ACOs: The Least Agreed-Upon Concept in Healthcare?

Healthcare is one of the country's most heavily regulated industries, one also driven by diagnoses, evidence and clinical expertise. Yet, despite this objectivity, one three-letter acronym has caused quite a divide among healthcare policy experts, physicians, health systems and payors.

The ACO, or accountable care organization, may very well be the least agreed-upon concept in healthcare today.

The term ACO was coined in 2006 by Elliott Fisher, MD, director of Dartmouth Institute for Health Policy and Clinical Practice in Hanover, N.H. The concept resembles that of health maintenance organizations, with a focus on cost savings and accountability. The concept was embraced by lawmakers and built into the 2010 Patient Protection and Affordable Care Act.

In the first few months — even years — after the passage of PPACA and after the publication of CMS' long-awaited final ACO rule, it wasn't uncommon for healthcare experts to call ACOs the "unicorns of healthcare." Critics said the healthcare law encouraged a model everyone had heard of, but nobody had seen.  

The unicorn moniker has since fallen to the wayside. As of January 2013, there were 428 ACOs — sponsored by commercial payors and Medicare — across 49 states. That's a significant increase from March 2010, when there were just 10 ACOs across the entire country.

From late 2011 to early 2013, Medicare contracted with more than 250 ACOs nationally with 4 million total Medicare beneficiaries. Another 100 to 200 ACOs are expected to be added in the next two years. The model has spread just as quickly on the commercial side. For instance, last year, commercial insurer Cigna announced its plans to have one million patients enrolled in its ACOs by 2014 — a tenfold increase at the time of the payor's announcement.

Although the model has grown by leaps and bounds in the past three years, proliferation does not necessarily thwart criticism. ACOs have stirred debate since day one, and they've been subject to a few louder critiques as of late.

In February, two professors from Harvard University and a senior research fellow from Innosight Institute, an education and healthcare think tank, published an op-ed in The Wall Street Journal, highlighting what they called "flawed assumptions" that will ultimately lead ACOs to fail. "The ACO concept is based on assumptions about personal and economic behavior — by doctors, patients and others — that aren't realistic," the authors wrote.

A month later, Deloitte released its "2013 Survey of U.S Physicians," based on 613 responses from primary care physicians, surgical specialists, non-surgical specialists and other physicians. In a somewhat unpromising finding, only one in three physicians reported familiarity with ACOs, episode-based payments and patient-centered medical homes. That meager rate of familiarity was noteworthy, given that ACOs have been part of the healthcare reform law for more than three years now.

To punctuate the dampening events, the 32 Pioneer ACOs sent a letter to CMS, asking the agency to reconsider the quality metrics they are required to report on in 2013. The Pioneer program was designed to be a high-risk, high-reward model with an accelerated track to ACO formation. For the past year, Pioneer ACOs received payment for reporting data on metrics. In 2013, the ACOs are slated to move from pay-for-reporting to pay-for-performance. In year three, Pioneer ACOs that have shown a specified level of savings over the first two years will be eligible to move a substantial portion of their payments to a population-based model.

In their letter, the Pioneer ACOs urged CMS to hold them to reporting status only in 2013, just as they were this previous year. The Pioneer ACOs also asked CMS to delay 2014 payments tied to performance benchmarks. Those benchmarks are being applied this year for the Pioneers, and the 32 organizations claimed that 19 of the proposed "flat percentage" benchmarks were higher than other quality performance targets.

In April, CMS denied the Pioneer ACOs' requests to delay the pay-for-performance period, and said performance benchmarks will apply to Pioneer ACOs in 2013. The discord between the ACOs and CMS could be considered a significant hiccup in terms of confidence around the Pioneer ACO program.

Here, various experts weigh in on why the healthcare industry has been slow to accept ACOs, the five most common arguments against the model and what it will ultimately take for ACOs to become a proven strategy for population health.

"There is no magic bullet"
Stuart Lockman, Esq., is president of Michigan Pioneer ACO, which is Detroit Medical Center's ACO. The ACO is managed by the DMC Physician Hospital Organization, which includes approximately 1,100 providers, and it is one of CMS' Pioneer ACOs.

