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Why California’s ACOs Could Become a Model for the Nation

It’s sometimes seemed like you can’t spell ACA without ACO.

The Affordable Care Act jumpstarted the creation of “accountable care organizations,” a new model for care delivery where doctors, hospitals and other providers voluntarily collaborate to lower costs while improving quality.

But whereas a few years ago — when the joke was that an actual ACO was as rare as a unicorn — now they’re virtually everywhere.

More than 400 providers are participating in Medicare’s ACO programs. Private payers have launched another 300-plus ACOs of their own.

And California’s been at the center of the action. By some counts, more than 100 ACOs — about one in seven nationwide — are located in the Golden State.

But the state of the nation’s ACOs isn’t universally strong. Many ACOs have yet to report significant savings or quality improvements. Some ACO leaders are frustrated with payers’ terms, saying they’re too punitive.

And with providers taking a hard look at whether they want to continue in Medicare’s programs, will the ACOs of the future come from California?

A Golden State for Accountable Care

It’s not surprising that ACOs would take hold in California: The state’s history has made it fertile ground for payment pilots, experts told California Healthline.

“We’re much more prepared in California to do at-risk contracting,” says Stephen Shortell, a health policy management professor at UC-Berkeley and director of the Center for Healthcare Organizational and Innovation Research.

Shortell ticks off some of those reasons: The state’s long experience with large, multispecialty medical groups; a record of progressive payment reforms; the unique role of Kaiser Permanente, particularly in setting the tone.

Dozens of hospitals and physician groups in California have joined Medicare’s ACO programs. But what’s helped distinguish the state is the activity on the commercial side, where Blue Shield of California and Anthem Blue Cross have led the way, Shortell says. More than 80% of the private-payer ACOs in the state are through those two organizations, he estimates.

Some of the early results — and initiatives — have been eye-catching.

An ACO formed by Blue Shield, Dignity Health and Hill Physicians Medical Group saved CalPERS $37 million in 2010 and 2011. In late 2014, Anthem and seven hospital systems formed Vivity, essentially a virtual ACO for the Los Angeles area.

And last week, Anthem reported that an ACO with six medical groups resulted in a 7.3% decline in admissions per 1,000 patients, which led to a drop in spending on inpatient care.

Several observers have suggested that these California-based pilots could end up as national models for providers and insurers that are weighing their own ACOs.

“I don’t want to overstate [last week’s] Anthem findings,” Gerald Kominski, director of the UCLA Center for Health Policy Research, tells California Healthline. But “I find these results very encouraging, because we should expect better care coordination in the sector of the market that has been virtually unmanaged to produce savings.”

“Savings could be greater in the future as these programs mature and are scaled up to more medical groups,” he added.

And the numbers are starting to add up.

“The bottom line is that California’s ACOs are helping to move the state toward achieving the vision of having 60 percent of the population receiving care in integrated systems by 2022,” Shortell and his colleague Richard Scheffler wrote in Health Affairs last week. “[A]nd at the same time reducing the percentage of the state’s health care expenditures paid through fee-for-service arrangements from 78 percent today to 50 percent by 2022.”

Medicare’s ACO Initiatives at a Crossroads

The optimism around California’s accountable care initiatives comes as some observers are growing pessimistic about Medicare’s ACO programs.

While some Medicare ACOs — although none in California — have collected savings of more than $50 million, more than half of the 400 organizations in the Medicare Shared Savings Program reportedly are wavering on whether to continue. One-third of participants have already dropped out from the Pioneer program.

“We were getting harmed,” Allison Fleury, then-CEO of Sharp HealthCare ACO, told California Healthline after her organization quit the Pioneer program last fall. “And that’s basically the case for all California ACOs.”

(In hopes of retaining MSSP participants, CMS issued a new rule last week that delays some of the punitive measures.)

One reason why Medicare ACOs aren’t as popular with providers? The terms tend to be one-size-fits-all, says David Muhlestein, director of research for Leavitt Partners. In contrast, commercial ACOs “have the ability to negotiate the terms of the commercial contracts with the payer,” he points out.

Experts stressed: Medicare’s placed a big bet on the ACO model. HHS Secretary Sylvia Mathews Burwell has pledged that 50% of Medicare payments will flow through ACOs, or ACO-like models, by 2018.

Yet Medicare’s ACOs have lagged private-payers’ ACOs in several key areas.

“[M]any ACOs have found that accountable care arrangements in the private sector can support greater innovation in care,” Brookings Institution researchers wrote in a recent Health Affairs blog post. “The commercial sector seems to be leading in payment and contracting innovation that can enable larger shifts away from [fee-for-service] payment with downside financial risk.”

What Comes Next

Muhlestein thinks that Medicare’s working to be progressive with ACOs, such as by debuting a new model shifts more risk to providers that are ready for it.

“The [Next Generation] model really is pushing the boundaries of what CMS has done in the past in terms of pushing risk to providers within the confines of the open-network Medicare program,” he says.

“Which organizations apply and are accepted into the program will show CMS’s vision of how which providers are best-prepared to take more risk.”

But Medicare’s broad push to keep more providers in ACO programs by delaying the pain may not be the right answer, either. And while some California ACOs show promise, “we’re moving too slowly as a nation,” says Shortell.

“We need to move more quickly to downside risk, not just these upside shared savings.”

Around the nation

Here’s a look at other stories making news on the road to reform.

The challenge of becoming an insurer. The ACA has encouraged more providers to take on risk, but hospitals making the shift to running a health plan may be in for a “rough landing,” Melanie Evans writes at Modern Healthcare.

What the states are — and aren’t — doing to prepare for the King v. Burwell ruling. Writing at Health Affairs, a team led by David K. Jones and Nicholas Bagley canvassed how the states are preparing for potential outcomes in the much-watched Supreme Court case.

How the White House could fix the ACA if SCOTUS rules against it. Tom Scully, the former head of CMS under President George W. Bush, believes the Obama administration could unilaterally move to fix many problems that would result from the ACA’s subsidies being struck down in the federal exchange, Dylan Scott writes at National Journal.

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