ACOs: What’s Our Take?
We are now six years into the modern accountable care organization (ACO) era and a number of lingering questions remain. Do ACOs work? What have we learned so far? Have we reached a critical mass? Where is the model headed? As CMS considers rule changes to its two ACO programs to enhance and expand them, we thought it would be helpful to use this letter to share our insights on the ACO model.
Let’s begin by taking stock of where ACOs stand today. As of May 2014, there were 626 ACOs with nearly 21 million covered lives, representing 6% of the population. Yes, ACOs have moved from the fringe to the mainstream in a short period of time. But tallying up first-year savings from the Pioneer ACO Model and the Medicare Shared Savings Program (MSSP) results in $380 million. That may sound like a big number, but consider that this amount represents just 6/100ths of 1% of the $586 billion Medicare spent in 2013. CMS’s ACOs are far from a scale where they will make a dent in overall health care spending.
One more point on the state of the state: the Pioneer Model and MSSP participants get all the publicity, but what is less known—and appreciated—is that the majority of ACO participants (approximately 60%) are covered under commercial contracts. This isn’t surprising to us. Our members tell us that commercial ACOs are easier to design and deploy. The relative ease of execution and the desire of major payers to grow their value-based business signal that future ACO growth will largely be in the commercial sector. One example: UnitedHealth wants to grow its value-based contracts from $30 billion today to $65 billion by the end of 2018.
What have we learned so far? The first-year cost savings results from CMS’s two ACO programs can best be described as mixed. The more salient points follow:
- The cost reduction opportunity is more than we thought. As we’ve shared before, the single most successful Pioneer ACO, Bellin-ThedaCare Healthcare Partners, reduced the total cost of care for its 20,000 beneficiaries by 4.6%, despite starting with the third-lowest costs.
- The economics of shared savings ACO programs remain questionable. One estimate showed that the average ACO needed start-up capital of $4 million. Couple that with lost admissions and the fact that only 25% of ACOs in the MSSP class of 2012 were able to actually share in savings. The math quickly starts to become difficult and makes even less sense as you move beyond years three and four. This is why we think of the shared savings ACO as a transitional vehicle to some broader form of performance-based payment.
- The mechanics of the ACO model must be refined. We hear continued frustration with the lag in claims data (not just from CMS) and the opaqueness of attribution models.
- The open model of the Medicare ACO programs may be the fatal flaw in their design. Network leakage is a problem for just about every ACO. We routinely hear leakage rates of 30%, 40% and, in some cases, beyond 50%. Repatriation programs are one of the best solutions we’ve seen today.
- It’s still not clear where specialists fit in the ACO model. The center of the value-based universe has settled squarely on primary care for good reason. But that leaves us with the specialist conundrum. What role do they play besides providing a low-cost and clinically effective product (which is what everyone should be doing anyway)?
What are the wildcards out there? What are the activities that could accelerate or decelerate the ACO model? Here are the two areas to watch:
- Medicaid ACOs: These structures may be the most ambitious and altruistic undertakings of all. Medicaid populations are notoriously hard to manage—due to multiple medical conditions, behavioral health issues and limited access to care. However, Medicaid ACOs don’t come with the same restrictive rules as their Medicare counterparts. Several states are plunging headfirst into Medicaid ACOs with progressive (and aggressive) payment structures. If there was one area where ACOs could rise fast and disintegrate quickly, this would be it.
- Medicare Advantage: The growth and popularity of these products remain high. Policyholders get broader benefits and lower co-pays than traditional Medicare beneficiaries. Getting into the Medicare Advantage space could be the natural next step for organizations that are successful in their shared savings programs.
So, based on the state of the state, what do we make of the ACO model going forward? We hear the skepticism from CFOs out in the field loud and clear. In the end, whether the ACO concept makes it to 2024 doesn’t matter. What matters is that organizations make advances in their care delivery models, gain expertise in integrating information and start the necessary cultural changes to allow them to focus on value-based care. These assets and capabilities will outlast the ACO. In fact, the ACO movement has (thankfully) driven industry investment away from acute care facilities and into areas of needed infrastructure (eg, health information exchanges). ACOs also have forced provider organizations to restructure caregivers’ roles and rethink transitions from one caregiver to the next. Perhaps most importantly, some of our neediest patients have received more time and attention from providers.
One thing is for certain: the ACO movement has spurred some of the most interesting and promising structural experiments in the history of health care. Dartmouth-Hitchcock partnered with Fletcher Allen Health Care to create a statewide, all-payer ACO. In another example, the National Rural ACO brings together small community-based organizations spread across three states. A four-way commercial ACO between the California Public Employees’ Retirement System (a large purchaser), Blue Shield of California (a large payer), Dignity Health (a health system) and Hill Physicians Medical Group (a physician group) generated over $105 million in gross savings in a four-year period. There will be failures, but we expect positive contributions—primarily in the form of progressing care delivery and care coordination models—to come from all of this ACO activity. We also see it as an impetus for exploring other models such as bundled payments, which are being aggressively pursued by CMS and payers.
What does this mean for you today? The most progressive organizations view the ACO as simply one vehicle to drive innovation and not as a means of driving financial returns. If you’re in an ACO, start planning now for how you scale your supporting programs. Consider a Medicare Advantage contract or a capitated model. Expect most commercial shared savings models to ultimately transition to prospective payment. If an ACO isn’t in your near future, know that there are multiple paths to developing accountable models. Start by broadening your pay-for-performance contracts or managing the health of your employee base.
This is easily one of the most exciting periods in the history of our industry. A former chief of staff for the US Army and Secretary of Veterans Affairs, General Eric Shinseki, once said, “If you don’t like change, you’re going to like irrelevance even less.” Although Shinseki’s tenure as Secretary of VA was controversial, his insight on keeping pace with change remains invaluable. Sg2 is here to make sure you are on top of the trends that ensure your System of CARE and strategies keep you at the fore—ACO or no ACO. Let us know how we can help.
Sources: Petersen M et al. Growth and Dispersion of Accountable Care Organizations: June 2014 Update. Leavitt Partners; Gamble M. 5 takeaways from ACOs’ first-year results. Becker’s Hospital Review. February 4, 2014; Japsen B. How accountable care is transforming US healthcare. The Motley Fool. June 27, 2014; Gamble M. ACOs take $4M of startup capital, survey finds. Becker’s Hospital Review. January 27, 2014; Melnick G and Green L. Four years into a commercial ACO for CalPERS: substantial savings and lessons learned. Health Affairs Blog: April 17, 2014; Sg2 Analysis, 2014.