"ACOs have really proliferated in the past three years or so, considering that this was a concept that was only written about in academic journals around five or six years ago," says Mr. Lockman. "To have 300 of them up and running already is sort of a remarkable achievement."

Michigan Pioneer ACO was one of the 32 Pioneers to sign the letter to CMS requesting a change to the quality reporting requirements. The ACOs' letter said CMS does not yet have mature data for empirical benchmarks, a considerable roadblock, and that CMS' proposed benchmarks are loftier than those in commercial contracts and difficult to meet. But the problem may stretch beyond the Pioneers. Mr. Lockman says problems around data and benchmarks are likely to present themselves in any ACO arrangement.

"ACOs are driven by data," says Mr. Lockman. "The question is the availability and extensiveness of the data with which you have to work. We have had our own issues with CMS in terms of the data we receive, and [other ACOs] have had data issues with their particular payors or insurers. In terms of expanding the ACO program, the ACO must examine each particular arrangement to understand the data it will receive."

As far as expenses go, claims expenditures on Michigan Pioneer ACO's 12,900 patients have remained flat or below the baseline data provided by Medicare. That means the ACO is spending no more on its patients than it has historically spent.

Mr. Lockman says he's hesitant to jump on the bandwagon when it comes to broad criticism of the ACO model. "There is no one magic bullet," he says. "My feeling is that it took us years to get us to the point we're at. You can't expect everything to be changed overnight. ACOs put emphasis where it should be, which is on cost and quality."

Marc Bard, MD, co-director and physician leader of Tufts Health Care Institute in Boston and author of "Accountable Care Organizations: Your Guide to Strategy, Design and Implementation," says the concept of ACOs is so complex, there are bound to be contentions.

"Anybody looking at the ACO and saying that it will or won't be the end-game for healthcare is missing the point," says Dr. Bard. "It's an evolutionary stepping stone in building a system of care," says Dr. Bard.

Five frequent arguments against ACOs
Criticism of ACOs in the past few years has varied in extremity and logic, but there have been a few recurring arguments made against the pay-for-performance model.

1. In the grand scheme of healthcare spending, ACOs' savings will be slight.
Will juice from ACOs be worth the squeeze? Will incentives be enough to change physicians' behavior? How many administrative costs will ACOs accrue? These continue to be some of the most pressing questions about the model.

Some skeptics have said ACOs involve more work than reward. For example, in November 2011, former Federal Trade Commission Commissioner J. Thomas Rosch said that in even the most optimistic scenario, "the savings to Medicare from the ACO program are no more than a rounding error."

Unfortunately for ACOs' defense, it's still too soon for CMS to point to how much money ACOs will save Medicare — if any. Richard Gilfillan, MD, director of the Center for Medicare and Medicaid Innovation, said more "telling evidence" about CMMI models, including accountable care organizations, would be available this summer. But commercial models have reported some promising results, like Oak Brook, Ill.-based Advocate Health Care's ACO.

Advocate launched its ACO, called AdvocateCare, in late 2010 with Blue Cross Blue Shield of Illinois. The ACO includes 10 hospitals and covers roughly 380,000 patients. Based on data from the ACO's first six months, hospital admissions per member decreased by about 10 percent and emergency department visits fell by 5 percent. Year-one data from the ACO showed a 26 percent decrease in readmission rates for AdvocateCare patients with chronic illnesses, due in part to patients' access to transition coaches. And the 13.6 percent readmission rate for AdvocateCare patients who were sent to nursing facilities was still lower than the national average, 20 percent.

2. ACOs were designed on a premise that overestimated the level of integration in healthcare.
CMS offered the Pioneer ACO program in recognition that a handful of integrated health systems were further along in their clinical integration, coordinated care and shared savings arrangements than others.

Healthcare experts often point to those health systems and other highly integrated organizations, like Oakland, Calif.-based Kaiser Permanente or Danville, Pa.-based Geisinger Health System, as what ACOs should ultimately resemble down the line, but these comparisons may be overstated.

