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Understanding the Basics of Accountable Care Organizations

Since their inception, accountable care organizations (ACOs) have blazed a path of innovation in the healthcare industry, from delivery to quality of care.

The basics of Accountable Care Organizations

Source: Thinkstock

By Jesse Migneault

- Accountable care organizations (ACOs) are provider-based networks which utilize data analytics and population health management strategies to increase efficiency, improve patient outcomes, and reduce healthcare costs.

Originally established in 2012 as a Medicare payment model, the ACO is now also seen in private payer settings across the healthcare continuum.

At its core, an ACO is a group of healthcare providers who voluntarily come together to coordinate healthcare services and engage in value-based payment models.   

More than simply a network of providers, however, the ACO is focused on streamlining and optimizing the quality of care.  This is done by using data and best practices to reduce duplication of medical services, close gaps in care, deliver effective preventive care, and coordinate services across the care continuum, thus producing better outcomes for healthcare dollars spent.

The foundation of an ACO is often in primary care, but it typically incorporates specialists, hospitals, nursing homes and other healthcare facilities or services as well.  

READ MORE: Accountable Care Organizations Rely on Population Health Data

How does an ACO incorporate risk?

One of the main reasons for the popularity of the ACO model is the way it manages revenue and risk. This risk and savings system within an ACO is typically one of two models: upside risk or downside risk, otherwise known as a two-sided model.

The goal of an ACO is to help the healthcare system reduce its overall spending by rewarding value instead of volume.  In the traditional fee-for-service reimbursement landscape, providers are paid for each medically justifiable service they deliver, regardless of whether or not the service actively contributes to a better outcome.

In contrast, value-based reimbursements are based on quality and spending benchmarks that encourage providers to achieve better outcomes while delivering the fewest unnecessary services they can.

ACOs reward providers for balancing spending and quality by giving successful participants a portion of the savings, compared to typical fee-for-service rates, they achieve for their payers.  These rates, as well as the quality benchmarks that determine whether or not the ACO has achieved acceptable outcomes, are negotiated with the payer during the contracting process.

READ MORE: How ACO Providers Could Integrate Specialty Care with PCPs

Both upside risk and downside risk models adhere to this basic principle.  However, while upside risk ACOs are not responsible to pay back any financial losses if they exceed the agreed-upon spending rates, ACOs participating in a downside risk arrangement will be asked to pay back part of the excess spending they incur.

Downside risk models typically include the opportunity to accrue higher rates of shared savings, making it more attractive for experienced providers to take on the additional financial risk.

As of the end of 2016, more than 60 percent of ACO contracts only included upside risk arrangements, said a report by Leavitt Partners.  This indicates that ACOs have room to grow into two-sided risk contracts.

The value of data analytics and population health management for an ACO

ACOs often struggle with setting, assessing, and meeting quality benchmarks and financial metrics.  In order to understand performance across multiple organizations working together to manage a population of attributed patients, participating providers must have fully transparent insights into who their patients are, what services they will need, and how well clinicians are adhering to cost-saving guidelines.

READ MORE: The Role ACOs Play in Propelling Population Health Management

Population health management is the driving force behind all technologies employed by an ACO.  In order to achieve benchmarks, ACOs rely on a strong population health technology infrastructure.

A primary technology for bridging the multiple organizations that make up an ACO are electronic health records (EHR). 

EHRs are a vital part of the detailed level of data collection and analytics that are driving the value-based reimbursement model used by ACOs.  It is from that data that the ACOs are able to determine and model predictions for risk, quality performance and potential savings. 

Despite the advantages of strong data sharing and collection, there remain hurdles for ACOs seeking true data integration.  One of the largest challenges facing ACOs is the accurate and streamlined integration of data from outside the ACO.

A study from Premier and eHI found close to 80 percent of ACOs cited integrating data from out-of-network providers as their largest HIT challenge.  

The study also found that as ACO networks expanded with additional facilities and providers,  the likelihood of data returning to the primary care team, which is responsible for coordinating care, decreased. ACOs will need to collaborate closely with their member organizations to develop the technical infrastructure required to share data appropriately across care sites.

Public and private ACO options

Although starting as a public option under Medicare, ACOs have also grown into a force in the commercial payer market.  Many ACOs have multiple contracts with payers, including Medicare and one or more private insurance companies.    

Medicare options

The ACO originally started as a Medicare payment option through an extension of the Patient Protection and Affordable Care Act (ACA).  

Medicare offers three main participation options, including the Medicare Shared Savings Program (MSSP), the Pioneer ACO Model, and the Next Generation ACO Model. Several of the available pathways within these models count as Alternative Payment Models (APMs) under the Quality Payment Program.

