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The Keckley Report

Accountable Care Organizations: Is the Glass Half Full or Half Empty?

By August 31, 2015March 1st, 2023No Comments

The following is an excerpt from Navigant Healthcare’s Pulse Weekly. Click here for a complete copy of this week’s article. 

Last week, CMS released 2014 results of its 353 ACO’s: 333 that participate in the Medicare Shared Savings Program, and 20 that participate in the Pioneer program:

  • 97 (27.5%) earned bonuses totaling $456 million out of $833 million in savings they produced for Medicare—compared to 2013 savings of $417 million:
    • In the MSSP program, 92 (27.6%) held spending $806 million below their targets and earned performance payments of $341 million as their share of program savings. An additional 89 (26.7%) ACOs reduced health care costs compared to their benchmark, but did not qualify for shared savings.
    • In the Pioneer program, 15 of the 20 generated savings totaling $120 million, a 24% increase over the prior year. 11 of these qualified for shared savings totaling $82 million and 5 Pioneers were penalized $9 million. Note: 12 Pioneer ACO have dropped out of the program opting to participate in the less risky MSSP program.
  • Among ACOs that achieved shared savings, total savings per ACO increased from $2.7 million per ACO in Performance Year 1 to $4.2 million per ACO in Performance Year 2 to $6.0 million per ACO in Performance Year 3.
  • Shared Savings Program ACOs achieved higher average performance rates on 18 of the 22 Group Practice Reporting evaluation measures reported by other Medicare FFS providers reporting through this system.
  • Quality improvements were shown for 28 of the 33 quality measures including patients’ ratings of clinicians’ communication, beneficiaries’ rating of their doctor, screening for tobacco use and cessation, screening for high blood pressure, and Electronic Health Record use.

In looking more closely at the data (See Resources), a few related insights jump out:

  • ACOs that are more experienced in risk sharing arrangements with payers tended to more effective than those that didn’t.
  • ACOs with higher enrollments fare better: at least 10,000 seems a reasonable floor, and 20,000 enrollees a platform for scalable growth and innovation.
  • ACOs sponsored by physician organizations slightly outperform physician-hospital sponsored ACOs but manage smaller enrollee populations.
  • The Pioneer ACOs that are performing best are also the ACOs that qualify for the highest Electronic Health Record incentive payments: 86% qualified in 2014, and their use of medication reconciliation application improved from 70% in 2013 to 84% in 2014.

Nonetheless, three in four ACOs did not save Medicare money and will not be distributing shared savings to their participating providers. And, as earlier noted, 12 of the original 32 Pioneer ACOs dropped out of the program complaining the upside did not justify its risks.

So what’s this mean for the future of ACOs? Is the glass half full or half empty? Here’s my take:

The facts are that the ACO aka Medicare Shared savings Program has some fundamental flaws:

  • Set up and operating costs: In most organizations, the costs of implementing an ACO by a physician group and or a hospital/business partner exceed the savings they’ll get from Medicare long-term. This is especially true for provider groups that had no prior experience in risk-sharing arrangements with payers requiring advanced care coordination and necessary infrastructure to track results. The original estimate of “all in” costs was $2 million per ACO, but costs between $5-7 million have been common for these ACOs. In addition, the ongoing operating costs for collecting and reporting data about the 33 quality measures, coordinating care for seniors and complying with the law in many ACOs poses a fiscal challenge.
  • Upside incentives: In April, 2011, CMS’s preliminary guidance required a 90% score on 65 quality measures and the option to participate in one or two sided risk sharing models. By the final rule, and after CMS officials met with industry analysts including yours truly, they dropped back to 33 measures and sweetened the upside for participants. But it’s still not sweet enough. Set-up and operating costs aside, the current shared savings model rewards those organizations in communities where historic utilization and costs were high, and challenges efficient organizations—physicians and hospitals—where the opportunity to reduce costs and utilization is less. For ACOs in markets where costs and utilization are already low, incentives to maintain need consideration.
  • Member attribution & risk adjustment: The MSSP program per Section 3022 of the Affordable Care Act , the ACO is structured as double-blinded study wherein Medicare assigns enrollees to the ACO without their consent or knowledge, then compares changes in utilization, quality and costs among ACO participants. As a result, ACO providers know they’re participating in the shared savings program, but their patients don’t. The theory was that by blinding the panel from the view of the provider would result in better care across the board for all patients, whether attributed to the ACO or not. But the reality is that it discouraged some providers from innovating in care coordination with a defined set of higher cost, higher risk patients. That enrollees are allowed to seek care outside the ACO, and providers have a limited visibility about their behavior is a flaw. And for CMS, adjusting its risk-scoring methodology used to adjust savings upside for each ACO’s enrolled population is an ongoing challenge. Risk adjustment is a core competence for health plans: it’s a new imperative for ACOs prompting many to partner with payers to avail their expertise and tools.
  • Medicare enrollee engagement: Imagine a professor that doesn’t provide feedback on assignments to his/her students, or a company that fails to provide performance evaluations tied to bonuses or continued employment. The ACO does not facilitate providers to inform enrollees about their ACO arrangement nor share savings with them. Enrollees. Yet, their behaviors—adherence to treatments, medication management, avoidable admissions and others–contribute significantly to the financial success of the ACO. Spending per Medicare enrollee is $12,243 today. It will increase to $17,264—a 42% increase in 10 years. It would seem Medicare would encourage innovative ways seniors can benefit from engagement with their providers who participate in the ACO.