Dr. Bard of Tufts says ACOs were founded under the idea that there is a high degree of cohesion between physicians and their community hospitals, something he refers to as "systemness." The only problem is this assumed level of systemness or integration is not found in many communities in America.

"At the end of the day, if the only successful ACOs are those from Geisinger, [Rochester, Minn.-based] Mayo Clinic and Kaiser Permanente, what has society gained?" says Dr. Bard. "These organizations were already operating at the highest levels of confidence in respect to the triple aim." The triple aim was the concept coined by former CMS Acting Administrator Donald M. Berwick, MD: to improve the health of populations, improve the patient experience and reduce per capita healthcare costs.

Instead of integrated systems operating successful ACOs, Dr. Bard says ACOs' worth will be proven if they can transform care delivery in organizations and regions that are not prolific healthcare hubs, such as Syracuse, N.Y., or Wichita, Kan.

Gary Thomas, COO of Accountable Care Solutions at Aetna, says he's seen nuances in how organizations pursue accountable care programs, driven by the level of integration they've attained. "Interest in a specific approach seems to be heavily dependent on how prepared an organization is to make this transition — both structurally and culturally. Those [health systems] that are far along in clinically integrating their networks are looking at a range of accountable care models to leverage public and private payor programs."

He says those health systems that are less advanced are looking for consulting, capabilities and other gain-share programs to push clinical integration and build a foundation for value-based care.

3. ACOs won't work when healthcare still operates in a fee-for-service system.
Even though ACOs are built on a pay-for-performance reimbursement model, Medicare continue to reimburse hospitals on a fee-for-service model. Medicare also reimburses individual providers and suppliers for specific services just as it did under fee-for-service payment system. Many hospitals continue to use fee-for-service as a way to keep score or determine which physicians have earned what portion of payments and savings. This is still the go-to method for "score-keeping" in some ACOs, according to a 2012 report from the New England Journal of Medicine.

Mr. Lockman of the Michigan Pioneer ACO says he's observed this inherent tension at DMC, and among ACOs in general. When hospitals and physicians are reimbursed on a fee-for-service model, it can be difficult to incentivize them to reduce utilization rates and spend more time with patients. "Part of the issue is that we are trying to have a pay-for-quality-driven system when we're still in a pay-for-volume system," says Mr. Lockman. "It's very difficult to live in both worlds."

A 2012 Commonwealth Fund report recommended that ACOs' compensation models should be locally determined, based on the unique makeup of the physician population, the relationship that exists between providers and payors, and other factors respective to the ACO.

Potential payment models for ACOs include straight salaries, a model Cleveland Clinic has used for years; equal shares, in which income is based on revenue after expenses with expenses divided equally among providers; productivity-based compensation, in which income is based on the percentage of either billings, collections or resource-based relative value scale units; incentive-based compensation, with a portion tied to providers' performance around core ACO goals; and capitation, in which income is based on distribution of money from payors either equally or based on a predetermined formula.

For ACOs to be successful on a nationwide scale, various approaches to payment need to be tested for effectiveness. Hospitals and health systems will also have to use fee-for-service payments in a more limited fashion. "Bringing Medicare and private-sector payment models into sync, to the extent possible, will facilitate this," the Commonwealth Fund reported.

4. ACOs will move patients out of hospitals and hurt hospitals' revenue.
Do ACOs represent hits to hospitals' revenue? It's certainly a possibility, but as healthcare strives to incorporate the tenets of the triple aim, declining inpatient admissions may be an unavoidable reality for hospitals.

The potential change to hospitals' bottom lines comes on top of ACOs' inherent financial burden, as well. Hospitals have the organizational structure, facilities and capital necessary for ACOs, whereas physicians drive the intellectual capital behind the model, making the most decisions about where healthcare dollars go. So while hospitals and health systems may provide the capital investments and infrastructure necessary for ACO success, it will also be their business model that takes the largest hit from the model as ACOs shift healthcare away from "heads in beds."

"To achieve the triple aim, care is going to continue its migration out of hospitals and into the ambulatory environment," says Dr. Bard. "The capital partners that need to make investments in the ACO are precisely those organizations that are likely to experience the greatest negative impact from the ACO — mainly a reduction in hospital volumes."

