Accountable care organizations are spreading like wildfire in California, but whether they completely alter the health care landscape or flicker out remains to be seen.
As of July, about 100 ACOs covered 644,900 Californians in 32 counties statewide, according to a report by Catteneo and Stroud, a health care consulting firm in Burlingame.
ACOs are networks of physicians, hospitals and other providers who partner with payers to coordinate care for a defined group of patients. Under agreed-upon terms with payers, including private insurers and Medicare, providers must meet quality and performance targets in exchange for shared savings for the cost of delivering care. ACOs are a departure from traditional fee-for-service arrangements in which providers are paid negotiated fees for each office or hospital visit.
The federal government and private insurers have launched ACOs in California with mixed success so far. Whether ACOs generating savings in the near term will be able to sustain those savings while maintaining quality standards remains to be seen, according to stakeholders and experts.
“It’s not a matter of whether the glass is half full or half empty but which direction the water is flowing,” said Stephen Shortell, dean of the UC-Berkeley School of Public Health.
Shortell is conducting a national evaluation of ACOs with grant support from the Commonwealth Fund, a New York-based health care foundation. He said that even though California is ahead of the curve in terms of ACO adoption compared with other states, he believes more local providers and payers should adopt risk-based models in order to improve the care of patients and reduce costs.
“In this state, we need to move faster,” Shortell said. “Some 80% of people in California are still in a fee-for-service system. We need to put our foot to the metal.”
Blue Shield Started in North, Spreading South
Northern California — with its long history of integrated care and the foundation model with physicians working closely with hospital-operated foundations — has served as a sort of a staging ground for the move toward ACOs, Shortell said.
“You can see the kind of ripple effect of having Sutter Health and Kaiser Permanente here,” Shortell said.
Blue Shield of California launched its first ACO in 2010 in Sacramento in partnership with CalPERS. The San Francisco-based insurer now has 10 ACOs operating across the state that provide care for 160,000 members. ACO markets include San Francisco, Contra Costa County, Santa Cruz, Los Angeles, Orange County and the Central Valley.
Kristen Miranda — vice president of strategic partnerships and innovation for Blue Shield of California — said the insurer’s ACOs “really run the gamut in terms of starting performance level and structure.” Still, she said, “we are seeing results across the board so something seems to be working” in both Southern and Northern California markets.
She said the main difference between the two markets is that medical costs are higher in Northern California. “There’s no difference in terms of the level of engagement,” Miranda said.
The Blue Shield of California ACO attracted national attention when CalPERS announced in 2012 that it saved $37 million in the first two years of its ACO with the insurer, Dignity Health and Hill Physicians Medical Group, coordinating care for 41,000 members.
Doug McKeever, chief of the health policy research division of CalPERS, said the experience showed that care coordination works. Most savings were achieved in fewer hospital admissions and a shorter average length of hospital stay for members. “The coordination of care between hospitals and physicians was greatly improved,” McKeever said.
CalPERS — which covers more than 1.3 million beneficiaries and spends $7 billion a year on health care — has eight ACO programs statewide. Starting in 2014, CalPERS will require contracting health plans to integrate care where possible. McKeever said health plans that won CalPERS bids — including Health Net, Anthem Blue Cross, Blue Shield of California and UnitedHealth Group — must develop plans to integrate care over the next five years.
“We see this as a huge foundation for us moving forward,” McKeever said of care coordination. “Our perspective is that both Northern and Southern California can have effective integrated systems.”
One of the biggest challenges, he said, is “getting providers and hospitals to come to the table and work with the carriers to develop these models.”
Another challenge is sustaining achieved savings over the long term, according to stakeholders. Once transfers from the inpatient to the outpatient side run more smoothly and better communication among providers is established, the question is what will generate additional savings? Some say there is a possibility that ACOs could become pockets of diminishing returns.
“It definitely gets more challenging” to find savings, Blue Shield’s Miranda said. “We’ve had some candid discussions about that.”
Technology could help identify additional savings, she added. Remote patient monitoring could cut down on physician office visits and hospital stays. In Santa Monica, providers recently went live with a system that alerts a case manager and a hospitalist when an ACO patient lands in a hospital emergency department, prompting immediate action, she said.
“It’s very much an interactive process,” Miranda said. “You start to look further and further and further out,” she said of possible savings.
Biggest Savings Come From Chronic Care
Shortell said the bulk of savings in ACOs are coming from patients with multiple chronic conditions who need better health management. These are the so-called “553 population,” the 5% of patients who generate 53% of health care costs in the state, he said.
“At some point, there will be diminishing margins so we have to look at the other end, at the people who aren’t sick and who are not patients,” Shortell said. “When providers have money up front, they need to invest in the population enrolled with them and keep them out of the office. You make money by keeping them out of your office. That’s where the savings are going to come from.”
But ACOs are just at the starting gate, he added. And some are struggling to find the right mix of risk and savings.
In July, Medicare announced that nine of 32 provider groups participating in its Pioneer ACO program nationwide were dropping out of the program. Seven of those said they would apply for another Medicare ACO program, the Shared Savings Program, which carries less risk.
HealthCare Partners, a medical group in Torrance, Calif., and PrimeCare Medical Network in Riverside and San Bernardino counties, are among those exiting the Pioneer ACO. California’s third Pioneer ACO operating in San Francisco, led by Brown & Toland, is staying in the program.
HealthCare Partners applied for the Medicare Shared Savings program but has not yet heard whether it has been accepted, said Robert Klein, spokesman for HealthCare Partners. The group is also conducting ACOs with Cigna and Anthem Blue Cross.
“We are definitely very engaged with the ACO model,” Klein said.
Klein declined to elaborate on the reasons behind leaving the Pioneer ACO program. But he said starting an ACO is no easy task.
“There’s a good deal of learning that’s required by providers,” he said. “There’s a lot of resourcing requirements of ACOs,” such as identifying patients and the interventions necessary to improve their health, he said.
Primecare Medical Network did not respond to a request for comment for this article.
In interviews with providers that participated in the Pioneer ACO program, Shortell said he found organizations with more sophisticated electronic health record systems fared better. He said those that did not see savings in the first year should not give up.
“They are better off for having gotten involved with it,” Shortell said. “Maybe it’s not their cup of tea but they learned a lot.”
Brown & Toland Continues To ‘Fine Tune’
Brown & Toland, the sole California-based medical group staying in the Medicare Pioneer ACO program, generated $10.6 million in savings in 2012, the first year of the program.
Keith Pugliese, vice president of accountable care and public policy at Brown & Toland, said he can’t say for sure that those savings are a direct result of the ACO model. Medicare spending per beneficiary grew by just 0.4% in 2012.
“It’s probably due to a variety of factors,” Pugliese said of the savings generated through the ACO. “We are continuing to fine-tune our approach.”
One example is supporting physicians to strengthen their relationship with their patients, instead of having communications come from officers at the independent practice association. “Patients may not know Brown & Toland, they just know their doctor,” Pugliese said.
It takes a mix of strategies to succeed under this model, Pugliese said.
“I don’t think any one tool is a secret sauce,” he said. “As far as accountable care is concerned, the industry is on a huge learning curve.”