3 Most Essential Elements of a Successful ACO

With accountable care organizations on a steady rise across parts of the nation — more than 60 have been created in the past six months — hospital and physician leaders involved in organizations are beginning to consider what is and isn't working in ACOs.


As a clinically trained medical professional and Manager at Blue Consulting Services, John Redding, MD, MBA has helped both hospital executives and physician leaders develop ACO game plans. Here, Dr. Redding shares what he believes are the three essential elements of a successful ACO and some of the consequences of not considering them.


1. A deep understanding and vigilant management of costs. Many physicians who have decided to participate in an ACO see a financial opportunity in doing so, Dr. Redding says. Given that any opportunity for shared savings with physicians is predicated on the ACO realizing savings as an organization, successful ACOs must develop a deep understanding of their true costs and then establish processes to "vigilantly manage those costs," he says.


"If an ACO does not focus on costs, the physician participants will not receive incentive payments in return for their efforts and will lose either interest in or terminate their participation," Dr. Redding warns. "The ACO will be destined to fail."

One of Dr. Redding's concerns with CMS' final ruling on ACOs is that the agency doesn't offer much advice in regards to cost containment.

" CMS has been very prescriptive in regards to ACOs in a number of areas, for example quality metrics," Dr. Redding says. "But they don't spell out how ACOs will actually achieve cost savings."

For ACOs to succeed in achieving real cost savings, and therefore have the ability to share savings, Dr. Redding says organizations need to move beyond using the ratio of costs-to-charges when calculating costs of care.

"At best, this practice presents healthcare organizations and providers with a sense of direction or magnitude in regards to what it costs to provide care to patients," he says.

Dr. Redding says ratio of costs to charges calculations ultimately lack the rigor to:

  • Accurately determine true costs;
  • Precisely calculate profitability by service or service line;
  • Allow organizations to make fully informed pricing decisions.

"While it is a word most providers hesitate to mention at a level higher than a whisper, ACOs that approach costs from a capitated mindset — in the way they analyze, report and manage costs — are more likely to remain viable in the long-term," Dr. Redding says.

2. Sophisticated clinical analytics.
For any ACO to succeed in providing improved quality of care at a reduced cost, it will need to have an intelligent, robust clinical analytics system in place.

"As a clinically trained healthcare professional, I assume that no licensed physician would intentionally withhold necessary care from a patient," Dr. Redding says. "That being said, there are many reasons why physicians may unknowingly fail to provide necessary care to a patient."

He says the continuous and ever-expanding amount of information in the medical field makes it virtually impossible for a physician to stay up-to-date with all evidence-based standards of care. Also, a fragmented healthcare system — including clinical data — might prevent physicians from having a truly holistic view of the patient.

"Every physician thinks, or should think, they provide high quality of care to their patients, but in an ACO they will have to prove it," Dr. Redding says.

Sophisticated clinical data sharing and analytics will help ensure physicians are performing on par with, or even above, what's expected of them. According to Dr. Redding, successful ACOs will provide support through electronic health records and health information exchanges, as well as supplementary technologies including clinical registries, clinical decision support systems and predictive models.

Clinical analytics will help improve quality of care and also aid in an ACO's pursuit to share in cost savings. Dr. Redding says reducing inefficiencies and waste will help drive cost savings in the short-term, and effectively managing disease through population health will provide cost savings in the long run. However, ACOs will need to utilize population health management tools that help physicians capture, share and use data at the site-of-care.

"ACOs with a myopic focus on the point-of-care will eventually fail," Dr. Redding says. "Those that minimize traditional point-of-care encounters or redefine the point-of-care altogether — for instance, those that use telemedicine — will be the big winners."

Additionally, successful ACOs will expand clinical analytic capabilities to support all participating providers, from administrators to physicians to nurses and care managers. This will help organizations identify high-risk patients and gaps in care, and redefine care processes while helping improve the care decision-making process.

3. An elegant methodology for sharing savings.
Putting together a shared savings plan that is elegant and representative of the interests of all ACO partners' interest is "an art," Dr. Redding points out. Ensuring shared savings is also no easy feat.

"In three years, it is likely that any ACO in the position of distributing shared savings will consider that their participation in the Medicare Shared Savings Program has been a success," Dr. Redding says. "And while there is no doubt that resolving quarrels over the fairness of any shared savings distributions may be a good problem for an ACO have in a few years, the allocation of profits has been the undoing of many a healthcare joint venture in the past."

Dr. Redding says, in regards to the distribution of any ACO's shared savings, "an ounce of prevention will certainly be worth a pound — or maybe a ton — of cure."

He predicts successful ACOs will be the ones that put significant thought into the specifics of shared savings distributions, and that take the time to modify and update sharing plans as often as necessary.


More Articles Related to ACOs:

Report: More than 60 ACOs, Mostly Commercial, Added Since November 2011

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