Not long ago, the conventional wisdom was that hospitals would lead most accountable care organizations, because they were better organized and had deeper pockets than physician organizations do. While hospitals do dominate many ACOs, physician-led ACOs are growing more quickly than expected.

A majority of the 27 ACOs that contracted with the Medicare Shared Savings Program last April — as well as several of the 32 Pioneer ACOs — are led by physicians. Of the 88 ACOs that joined the MSSP in July, a little more than half are sponsored by private physician groups, independent practice associations and/or community health centers.

A recent survey by Leavitt Partners found that hospitals sponsored 118 ACOs; physicians, 70; community-based organizations, 4; and insurers, 29. As part of its review of the marketplace, Leavitt Partners also found that in the previous eight months, the number of physician-led ACOs had almost doubled, while the number of hospital-led organizations had increased by 20 percent.

What's behind the strong interest of physicians in ACOs? Conversations with physician leaders and experts indicate that some doctors view ACOs as their best hope to maintain independent practices. In addition, some physician groups regard the MSSP as a way to get their feet wet in risk contracting and to prepare for the shift away from fee-for-service reimbursement.

Experts agree that physician-led ACOs will need the cooperation of hospitals to keep track of patients, reduce length of stay and handle transitions of care. "If you're a physician group and you don't have a binding, powerful compact with a hospital or several hospitals, you can't succeed as an ACO," says Wells Shoemaker, M.D., medical director of the California Association of Physician Groups. "If what goes on in a hospital is not done with respect to your needs, you will not achieve economies. You won't achieve quality, either. It doesn't have to be a merger, but it has to be a meaningful bond."

For their part, hospitals can work with the physician-led ACOs to achieve their goals of improving quality and controlling costs. By following this course, hospitals can form closer ties with local physicians, avoid readmission penalties and better navigate Medicare's value-based reimbursement program.

The ACO ecosystem

If Leavitt Partners' count of ACOs — 221 as of May — is accurate, the majority of ACOs — 153 to date — are contracting with the MSSP.

These ACOs represent a diverse group of providers. The physician-led ACOs range in size from a few dozen to about 500 doctors, although some are larger. In contrast, many ACOs sponsored by hospitals and "hybrid" organizations formed by hospitals and doctors exceed 1,000 providers. But size alone will not determine success. The essential components of ACOs, experts say, are clinical integration and the ability to manage financial risk.

Both physician groups and observers view the MSSP as an ideal starting point for doctor-led ACOs, because it allows them to take only upside risk for the first three years. [Just two of the initial batch of 27 ACOs in the MSSP chose to take downside risk as well.] Similarly, some commercial payers are contracting with ACOs on a gainsharing basis. However, the group practice and IPA leaders interviewed by H&HN said their ACOs likely would assume more risk in the future.

The challenge for ACOs is to build an infrastructure that will allow them to manage care within a budget. Even some groups with managed care experience will not be able to do the kind of population health management required with their current staffs and IT systems. And, as some of the early ACOs are discovering, their investment in the infrastructure necessary to generate savings for Medicare entails financial risk.

"There is risk for us [in the MSSP]," acknowledges Yasser Hammoud, M.D., CEO and medical director of an IPA that manages Southeast Michigan Accountable Care, a 330-doctor ACO based in Dearborn. "We had to invest money to get to this stage. We had lawyers and consultants, and I had to hire extra staff to manage the population."

Except for ACOs formed by the largest, most mature physician organizations, doctor-led ACOs will need a lot of help, says

Stephen Shortell, dean of the school of public health at the University of California Berkeley. Many will partner with hospitals if they have a good relationship with them. Others, he predicts, will team with health plans.

Health plans dive into fray

One ACO that has taken the health plan route was started by Mount Kisco (N.Y.) Medical Group. The 280-doctor, multispecialty group formed its ACO with the help of Universal American, an insurance company that specializes in Medicare and Medicaid managed care. "They're providing care coordinators and the infrastructure we need to be an ACO," explains Scott D. Hayworth, M.D., president and CEO of the group.

Universal American has partnered with 18 of the 115 ACOs in the MSSP, and all of its ACOs are physician-led, says Robert Waegelin, the company's executive vice president and chief financial officer.

The insurer has been developing a gainsharing model with physicians since 2003, he notes, but it gained traction only after the advent of the MSSP. The health plan is giving its ACOs cash to invest in their infrastructure up front. It also analyzes Medicare claims data to identify high-risk patients who need case management and to track the ACOs' utilization of resources.

In return, the ACOs will give Universal American a negotiated slice of their shared savings after expenses are deducted, Waegelin says.

Other, much bigger health plans also are helping ACOs with infrastructure, care management and the insurers' own business analytics. "Health plans are subsidizing the cost of IT and providing care coordination [to physician-led ACOs]," notes Andrew Croshaw, managing director of the health care practice of Leavitt Partners. "Some of them are taking a simplified approach with provider organizations, so providers don't need the large-scale capital investment that was discussed only a year ago."

This simplified approach, he says, includes supplying data on hospital admissions of ACO patients, doing predictive modeling about which patients are likely to get sick and even providing care coordinators. As a result, the ACOs don't need large, expensive IT and care management structures to generate savings — although they probably will require more elaborate systems when and if they take downside risk.