Mr. Lockman says the hospital industry faces a challenge today — to build accountable care mechanisms while ensuring hospitals can survive and thrive. "What we want to evolve to is a situation in which we reserve hospitalization for those who really need it," he says. "That may mean over a period of time, hospitals might become smaller or more specialized — not necessarily any particular hospital in and of itself but the system as whole."

Speaking from the payor side, Mr. Thomas says Aetna's ACOs involve opportunities for hospitals and health systems to tap into new sources of revenue. "For example, many of the ones Aetna is involved with include jointly marketed health plan products, giving health systems and provider organizations an additional way to improve the health of their communities while at the same time grow their patient base," he says.

5. ACOs take healthcare back to the 1990s.
Healthcare leaders have a hard time forgetting the 1990s and emergence of integrated delivery networks. These memories leave many in the industry pointing to ACOs and calling the model déjà vu. Physician-hospital organizations and management service organizations were designed to coordinate care through capitated risk contracts, but overall, they were regarded as ineffective in improving care quality or lowering costs. Those disappointments still linger for some cynics.

There has have also been consistent comparisons between ACOs and HMOs. For instance, some critics say ACOs should allow patients to partake in cost savings. This participation could take different forms, such as patients paying smaller copayments if they choose a physician who is in an ACO. If ACOs make it more expensive for patients to receive care elsewhere — as a strategy to keep patients in the ACO — then it may resemble an unfavorable, network HMO.

One of the most significant differences between ACOs and delivery networks in the 1990s is today's role of health information technology, data analytics and clinical decision support. But these tools alone will not make ACOs infallible, according to a 2012 study published in Health Affairs, which suggested that information technology is necessary but insufficient to improve outcomes in an ACO. Rather, the study found ACOs will fare best if they are not oversold as silver bullets and if structured to target specific populations.  

What will prove the ACO model?
The healthcare industry is still in a waiting game as far as ACOs' results. Although a few mature ACOs like AdvocateCare (and it's important to keep in mind that the term "mature" means that ACO is only about three years old) have reported hopeful results from its first year. Other newly launched ACOs are not yet able to disclose results. For Medicare savings, the industry has its eye on the Pioneer ACOs, and results from those 32 organizations are expected this summer.

Either way, whether in regards to commercial or Medicare results, Dr. Bard says people shouldn't expect dramatic results or a sudden wave of ACO acceptance and implementation.

"What I look for is evidence that as we invest in and improve systemness, with everyone working as a team, playing as far north in their licenses as possible and delivering patient-centered care, outcomes will improve. I think it will be a slow, steady improvement."

Dr. Bard and Mr. Lockman both noted that ACOs have already made changes to the healthcare industry, particularly for providers. Dr. Bard says ACOs have restored a level of professionalism across the industry that has been well-received and healthy, as ACOs have enabled the broader range of healthcare providers — nurses, physicians, dieticians, pharmacologists, social workers and more — to feel integrated in the care continuum. "That's what was lost in the 1990s: dignity and care and all those things that matter so much to those people," he says.

Mr. Lockman says although it will take time for ACOs to gain broader acceptance, he's observed a change in the provider-patient relationships within Michigan Pioneer ACO. As more providers begin to notice ACOs' positive effects and promotion of patient-centered care, Mr. Lockman says the model is likely to catch on.

Mr. Lockman says one of the things that has given DMC some hope is patients' experiences with care managers and improved transitions between care settings. "When we see patients being grateful for having care manager and providing care transitions — every one of those voices adds to support of program," he says.

"One of the things that makes us grateful is some of the individual experiences patients have in terms of working with their care managers and physicians and providing the kinds of care transitions that the fee-for-service, episodic care system in a fragmented environment does not provide. When we see patients thanking us for the extra care and support that we are able to provide, and working with them on care transitions — every one of those voices adds to the support of the program," he says.

More Articles on Accountable Care Organizations:

Survey: Rate of Physician Participation in ACOs Triples
55% of Hospital Execs Say Their Organizations Plan to Participate in an ACO by Year's End
5 Questions to Ask Before Forming an ACO

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