Are ACOs Transforming Health Care?

Thursday, January 28, 2016 | Larry Sobal

According to a new Leavitt Partners report, the number of Accountable Care Organizations (ACOs) had grown to 782 by December 2015, covering 23 million lives. 782 is a lot, especially compared to the 150-something ACOs that existed less than four years ago.

But is this ACO growth trend good or bad?  And, more importantly, are ACOs going to create the improvements in health care that America needs? I've been working in the health industry for 35 years and have seen my share of “next big things,” both those that come and stay (i.e., DRGs) and those that come and go (i.e., insurance pools). Should we anoint ACOs as the “fix” everyone is looking for regarding the U.S. health care system?  Not surprisingly, there are different points of view.

Most people consider the emergence of ACOs as a staple of the delivery reforms embedded in the Affordable Care Act. The reality is that their beginnings trace back farther than the 2010 passage of the ACA. In fact, the ACO model is over 10 years old and was first tested in the Physician Group Practice demonstration, which began in 2005.

ACOs recorded a net loss of $2.6 million to the Medicare trust fund, a fraction of the half a trillion dollars Medicare spends on the elderly and disabled each year.

The ACO concept is that primary care offices, specialists, acute care hospitals, nursing homes and other post-acute facilities are expected to work together to manage care for a set group of patients. If groups can lower costs and achieve high quality scores, they're rewarded with a share of the savings. When they're successful, ACOs can decrease health care costs, avoid unnecessary duplication of services and reduce medical errors. It's hard to argue against anything that creates that type of transformative change, and there are some ACOs that can point to having attained this level of harmonious success.

But the reality is that most haven't, at least not yet. According to a CMS report of 2014 data, while CMS considers the Medicare Shared Savings Program (MSSP) a success, it admitted that only 27 percent of its ACOs achieved enough savings and quality improvements to trigger financial incentives for the participants. In fact, the 20 ACOs in the Pioneer program and the 333 in the Shared Savings program reported total savings of $411 million. But after paying bonuses, the ACOs recorded a net loss of $2.6 million to the Medicare trust fund, a fraction of the half a trillion dollars Medicare spends on the elderly and disabled each year.

Despite this lackluster performance, the reality is that the ACO model continues to proliferate. Leavitt Partners staff made projections based on 4 different scenarios. In a baseline scenario that seemed most likely under current conditions, they predicted ACO coverage would reach 105 million people by 2020, but under other scenarios, that number could reach 176 million lives [over half the population] in the next five years.

As far as ACOs being a necessity for health care transformation, I'm not sold. Transforming a health care delivery system that has been entrenched for decades in fee-for-service payment will involve complicated clinical redesign, challenging cultural transformation, and costly information technology interoperability.  And let's not forget we will also have to solve the puzzle of patient health literacy, engagement and compliance.

That's not to say that ACOs don't have their place as an improvement enabler, but at least so far ACOs don't seem to be a guarantee to fix the fundamental problems in health care.

The fact is you don't need to be in an ACO to tackle those challenges. If you are waiting for an ACO to get you started, or are relying on your ACO to lead the way, you may be misguided. Let's not forget that the “AC” is more important than the “O.”

 

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Larry Sobal is Executive Vice President of Business Development at MedAxiom. He has a 35-year background as a senior executive in medical group leadership, hospital leadership and insurance. As part of his current role, Larry consults, writes and presents on topics relevant to transforming physician practices and health systems.

 

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