When the Centers for Medicare & Medicaid Services and private sector payers join in support of the accountable care organization, providers can expect big changes. "Thought-leading providers are glad to see a congruent and coherent message coming from both the private and public payers," said Scott Sarran, M.D., chief medical officer at Health Care Services Corp., the parent of nonprofit Blue Cross plans in Illinois, New Mexico, Oklahoma and Texas.


Here, "ACO" refers both to organizations that receive such a designation from CMS and to similar structures designed to create a more coordinated system of care. In either case, the ACO model's purpose is to improve health and the patient experience while reducing costs.

Commercial health plans often emulate Medicare (e.g., payments based on diagnosis-related groups, resource-based relative value scale, etc.), and conversations with leaders in the private payer community indicate that ACOs and similar models (such as patient-centered medical homes) will take hold there as well. For this reason, ACOs should involve contracted payers early to spread the development costs over multiple revenue streams instead of depending solely on CMS.

Opportunity for Commercial Plans

Washington's push for more care coordination and the president's public endorsement of closed-staff health systems seems to have accelerated provider consolidation. Hospitals purchase private practices, hire newly minted doctors and acquire competing facilities to gain market share. Should health plans worry about this aggregation of medical firepower?

Probably not. Both sides need to recognize the threat of further top-down intervention if medical costs continue to spiral upward. "Negotiation" with the federal government relies primarily on lobbyists — a remote, expensive process that differs drastically from sitting down with a health plan to hammer out a deal. Even the most powerful ACO should seek a collaborative, balanced agreement with its commercial payers.

Because the model demands a commitment to reducing medical costs, a dominant provider system has an incentive to succeed. An ACO that controls a region's medical market could produce a public relations problem (at the very least) if it drove costs rapidly upward.

In any case, the ACO must transcend the old physician-hospital organization model, which may have included clinical integration in its mission statement, but in practice often existed primarily to wring higher reimbursement from managed care organizations.

On the surface, much of the infrastructure necessary to build an ACO resembles the systems needed to run a health plan. However, provider organizations usually have limited experience with processing claims, benefit regulations, sales, client service, etc. "The issue revolves around 'Who can do what best?'" says Dr. Sarran.

"Payers bring significant data expertise and experience that ACOs may not have," observes Kim Olsen, senior director of affordability, network management, with Blue Cross Blue Shield of Florida. Commercial carriers gradually have given providers a view into coding edits, medical necessity criteria and other measurements they once concealed. Olsen sees the ACO as a new path for mutual success, noting that "both parties will have to agree how to redefine the health management value chain."

This relationship can happen more readily when the provider owns the plan. As Mary Ann Tournoux, chief marketing officer at Health Alliance Plan (owned by Detroit's Henry Ford Health System) puts it, "Provider-owned plans have the infrastructure, culture of collaboration and expertise to support ACOs and to apply quality data in a timely, cost-effective way to improve quality, close gaps in care and curb costs."

Aetna has developed a hybrid of the provider-sponsored plan by teaming up with ACOs to manage health benefits for a health system's employees. This arrangement enables each party to emphasize its strengths and minimize its weaknesses. "Providers need an array of capabilities they don't already have. We have them, and make them available through collaboration," says Charles E. Saunders, M.D., director of strategic diversification at Aetna. "We can help them establish a private-label health plan using their ACO to cover their employees, delivering the 'backroom' administrative functions."

Covering employees through the ACO reinforces organizational belief in the concept. When successful, it also will improve employee health and productivity.

The ACO structures proposed by CMS aim toward a more effective, efficient delivery system, but other similar paths to coordinated care exist. "We've been engaged in collaborative accountable care since 2008," notes Jeff Kang, M.D., Cigna's chief medical officer, "and we're continuing full steam ahead. The physician groups we work with have indicated that they favor our approach to accountable care." Cigna has partnered with organizations such as Dartmouth Hitchcock and the Atlanta area's Piedmont Physicians to develop patient-centered medical homes.

Change is Necessary

What will happen to hospital systems that don't or can't adapt?

"There's no question this is hard work, and there will be winners and losers on the provider side," says Dr. Sarran. "Some will successfully reengineer their processes and deliver positive outcomes. Some will be unwilling, or unable to do this," he continued, "and they will stand out as costlier in a more transparent world."

The experience of urban facilities may not apply directly to more isolated markets, but rural hospitals cannot ignore the ACO movement. In fact, smaller facilities may face greater pressure, as Medicare often makes up a larger portion of their patient revenue. Again, the opportunity to spread the considerable development cost by contracting the ACO with other payers means smaller facilities and groups should consider starting these conversations with their most important managed care companies.

Unlike many programs developed by the federal government, ACO guidelines allow a fair amount of structural flexibility. This allows ACOs to develop within their local medical environment and to address the specific needs of their communities.

Likewise, commercial payers do not take a one-size-fits-all approach. "Collaboration will occur through a joint design of each ACO that is reflective of the medical market and the provider's readiness level," says Blue Cross Blue Shield's Olsen.

Private payers in sparsely populated markets need to work closely with local delivery systems. Limited access may make tabulating population-based savings in a rural setting simpler.

Change on the Wind

While politics controls the answer to when Medicare will run out of money, almost nobody questions if that will happen. The ACO may not provide the final answer, but it could send changes in the right direction.

Tournoux notes, "If ACOs are to be successful, providers must build upon their strengths in coordinated care. This will require significant investment in infrastructure and health technology. It also will require a willingness to share information among disparate groups and across transitional care settings to achieve fully integrated care and support their ability to measure success. Private payers can be strong partners in supporting provider initiatives in all of these key areas."

"There is a transformation under way," says Aetna's Saunders. "Health systems need to think about the alignment and collaboration they need — what will work in their community." In his view, ACOs create an opportunity for unparalleled cooperation between payers and providers. "Each party brings something to the table and, instead of sitting across from one another, we're sitting on the same side of the table, collaborating."

David Ruppert is a principal at Medical Resource Group in Okemos, Mich.