Aetna, which has done high-profile deals with health care systems such as Banner and Inova, also has some agreements with doctor-led ACOs but hasn't announced them yet, says Charles Kennedy, M.D., who heads Aetna's aligned care solutions division. "The challenge with physician groups has been that most of them are more thinly capitalized than hospitals," he points out. "Many of them don't have the resources to take on the necessary development work. So it can work, but it requires a strong commitment from the provider group as well as external partners to make it work as effectively as possible."

Kennedy views the MSSP as a "compelling entry point" for these groups, but believes that many of them eventually will seek commercial insurance contracts to align their providers' incentives across their patient population.

Aetna is taking a "stepwise" approach to delegating risk to ACOs, he points out. Initially, the plan will share risk with them; only after an ACO's membership reaches "tens of thousands" will Aetna begin to shift full risk to that organization.

Like Aetna, Cigna HealthCare doesn't prefer any particular kind of ACO sponsor, says Dick Salmon, M.D., the carrier's national medical director for performance measurement and improvement. But whatever form an ACO takes, he stresses, "physician leadership is going to be key. Because they're the ones who ultimately have the relationships with the patients and the decision-making ability to help drive improvements in care."

Among the assets that Cigna provides to physician-led ACOs, Salmon says, are lists of patients admitted to the hospital, predictive modeling, care gap identification, performance reports and care management. "We provide some assistance to the groups in hiring care coordinators, who are able to act on this information with outreach and coordinated care. We also connect those care coordinators to the Cigna health coaches, so they have access to a larger care team to provide health coaching services to their population."

Cigna now has ACO contracts with 32 organizations in 16 states. Besides such major health care systems as Dartmouth-Hitchcock, Eastern Maine Medical Center and Piedmont HealthCare, these include large physician groups like Kelsey-Seybold Clinic in Houston and smaller, primary care-driven organizations such as the Medical Clinical of North Texas in Dallas and ProHealth Physicians group in Connecticut, Salmon notes.

Doctors and hospitals need each other

Hospitals and health care systems across the country are forming ACOs with their employed physicians and, in some cases, with private-practice physicians. And, even though some physician-led ACOs were formed as an alternative to hospital employment, their leaders know they cannot succeed without engaging hospitals.

Southeast Michigan Accountable Care is trying to reduce hospital admissions and ED visits by improving preventive care. Toward that end, Hammoud says, the ACO is using the Web portal and registry of Amagine, the AMA offshoot now owned by AT&T, to help physicians coordinate care better. The ACO also hired care managers and social workers to keep high-risk patients out of the hospital. Hammoud knows that hospitals also must help by apprising doctors of admissions and discharges, and collaborating with them on transitions of care.

"We're not asking hospitals for a discount," he says. "We're just asking for quality."

The ACO is now working with six hospitals that have accepted its protocols, including Trinity, St. Mary's and Henry Ford facilities. These hospitals, he says, see the benefit of working with the ACO to reduce their readmission rates and improve their quality scores.

Jordan Battani, managing director for CSC's Global Institute for Emerging Healthcare Practices, believes that physician-led ACOs can and should influence hospital behavior through formal contracts. "They're going to have to create formal arrangements concerning interactions with patients and the transitions of care and what the roles and responsibilities are going to be. Otherwise, the ACOs will spend all of their time trying to second-guess what's going on with their enrollees who are using hospital services."

Under such a contract — which legally cannot require patient referrals to certain facilities — hospitals would become subcontractors to physician groups, Battani says. But Shoemaker of CAPG warns that it would be a mistake for physician-led ACOs to regard hospitals as mere suppliers. "Hospitals need to feel they're an essential component of what's being done, and hospitals will have to make some compromises on the way they do things," he says.

Ken Terry is a freelance writer in Sheffield, Mass.


EXECUTIVE CORNER

Clinical integration

To get to first base, physician-led ACOs — including those formed by IPAs — will have to become clinically integrated. Stephen Shortell, dean of the school of public health at the University of California Berkeley, is surprised by "how basic and nonintegrated some of these groups are. It's very much a work in progress. Some ACOs are very integrated, others are just building those capabilities."

Multipayer challenge

While some ACOs are forging close ties with particular health plans, the successful ones inevitably will have multiple payers. That means a lot of different rules for providers to follow. "One problem is how an ACO can treat its patient population in a uniform and consistent manner and integrate all the information and requirements of the different payers," says Jordan Battani, managing director of CSC's Global Institute for Emerging Healthcare Practices. "It's a huge challenge."

Moving services out of the hospital

For many years, health care services have been migrating from inpatient to outpatient hospital departments and to community settings such as ambulatory surgery centers and dialysis centers. Some leaders of physician-sponsored ACOs want to accelerate that trend. "For example, chronic kidney disease doesn't necessarily have to be managed in a hospital," says nephrologist Simon Prince, president of Beacon Health Partners in Manhasset, N.Y. "Same thing with dialysis."

Docs know change is coming

Jonathan Nasser, M.D., explains why Crystal Run Healthcare, based in Middletown, N.Y., knew that it had to form an ACO. "We've been providing outstanding quality care in our practice for some time, but we haven't had to focus on costs. But with the reality of the economy and where health care is going, we know that we have to demonstrate an improvement in our value. We still have to provide the same quality, but we need to do some things differently so that our cost structure improves."