Poised for Growth, Commercial ACOs Also Face Considerable Challenges

The Affordable Care Act pushes the health care industry to find new and more innovative ways to deliver quality, cost-efficient care. Accountable care organizations — designed to reward health care providers for keeping their patients healthy — seem like the logical answer to such a mission. But are accountable care organizations formed between private insurers and health care delivery systems actually being held accountable?


As of January, more than 600 ACOs existed across the public and private sectors — up by more than 200 since January 2013. In that time, provider groups, not-for-profit community groups, practice management companies and other organizations increasingly have sponsored ACOs — with providers leading the way.

The number of U.S. residents who are part of an ACO rose from about 13.6 million at the end of 2012 to about 18.2 million by January. Most patients in ACOs are “attributed,” or assigned, to the organization based on the primary care provider they use. In some cases, patients might not even be aware that they are part of an ACO.

Rather than eliminating fee-for-service, ACOs change the payment system by creating incentives for health care providers to offer more efficient treatment by rewarding them for meeting specific benchmarks, such as preventing hospital readmissions and appropriately managing patients’ chronic diseases. Unlike HMOs, ACO patients are free to see outside providers at any time without paying exorbitant fees.

Private ACOs on the Rise

In some regions of the U.S., large health care systems are working to buy private physician practices in an attempt to form ACOs. In addition, many large private insurers across the country — including Aetna, Anthem and Blue Shield in California — are jumping onto the ACO bandwagon. Insurers say they can ensure ACOs are successful by providing data tracking on patients, enabling better evaluations of the care provided.

Meanwhile, some large multispecialty provider groups already had networked with local hospitals to form an ACO even before the health reform law came along. Kelly Devers, a senior fellow at the Urban Institute, said those groups now “are going to dust off the existing structures they had in place.”

Farzad Mostashari, a visiting fellow at the Brookings Institution and former National Coordinator for Health IT, told California Healthline that “ACO arrangements with commercial plans can be more flexible and customized to the organization’s particular circumstances, assets and needs.”

What’s the Catch?

The increasing number of commercial ACOs might indicate that most industry players think accountable care is the way to go to increase care quality and reduce health care costs. However, while Medicare ACOs must meet quality measures outlined by CMS, organizations between private insurers and health systems are not held to the same standards.

Robert Cimasi, CEO of Health Capital Consultants, in his book “Accountable Care Organizations: Value Metrics and Capital Formation” writes that “commercial ACOs could potentially have extreme variation of quality measures among individually agreed upon contracts.” (But Cimasi also notes that some commercial ACOs could adopt voluntary standardized measures — such as those used to seek accreditation by the National Committee on Quality Assurance.)

In addition, Mostashari noted that such organizations also have greater “variability between different payment models” and the “difficulty of managing different requirements for providers.”

Meanwhile, health economists say the care model could have one major pitfall: fewer independent providers. A larger market share for big health systems that have formed ACOs ultimately could lead to fewer choices for patients.

Another catch is that by reducing patients’ use of health care services, providers’ revenue decreases. Health care consultants also say that incentive payments for ACOs could fall short of start-up costs.

Are Private ACOs Working? 

Harold Miller — president and CEO of the Network for Regional Healthcare Improvement and executive director of the Center for Healthcare Quality and Payment Reform — said that health care consumers and payers still need to be sold on the end game. Both commercial and Medicare ACOs “will need to prove that the overall health care product they’re creating does work better and costs less in order to encourage patients and payers to buy it,” Miller said.

Patient engagement will be key to ACOs’ operations. In a commentary in JAMA Internal Medicine, Paul Ginsburg with the University of Southern California’s Sol Price School of Public Policy argues that while the ACA laid out how ACOs are paid and how they interact with patients, it “essentially left beneficiaries out of the equation, not offering incentives to choose an ACOor to commit — even softly — to its health careproviders.” He adds, “This absence may severely undermine the potential of this approach to improve care and control costs.”

CMS’ Pioneer ACOs likely will begin seeing results — or a lack thereof — this year and that could be a big indicator of whether the ACO model is worth pursuing. David Muhlestein, director of research at Leavitt Partners, in a Health Affairs Blog post said the importance of the Pioneer ACOs’ results “cannot be understated.”

In an interview with California Healthline, Ginsburg said that a lot of industry stakeholders also will be looking to Medicare’s ACO model because it has not changed since it was introduced in 2011. However, he noted that “any lack of success will be taken by many as an indication that the model needs to change rather than a conclusion that ACOs do not work.”

However, Muhlestein said, “Many organizations that have considered pursuing accountable care contracts are eager to observe how their peer institutions perform.” Therefore, private payers looking to enter into an ACO contract would get the most encouragement from other commercial ACOs finding success.

“Consistently positive results will help these organizations that are sitting on the sidelines to decide to move toward value-based payments,” Muhlestein said, adding, “Organizations that are considering accountable care will be best helped by seeing success in similar organizations.”

At the same time, according to Muhlestein, negative or ambiguous results “will not only discourage potential ACOs from forming, but will lead to existing ACOs abandoning their current value-based contracts.”

Ginsburg added that measuring the success of any ACO is a challenge because the model is continuously changing and adapting. “By the time research is completed to assess the initial models, they will have been refined substantially, throwing into question the relevance of the evaluation work,” he said.

The Future of ACOs

Given the challenges and potential pitfalls, the question is: Are ACOs worth the risk to their creators? Most experts agree that the ACO model in general is set to expand in coming years.

Ginsburg told California Healthline that he expects the trend of ACO growth “to continue for some time, although it is possible that other types of contracts between payers and providers will replace them.”

Muhlestein said of ACOs: “With continued government support … and considerable growth in the number of organizations becoming ACOs, the prospect of ACOs becoming the dominant model in care delivery seems very real.”

In an interview with AHRQ, Stephen Shortell, dean of UC-Berkeley’s School of Public Health, said, “The spread of ACOs across the country needs to be accelerated” by “encouraging widespread changes in payment by insurers” and “by encouraging more mature ACOs to share lessons learned with those still developing.”

Meanwhile, Mostashari said, “We have to take the long view, and be focused on iterating, evolving, and improving the concept, rather than seeking summary judgment,” noting that “it took the better part of a decade to understand the impact of Part D and Medicare Advantage.”

Around the nation

Here’s what other stories are making news on the road to reform.

ACA opponents spend big to oppose the health law: Lauren Fox writes in U.S. News & World Report‘s “The Ballot 2014” that opponents of the ACA have spent a combined $418 million disparaging the law — nearly 15 times as much as supporters have spent on campaigns promoting it.

Open enrollment and congressional nominees: NPR’s Renee Montagne and Scott Horsley discuss what effects — if any — results from the ACA’s first open enrollment period will have on midterm elections being held in several states.

Say goodbye to ‘Obamacare?’ President Obama says that opponents will stop using the ACA nickname once the law proves successful, Katie Zezima reports in the Washington Post‘s “Post Politics.”

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