Interest Will Shift From Medicare ACOs to Private Payors, Consultant Says

As hospitals and other providers begin to have second thoughts about accountable are organizations under Medicare, similar arrangements being organized by private payors are beginning to look like a better alternative, says Rob Parke, a principal and consulting actuary with the New York office of Milliman.

Mr. Parke is not convinced that CMS' recent announcement of changes in the ACO program, such as introduction of the new Pioneer ACO model, will change the trend away from Medicare ACOs. Here he makes the following points about providers' declining enthusiasm for Medicare ACOs and the future growth of private-payor arrangements.


Why hospitals are stepping back from Medicare ACOs

"After reading through the proposed regulations, hospitals have a number of concerns as to whether these entities will work and whether they will ultimately be beneficial," Mr. Parke says. Moreover, he thinks hospitals' enthusiasm for Medicare ACOs was somewhat artificial. "Many hospitals were looking at ACOs from a defensive point of view," he says. "If a competitor started an ACO, what would they do?" But now that several prominent organizations that seemed perfect candidates for ACOs—like Mayo Clinic, Cleveland Clinic and Geisinger–have indicated they may not do so, everyone seems less interested.


Hospitals have several key concerns with Medicare ACOs, Mr. Parke says. For example, they are concerned that the Medicare ACO model would shift significant financial risk to the provider organization. "In the third year of either payment model you choose, the organization is put in financial risk," he says. On the other hand, some providers want to go beyond shared savings and accept greater financial risk, which is what CMS' new Pioneer ACO model is offering, he says.


Private payor models offer more flexibility

"While Medicare is very regulated and restricted, private payors have a lot more flexibility to establish an ACO," Mr. Parke says. Acting as intermediary among providers, the private payor can shield providers from legal issues like antitrust. It can also provide a number of alternative payment arrangements to choose from, such as sub-capitation, case rates, bundled payments and limited networks.


While many private-payor ACOs are just getting off the ground, one of the longest-standing arrangements is the Alternative Quality Contract, offered by Massachusetts Blue Cross Blue Shield of Massachusetts. "This is indicative of the fact that Massachusetts has been operating under healthcare reform for several years, longer than other parts of the country," Mr. Parke says.


Why payors are launching ACO-like arrangements

Health plans are looking forward to the insurance exchanges that will be offered under healthcare reform, Mr. Parke says. "Price is going to become very important issue in the exchanges, because plans are going to have to compete on price," he says. "Plans have to work with providers to become more efficient and thus offer lower premiums." Regionally-based health plans are best set up for this, because they tend to have high concentrations of members in one geographical area, he says. Nationwide insurers like UnitedHealthcare tend to be spread out, although in some markets they have a large presence. For example, United purchased Oxford in the New York area. Aetna also has some substantial regionally-based HMOs.


Mr. Parke says health plans bring distinct advantages that providers may not have. For example, they can put requirements in place that encourage member compliance to health regimens, require participating specialists to follow clinical protocols and create networks that limit choice of providers.


The public will accept restrictions this time around

The public rebelled against restricted networks in the 1990s, but circumstances are different this time around, Mr. Parke argues. "It's a very different era," he says. Premiums, deductibles and other charges have risen so much that "people would be willing to accept limited networks if it meant significantly reduced payments."


Mr. Parke thinks the discount would have to be at least 10 percent for employers and other purchasers of healthcare to be willing to accept limited networks. He says some plans are aiming for this 10 percent threshold as they develop the restrictive networks. "It's a multiyear strategy, but the reduction will come from improvements in efficiency," he says. He thinks one area ripe for discounts is unnecessary services. By choosing the most efficient providers, he says a health plan might be able to assemble a network that has 80 percent lower costs than providers in general.


One the other hand, providers who cannot meet these efficiency requirements, Mr. Parke says, will begin to feel increasingly isolated.  "These providers will be struggling in the next few years," he says.


Learn more about Milliman.


Related Articles on Private ACOs:

Private Payors May Not Use Medicare Template for ACOs

CalPERS ACO Pilot May Produce $15.5M Savings

Cigna ACO Pilots Show Improved Quality, Costs



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