Medicare Shared Savings Program

The Medicare Shared Savings Program (MSSP) was the starting point for Medicare fee-for-service providers.  It was intended to connect providers, encourage savings, and improve the quality of care.  

“The Medicare Shared Savings Program uses financial incentives tied to quality metrics and savings with the goal of increasing coordination of care and reducing unnecessary costs for Medicare beneficiaries,” states an HHS report.

MSSP ACOs can choose the more basic Track 1 pathway, which only includes upside risk, or join Track 2 or Track 3, which include two-sided risk sharing options.  As of the end of 2016, ninety-five percent of MSSP ACOs are in an upside risk model.

Pioneer ACOs

The Pioneer ACO Model was also rolled out in 2012.   The Pioneer ACO was specifically designed to work with those early adopters of coordinated care who had already developed high performing networks.

The model assumed higher risk and shared savings than the MSSP.  The  Pioneer ACO was also designed to work with private payers by “aligning provider incentives, which improved quality and health outcomes for patients across the ACO, and achieved cost savings for Medicare, employers and patients.”

The Pioneer ACO began in 2012 with 32  ACOs and ended new ACO enrollment on December 31, 2016, with  8 ACOs participating.

In 2014, 20 Pioneer and 333 Shared Savings Program ACOs realized $411 million in savings.  After paying out savings bonuses, it resulted in a $2.6 million net loss.  That amount represented substantially less than one percent of Medicare spending that year.  

Next-Generation ACOs       

The Next Generation ACO Model is an initiative for seasoned ACOs which allows them to assume higher levels of financial risk and reward than the existing ACO models such as the MSSP.

The Next Generation model seeks to test if larger financial incentives combined with a more extensive network of data and care delivery tools can lead to better patient outcomes and lower costs.  

Private ACOs

As the ACO model became established with public healthcare payers, the private payer market began to see the benefits in efficiencies and data for incentivizing cost controlled and quality benchmarked care. 

An AJMC study determined the three main motivations for private sector ACO development.  These included the opportunity to improve quality and efficiency, jumpstart population health improvement, and the acceptance that changes in medical payments are an inevitable part of the healthcare landscape.

Private ACOs tend to have more flexibility to design contracts between providers and payers.  A majority of private ACO contracts include prospective payments, such as care management payments, retainer agreements or capital investment.  These upfront investments can help providers make the care processes adjustments, technology purchases, or other upgrades they need to succeed in a risk-based environment.

New research from the NIH has shown that private ACO models are often more efficient and larger in scope organizationally with more integration of hospitals.  They also achieve higher quality scores and higher patient satisfaction.

The future of accountable care

As of 2017, there are 525 Medicare ACOs serving over 10 million beneficiaries and hundreds more commercial and Medicaid ACOs serving millions more patients.  Leavitt Partners estimates that 28.3 million people are now covered by an accountable care arrangement.

In 2016, almost 240,000 physicians participated in Medicare ACOs across the country.

As ACOs look to the future, they face the most obvious question, which is what the American healthcare system will look like overall in the years to come.  

Spurred on by the ACA - and likely to continue regardless of any political uncertainty surrounding the law - the healthcare industry has embraced value-based care.  There is likely to be a continued need for care management, streamlining of technology and efficiency in operations, and a move towards a pay-for-performance healthcare care delivery models.

The National Association of ACOs (NAACO) considered those parameters when it released its recommendations for the future of ACOs.

These recommendations include providing lower risk options for ACOs, more support for investment in technology and infrastructure, and more flexibility in federal waivers for requirements such as staffing and telehealth, home health and primary care co-pays.

The organization stresses a continued value for the upside-risk model, but also encourages regulators to reduce barriers that may make it difficult for ACOs to transition to downside risk models.

Recent data indicates that the ACO environment is relatively stable.   In 2016, “of the 220 Medicare ACOs which were eligible for renewal, 147 renewed in the MSSP, eight transitioned to the Next Generation ACO program, and an additional 10 combined or merged with other ACOs,” according to Leavitt Partners.

This left around 75 percent of the original Medicare ACO’s continuing within an ACO model, including organizations that ended a public ACO contract but moved into a private payer arrangement.   

This also included a percentage of those who left a public ACO contract for a private one. 

“Knowledge about how to succeed as an ACO will continue to increase, and organizations that dropped out will have the opportunity to try again in the future in modified ACO programs,” the report said. “Thus, many organizations will iterate as they learn how to make their transition to accountable care.”


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