So are these flaws fatal? Are ACOs doomed to the fate of PHOs (Physician-Hospital Organizations) and the mixed results of P4P projects (Pay for Performance) of recent vintage in U.S. healthcare? I think not. I think they’re here to stay. Here’s why:

  1. Health costs in Medicare will soar in coming years: The ACO, with its savings formula sweetened and its compliance risk reduced, COULD be the most significant lever CMS can use to slow the growth of Medicare expenditures. Along with bundled payments, it’s the ONE-TWO punch Medicare is counting on when, in January, it announced it goal that 50% of its payments will be made through alternative payment models including ACOs in the next two years. Given the Congressional Budget Office’ revised forecast last week that federal health spending will increase at 6.2% annually from 2015-2024, and Medicare alone will become 4.6% of GDP by 2039—up from 3% today– it’s clear Medicare will set the pace in cost containment efforts and employers and insurers will follow suit.
  2. The ACO structure facilitates care coordination: Clinically integrated networks require doctors and hospitals to work in teams and focus on seamless coordination. Clinical integrated networks are necessary to replace redundant tests or unnecessary care with services that are evidence-based and efficient. The care coordination focus of ACOs drives the system toward better care at a lower cost whether paid for on the basis of volume or value.
  3. The ACO is the platform for transforming primary care: Bundled payment programs focus on episodes of care that put a spotlight on activities involving hospitals and specialists. By contrast, ACOs put a premium on effective primary care that’s comprehensive, holistic, team based and accessible. That’s the rationale behind the requirement that ACOs be structured around Patient Centered Medical Homes. And both ACOs and bundles put a premium on coordination of care in post- acute settings and management of patient behaviors to avoid unnecessary admissions, tests, and complications that add substantial cost.

Is the glass half full or half empty for ACOs? Though ACOs were only four pages in the Patient Protection and Affordable Care Act (pp.277-281), it’s arguably the most significant foundation in the transformation of the U.S. health system. They’re here to stay.

My conclusion is for ACOs, their glass is more than half full and worth drinking.



1-ACO: Definition:

According to CMS: “Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time, while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds both in delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program. Medicare offers several ACO programs:

2-Results reported for MSSP ACOs by CMS August 28, 2015: “Centers for Medicare and Medicaid Services, Medicare Shared Savings Program Accountable Care Organization Performance Year 2014” 

Total Number of ACOs with available data333 of 353 (158 Physician Groups, 138 Hospital-Physician Groups, 26 Others, 11 Missing). NoteCMS requires all ACOs to report their composition model on its official website. There are three types:

  • “Physician Group Only” refers to those ACOs formed by a network of individual physicians, a group of physicians, or one corporate entity consisted of physicians.
  • “Hospital-Physician” refers to those ACOs where hospitals involved in its operation, either as a 1. partnership/collaborative between physicians and hospitals; Where any hospital served as a member/participant with voting representatives in the board of directors.
  • “Others” refers to those ACOs formed partially with a federally qualified community health center, rural health center, critical access hospital, or others

3-Budget forecast: (Congressional Budget Office August 25, 2015)

Federal spending on Medicare, Medicaid, the Children’s Health Insurance Program and exchange subsidies will increase from 5.2% of GDP in 2015 to 6.2% in 2025.

In its March report, the CBO said federal spending on these programs would constitute 6.1%: the slight upward revision means the government will spend $272 billion more on healthcare from 2016 to 2025.

The Medicare Access and CHIP Re-authorization Act of 2015, which was enacted in April and repealed Medicare’s sustainable growth rate for physician payments, added $159 billion over the next decade. This legislation calls for pay increases of 0.5% for physicians over the next four years, followed by six years of flat payment rates.”

4-Marc Bard, Michael Nugent Accountable Care Organizations: Your Guide to Strategy, Design and Implementation, 2011 (Health Administration Express, One North Franklin Street, Suite 1700, Chicago Illinois 60606-3424)

The opinions expressed in this article are those of the author and do not necessarily represent the views of Navigant Consulting, Inc. The information contained in this article is a summary and reflects current impressions based on industry data and news available at the time of publication. Any predictions and expectations noted herein are inherently uncertain and actual results may differ materially from those contained in this article. Navigant undertakes no obligation to update any of the information contained in the article.

©2015 Navigant Consulting, Inc.