Monkey see, monkey do: Market dynamics of the ACO movement

While the growth of accountable care organizations is inching forward at a national level, it is starting to gain clout in specific markets across the country.

The unique market dynamics of the ACO movement are driven, in part, by the shadow of the HMO movement of the 90s, according to David Muhlestein, PhD, director of research at Leavitt Partners, who spoke May 9 at the Becker's Hospital Review 6th Annual Meeting in Chicago.

The failure of the HMO payer-driven model has caused some providers to wait in the wings in regards to ACOs — either for the movement to pass or for it to be tested thoroughly before they put their own organizations at risk.

"We haven't seen dominant penetration anywhere across the country," Dr. Muhlestein said. "There is still a minority of total lives under risk."

Approximately 23 million lives, or 7 percent of the population, are currently covered by about 1,000 ACO contracts, Dr. Muhlestein said. At the height of the HMO movement, 90 million lives were covered under HMOs. However, if past trends continue, Dr. Muhlestein expects ACOs to follow a similar path, with at least 75 million lives covered.

Although ACOs are not mainstream yet, they are becoming more popular, especially in markets with ACO clustering, like Chicago. In October 2010, Chicago's largest healthcare system, Downers Grove, Ill.-based Advocate Health Care, announced trailblazing plans to launch an ACO with Chicago's largest payer, Blue Cross Blue Shield of Illinois.

When, 18 months later, Advocate decided to join the Medicare Shared Savings Program, everyone realized it wasn't just experimenting, Dr. Muhlestein said. Advocate had laid the gauntlet. So, monkey see, monkey do — the rest of the Chicago market began to follow suit. Now every major hospital system and physician group in the Chicago area has created an ACO, either commercially or with Medicare, Dr. Muhlestein said.

"Even though it was a lukewarm market, that dominant provider can push things forward," he said.

Trailblazer organizations like Advocate may choose to launch ACOs because they believe accountable care is a better way of delivering care, Dr. Muhlestein said. They may want to prepare for future risk-bearing arrangements or increase market share. Some do it defensively — like the rest of the Chicago market — in response to accountable care activities of their competitors. Other ACO trailblazers do it as a last ditch effort, because they aren't able to stay competitive with traditional fee-for-service payments.

However, Dr. Muhlestein noted, these reasons will not be the same ones that motivate the organizations currently hanging back. Market level factors and associations can explain only about 20 to 30 percent of ACO growth, he said. Future growth will be driven by the success of existing ACOs, as contracts expand, by the continuing belief that providers will be forced to bear risk in the future, or by mandated and incentivized adoption from government payers.

The organizations hanging back can be surprising. High cost markets — with more slack to cut and more to gain in a shared savings arrangement — are not showing signs of significant growth, Dr. Muhlestein said. Other influential systems have also been waiting on the sidelines. Cleveland Clinic's Chief Strategy Officer Ann Houston told the New York Times, "We're so far behind [in ACO adoption] that we can be ahead," indicating Cleveland Clinic plans to wait and learn from everyone else and then jump ahead.

Future ACO growth will be heavily dependent upon strategy, according to Dr. Muhlestein. Dominant payers, such as Advocate, will continue to hold the ability to accelerate or slow adoption. But for ACOs to really gain traction, the key will be to see how successful providers manage populations. The key to success for providers isn't to master reimbursement, he said, it's to transform the care for better patient satisfaction and better quality outcomes at a lower cost.

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