO team professionals with actual work experience in hospitals, medical practices and health plans to facilitate pragmatic implementation with fewer troubles. As the ACO model becomes standard fare in Medicaid and commercial populations along with value-based purchasing, medical homes and bundled payments, the opportunity for higher enrollment across a wider variety of populations will drive growth and maturation of ACOs. They’ll be bigger and more sophisticated: scalability is key. And with scale, operational efficiencies will be optimized.

Is the ACO, therefore, downhill sledding for most organizations? There remain issues that reward caution:

1-Regulatory compliance challenges will persist: A clinically integrated group of self-governed providers that share risk within safe harbors of ownership and control is still an ambiguous construct. Of increased concern to insurers is the potential that a provider organization might use its ACO organizing effort to gain leverage against plans in contracting: lawyers must weigh in, for anti-trust and restraint of trade issues like the one that surfaced in Boise (St. Luke’s) recently make it mandatory that an ACO be compliant. Compliance with private inurement and physician self-referrals, anti-competitive behaviors and legal challenges in the ACA require active vigilance to assure ACO compliance.

2-Measurement of savings and quality is a moving target: Over what period of time are an ACO’s clinical outcomes appropriate for calculating results and associated savings—one year, five years, or more? Savings from ACOs are derived from outcome improvements.  They involve avoidable hospital and emergency room use, improved health status and others. But any intervention can be rationalized to produce savings if the timeframe is long enough. There is no industry standard not clarity about which measures over what period of time will be acceptable, especially for harder to treat populations. And the fundamental structure of employer-sponsored insurance coverage wherein employers, rather than individuals, bear the brunt of avoidable health costs complicates matters. As employers shift risk to employees via high deductible insurance programs and equip them with better information about quality and costs, clarity about interventions that reduce cost without compromising short and longer term outcomes will be more widely accessible. But getting from here to there will be a testy process: in health care, we are quite skilled at defending the efficacy and effectiveness of what we sell, and aggressive in challenging metrics we think short-sell our value proposition.

3-Control issues between health plans and hospitals will intensify…The current race to organize physicians as effective ACOs is between hospitals and health plans. These tensions will increase as fewer dollars flow into the system, and as health plan designs featuring narrow networks conflict with membership in ACOs. Health insurers believe they “own” the issues of cost containment and risk. Their history of disdain toward hospitals will not subside because they to offer their services as ACO business partners. And, hospitals have historically “owned” public trust and the clinical high ground, successfully affirming they are the protector of the patient’s best interest. But the facts there are 1400 “top 100” hospitals and their prices and outcomes so widely suggests health plan coercion to transparency will surface old wounds. The inevitable convergence of delivery and payment in health care will result in vertically integrated regional health systems that are capable of managing population health at full risk for costs and outcomes. In some communities, the plans will create their own systems; in others they’ll partner. But control issues will be in the spotlight.

ACOs are here to stay with increased enrollment in a variety of permutations. The HHS results bear repeating: the majority of ACOs did not save money in their first year. The most experienced ACOs—the Pioneers—faced major challenges and 9 threw in the towel. The majority of participating doctors in the 600 ACOs operating today will not a shared savings refund payment this year.

In most communities, ACOs are a necessary part of a strategy to navigate the future. They represent an important dimension of the shift from volume to value along with bundled payments, value-based purchasing and patient centered medical homes. It’s notable that HHS announced the involvement of 232 hospitals in its bundled payment program in the same release with its ACO results. They are interlocking pieces of the puzzle.

Alone, the impact of ACOs in reducing costs while improving quality will be modest in most communities, but in tandem with the other risk-bearing entities noted above, they can be substantial.

Paul Keckley

(1) January 30, 2014

(2) David Muhlestein “Accountable Care Growth in 2014: A Look Ahead” Health, January 29, 2014

(3) Monday Memo “My Take” Deloitte Center for Health Solutions, April 11, 2011