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ACO Readiness: 6 Chief Determinants

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Numerous theories exist about what health systems need to successfully launch an accountable care organization. One of the most popular revolves around the concept of "the bigger the better:" You must have deep pockets so you can purchase multiple physician practices to account for a large portion of the market you serve.

Though economically sound, this theory is largely based on the health maintenance organizations of the 1990s. To some, ACOs are simply "HMOs on steroids." That fact is, ACOs and HMOs are not one in the same, and many advancements have been made in care delivery over the last two decades. So in reality, since the ACO concept is still relatively new, there's little information based on real-life experiences that outlines how ready a system is to launch one.

As more providers move towards developing ACOs (estimates suggest approximately 330 existed at the end of 2012, and another 106 have been added in 2013 through the Medicare Shared Savings Program), it's vital for them to understand the capabilities they need — and what they don't — to create and participate in an effective model that constrains healthcare costs while improving quality. And there's no better way to learn than from the first-hand experiences of health systems that have already taken steps toward becoming ACOs.

An in-depth analysis of 59 organizations operating 88 distinct hospitals of various sizes, characteristics and regional locations suggests the following attributes are not essential requirements for a health system to successfully implement an ACO:

From market share to physician employment, size does not matter. Despite industry speculation, significant market share or owned physician groups are not necessary for ACO formation. In fact, those furthest along in their ACO deployment have fewer employed physicians than others, and control a relatively small piece of their local markets.

• Deep pockets aren't necessary. ACO readiness does not hinge on large operating margins or financial reserves. In fact, health systems with limited operating margins due to a large proportion of non-commercially insured patients are just as likely to move toward accountable care as those with larger margins. To give an example, one of the systems most prepared to form an ACO was a public hospital with relatively poor financial standing.

•  Areas with low costs aren't further along. Despite predictions that only systems with relatively low medical costs would be equipped to launch ACOs, analysis found no correlation between expenditures in local market and ACO readiness. This could be due to the fact that, although high expenditures might reflect a more difficult market in which to establish an ACO, it may also provide more opportunities for savings with the reduction of inefficiencies, better coordination of care, and reduction of duplicative procedures and testing.

So what are the true factors that determine ACO readiness? Based on data collected through the assessments, chief determinants include:

•  Existing collaboration with other health systems or as part of a larger corporate entity. Though physician ownership and market dominance didn't seem to play a role in ACO readiness, having a positive relationship or an affiliation with other providers did. Collaborating with other health systems or being part of a larger corporate structure may allow a provider organization to offset some of the costs associated with investments needed for ACO development.

•  Full or partial health plan ownership. Owning a health plan offers experience with some fundamental ACO requirements, including reducing unnecessary services, harm and overall waste. It also helps to capture a higher proportion of savings achieved from delivery system redesign, which may not be shared with providers working with an external payor.

•  Existing risk-based contracts with payors. Providers most prepared to become an ACO have taken prior steps toward risk-based contracts with payors through bundled payment and pay-for-performance contracts. This allows a provider organization to incrementally build the necessary administrative and clinical infrastructure.

•  A sophisticated EHR and an HIE implementation strategy across the continuum of care. Due to the heavy reliance on data sharing ACOs require, the presence of a sophisticated electronic health record and a health information exchange implementation strategy is needed. These capabilities foster seamless care coordination with sophisticated population health status measurement that will improve health status and reduce overall costs.

•  Clinical integration across the continuum of care. Coordinating care across the continuum is essential to any successful ACO. Health systems most ready to form ACOs exhibit a greater ability to foster coordination and collaboration across multiple care sites during patient episodes of care.

•  A patient-centered health home with employed or community providers. Health systems that redesign inpatient and outpatient scheduling, and care delivery processes to be more patient-focused are better positioned to assume accountability for the health, experience and costs of the populations they serve.

Success in developing new delivery models such as ACOs requires a dramatic shift in the financing and delivery of care — changes that will touch virtually everyone providing, receiving or funding it. The front-line experiences of health systems developing ACOs clearly indicate that no "one-size-fits-all model" exists. Instead, there are different paths toward successful implementation of this complex delivery and payment model.

Eugene A. Kroch, PhD, serves as vice president and chief scientist of Premier healthcare alliance. In this role, Dr. Kroch oversees Premier's health services research agenda, which includes guiding innovations to Premier's data analysis and reporting tools, engaging with the national agenda on hospital care and health policy and educating members (and the interested public) on how to understand key health services findings and their implications for health care and health policy. Dr. Kroch joined Premier in 2007 after serving seven years as vice president and director of Research at CareScience, an organization founded by the Wharton School faculty to disseminate health purchasing and management tools based on research conducted at the University of Pennsylvania.

More Articles on ACOs:

3 False ACO Readiness Assumptions
What's Next for ACOs?
Survey: 50% of Hospitals Say They Have Financial Strength to Accept ACO Risk

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