Headlines in recent weeks have called attention to the volatility of Accountable Care Organization participation as three Next Generation ACO participants announced they were exiting the program. Many industry watchers have associated ACOs with the physician-hospital organizations that came and went in the ’90s. Others hark back to Medicare’s rocky experience with its Physician Group Demonstration Project from 2000 to 2005. 

Nothing reflects the bumpy path from volume- to value-based payments for providers more than the saga of ACOs. Like the PHOs and PGDP efforts, the intent was to engage physicians and hospitals in taking financial risk for their performance. Now firmly entrenched in the lexicon of health reform, ACOs are the latest iteration of the government’s effort to push hospitals and physicians away from fee-for-service reimbursement to performance-based payments. Are ACOs here to stay or will they fade away?

Indeed, ACOs have faced skepticism. "Against the very meager prospects for cost savings, there is a very real risk that some ACOs will be formed with an eye toward creating or exercising market power,” said Thomas Rosch, a former commissioner for the Federal Trade Commission, in a speech to health care lawyers in 2011. “The net result of the [Medicare] Shared Savings Program may, therefore, be higher costs and lower quality healthcare — precisely the opposite of its goal." 

Others have concluded that ACOs are worthwhile, but the task of implementing them is daunting. Research from Leavitt Partners and Oliver Wyman shows that ACO activities are underway in more than 700 provider organizations serving more than 25 million patients, and both are increasing.

How ACOs Came to Be

The term “accountable care organization” was coined by Dartmouth’s Elliott Fisher in 2006 as he and others advised lawmakers that a fundamental change was necessary to slow health costs without compromising safety and quality for patients. The idea was simple enough: Change the incentives so physicians would pay attention to care coordination that results in better care and lower costs over time. By design, clinically integrated networks of physicians with strong primary care services and information systems necessary to coordinate care for patients would share in the savings they achieved with Medicare, provided quality of care was not compromised.

Projected Cost Savings

Today, as a result of the Affordable Care Act, two ACO models were introduced as voluntary programs in 2012: the Medicare Shared Savings Program and the Pioneer Program (for provider organizations more experienced in managing financial risk). In its calculus, the Congressional Budget Office estimated that Medicare could save $4.9 billion from 2012 to 2019 as a result of ACO savings — about half what it could save from reducing avoidable readmissions ($8.2 billion) and on par with stepped up enforcement of fraud and waste ($4.9 billion). But more fundamentally, the ACO provided the structural framework for bending Medicare’s cost curve permanently.

ACO Results to Date

As of January, there are 477 organizations participating in these programs involving care coordination for 8.9 million Medicare enrollees, according to the Centers for Medicare & Medicaid Services. In many communities, ACOs also have been started to serve commercial and Medicaid populations. Savings to Medicare have been on track with what was budgeted, according to CBO numbers, and participation has been on par with expectations. 

Only roughly one in four ACOs produced savings; many have dropped out, according to CMS' statistics.

Despite turnover in the ranks of ACO participants — only nine of the original 32 Pioneer ACOs are still in the program — CMS has doubled down on ACOs as the organizing structure for primary care-driven care coordination. In fact, CMS added the Next Generation ACO model this year, attracting 21 provider organizations that wanted to experiment in its fully capitated payment model.

To date, therefore, the results of ACO activity are mixed due to the inherent challenges in these programs.  They have necessitated substantive lessons, such as:

ACOs require physicians to work together

The notion of clinically integrated networks sounds simple enough until stress-tested in a community among physicians. ACOs reward comprehensive and accessible primary care services, tight coordination of referrals to specialists and measurement of performance — costs, outcomes, patient experiences, errors. ACOs force specialists to interact with primary care providers as partners, not referral sources. It forces handoffs across practices, facilities and organizations to be seamless and connected. And it requires investments in technologies and digital health that require capital. Not surprisingly, the ACOs that have performed best center around large medical groups that had prior experience in risk-based payer arrangements. Achieving success as a high-performing, tightly integrated group of practitioners who work well together is tough enough; implementing IT systems and clinical process improvements that streamline care and improve outcomes more efficiently is even harder. And keeping clinicians happy can be daunting: CMS tweaks the rules for ACOs frequently, seeking to encourage participation while achieving savings targets. Case in point: The 33 measures for quality this year include four that are new, replacing four that were dropped from the program two years prior.

ACOs require physician attention to costs

The ACO’s carrot is shared savings distributed to physicians and other business partners. Failure to achieve savings means physicians stand to lose revenue and potentially patients. But physicians rarely have exposure to costs nor a consistent methodology for calculating total costs of care for a patient or a population. In recent years, academic medicine has made strides in alerting students to the need for financial literacy in health care, but most subordinate that to their clinical pursuits in residency programs and end up practicing in large organizations where it’s the job of the suits to pay attention to costs. 

ACOs require capital and operating expertise

To secure a spot in Medicare’s ACO programs, an organization must demonstrate its capability in care coordination, results measurement, provider-performance monitoring and network design and management. These take time and money. It also necessitates shared information using information technologies that facilitate patient-encounter tracking, utilization, patient-adherence monitoring and more. Easily, start-up costs for an ACO can exceed $5 million or more, and ramp-up can take two years if an organization is new to risk. Thus, most ACOs include business partners, often a hospital but increasingly independent companies and health insurers, who provide the infrastructure and operating expertise. And it explains why CMS added a new program, the ACO Investment Model, to lend money to 45 ACOs in 35 states that qualified.

What’s ahead for ACOs?

No doubt, CMS will continue to tweak the program, including changes in the shared savings calculus and measures of quality. It is likely that CMS will use its leverage to encourage greater participation in two-sided, risk-sharing arrangements that to date have attracted fewer than one of eight ACOs. And it will continue to align ACO operational requirements with meaningful use of electronic health records, MACRA, the new payment formula for physicians, and changes to private inurement regulations that allow for optimal risk-sharing among clinicians.

No doubt, participation will continue to be dynamic. ACOs will move from model to model to find one that fits for their market and strategic aims. The new Next Gen program attracted eight who were previously in the Pioneer program, and about 30 new organizations enter the MSSP annually while others exit. Already, three of the original Next Gen ACO participants: Heritage California ACO in Northridge, Calif., River Health ACO in Harrisburg, Pa., and WakeMed Key Community Care in Raleigh, N.C., announced they were dropping out last month. In some communities, a low-risk ACO will suffice; in others, ACOs will morph as the clinical network for fully capitated insurers and direct contracting with employers.

And no doubt, the level of physician angst about ACOs will heighten. In many ACOs, savings will not be shared. Physicians will not see a check at the end of the year reflecting positive financial results for their effort. Disillusionment and contempt for the industry’s turn from volume to value is likely, and calls for a return to the “good ol’ days” of fee-for-service medicine will get louder.

ACOs are not going away. They’re here to stay, constantly changing to respond to payers and regulators, and consistently morphing to accommodate new risk-sharing arrangements and opportunities to expand. Notwithstanding the disappointments in the PHO and PGDP experiments, ACOs are the foundation for health reforms that reduce costs while improving quality simultaneously. They’ll constantly change but they’re not fading away.

Paul H. Keckley, Ph.D., pkeckley@paulkeckley.com, does independent health research and policy analysis and is managing editor of The Keckley Report. He is a member of Health Forum’s Speakers Express; for speaking opportunities, please contact Laura Woodburn. Marina Karp can be reached at makarlie02@gmail.com.