ThoughtLeaders: Prognosis for Medicare and Commercial ACOs

A number of pundits are citing the systemic failure of ACOs, after additional Pioneer ACOs announced withdrawal from the program – Where do you weigh in on the prognosis for Medicare and Commercial ACOs over the next several years?”

Certainly, if we dial back the rhetoric and the expectations for immediate system -wide transformation, we can expect accountable care organizations to make a contribution to incentivizing more efficient care. Shared savings methodologies are a significant contribution to the arsenal of provider incentive systems. However, they are not magical. Like other incentive systems that have been implemented over the decades since the federal HMO Act was passed, shared savings methodologies are going to enjoy their greatest success where the participating providers have a large percentage of their professional income subject to (hopefully coordinated) value based incentives.

There is also no magic to calling a network an ACO as compared to the nomenclature of IPA, PHO, or PPO. The alchemy governmental and commercial payors seek, in contracting with any such network, is alignment around efficient quality care. The likelihood of the alignment succeeding flows in part from the adequacy and timeliness of the data available as well as from the ability to lock in and incent enrollees — each deficiencies in the current MSSP design. Also, as in any provider or other personnel incentive system, the carrot must be attainable and the “juice must be worth the squeeze.”

Therefore, as we prepare to comment on the next round of CMS’ MSSP and as we negotiate commercial shared savings arrangements, we will be well served to always move the programs in a direction in which they give participating providers the tools for success and in which they will be credible motivators. Most importantly, policy makers, carriers and self-funded employers will be most pleased with the efficacy of shared savings if they work together to align large percentages of payment streams in support of shared savings. If the shared savings tool is not applied in a context where it is worth the effort for providers to vary from the volume based mind-set, we will be asking and expecting too much of and from it.

The recent withdrawal of nearly 40% of the Pioneer ACO participants is indicative of significant concern but does not represent the systemic failure of the model. While these Medicare ACO programs did not perform as well as hoped, there were many factors affecting savings and quality improvements including geography and diversity of the populations served. A recent article published by the Brookings Institute analyzes the two-year results in some depth and that many of the ACOs continuing to participate in the Pioneer ACO program are achieving notable success. In the California marketplace, Brown & Toland Physicians and Monarch HealthCare were among the better performing ACOs in the study.

ACOs continue to demonstrate great promise on the commercial side. Anthem Blue Cross and Blue Shield of California have been leading the way in California in taking the ACO model to the next level. For more than 20 years, the delegated/capitated model of health care delivery has been in existence in California, and it is not surprising that two of the largest health plans have been behind the development of successful ACO structures. Anthem’s ACO has seen increases in HEDIS quality metrics and patient engagement. Blue Shield continues to expand the geographic reach of its ACOs, adding a number of new medical groups to the program. ACO efforts between CalPERS/Dignity, Hill Physicians and Blue Shield can also be classified as successful ACOs. In addition, the Kaiser Permanente integrated care model that ACOs emulate has been in existence here since the 1940s.

Certainly adjustments to procedures, the structure of incentives and improved alignment between the cost and quality of health care are needed to achieve the highest objectives of the Accountable Care model. These changes take time and some organizations will be able to improve their performance better than others. Far from being a systemic failure, the ACOs that have shown dedication to the model are showing that the program is having some successes and have demonstrated that improvement in financial and quality outcomes are possible within a reasonable time horizon.

Whoever thought that by themselves, ACOs would successfully address the problem(s) of [cost] [access] [care coordination] [outcomes] [scurvy] [Sonny Crockett’s mullet in Miami Vice Season 4]? The entire history of managed health care is a long parade of innovations that were going to be “the answer” to at least the first four choices above (Vitamin C can cure #5 but sadly there is no cure for #6). Highly praised by pundits who jump in front of the parade and declare themselves to be leaders, each ends up having a place, but only a place, in addressing our problematic health system.

The reasons that each new innovative “fix” end up helping a little but not occupying the center vary, but the one thing they all have in common is that the new thing must still compete with the old thing, and the old thing is there because we want it there, or at least some of us do. The old thing in the case of ACOs is the existing payment system in Medicare and by extension, our healthcare system overall because for all the organizational requirements, ACOs are a payment methodology. The reason they are not sweeping the system can be found in the old joke about the two campers and the marauding bear: A bear crashes into a campsite and begins to ravage it, waking the two campers who immediately run away. But one camper grabs his shoes as he flees, and after running for a minute or so with the bear in hot pursuit, he stops to put them on. The second camper shouts “Are you crazy? You can’t outrun a bear by wearing running shoes!” to which the first camper replies “I don’t have to outrun the bear, I only have to outrun you.”

ACOs didn’t need to outrun healthcare costs, they needed to outrun the existing means of paying hospitals and doctors, which they cannot do, at least for hospitals. Never forget that what is a cost to one party is revenue to another, and every basis point of savings in an ACO come out of the hospital’s revenue that they not only cannot ever fully recover through shared savings, they have to give part of any shared savings to the physicians whose personal revenues are not otherwise affected by ACO cost savings. Until the alternative(s) to ACO payment methodologies are worse than what the ACO can deliver, it cannot compete overall.

If that weren’t enough of a problem, which it is, CMS actually found a way to make it worse by telling reasonably good performers that they were not quite good enough, no bonus for you. Now there’s a well-proven formula for success. As any research psychologist can tell you, if you want to shape behavior, the best approach is to tell the subject that good behavior will result in a reward and then don’t give it to them. Hilarious sure, but maybe a bit flawed. Heck, come to think of it, even pigeons eventually stop pecking the blue lever if no bird seed comes out.

What can make a difference? Health systems with huge numbers of employed physicians may be able to offset lost revenues through increased volume if Medicare finds ways of channeling volume, but the current structure cannot support that. More effective would be to simply make the existing traditional Medicare payment system even worse by creating two scales: an abysmally low payment rate for regular Medicare, and a much higher rate for ACO participants so they actually have a shot at outrunning that bear doing better than the alternative. Or become a Medicare Advantage plan that is barred from being an ACO and that has a chance of being a reasonable source of revenue. Or just wait for the next innovation to come along; Sonny Crockett’s hair improved in Season 5, so if history is any guide, there’s always hope.

At the present time we are tracking 634 ACOs across the United States. Of these 329 have government contracts and 210 have commercial contracts, and 95 have both government and commercial contracts. We need to remember that 4 short years ago legislation got the ball rolling on these organizations (Berenson 2013). Before that time there was vague talk of some new approach for the government to take to change the delivery system from the inflationary and fee for service system to a more rational value based purchasing system (Leavitt 2010).The ACA crystalized everything into a new approach that encouraged physicians and physician groups to take a leadership role in creating savings for Medicare, and, for the first time, Medicare offered to share these savings.

Performance of these organizations has been very uneven, and while many clients did get a check for the money they saved Medicare, the vast majority of the Medicare Shared Savings Plans did not get a check despite over half of them saving Medicare money. We learned a lot about how different Medicare benchmarks are across the country, but we knew this in 1974 when demonstration projects in Minnesota and Florida revealed huge differences in Medicare claims payments to health plans (Halverson 1976).

We have learned that regardless of the number of over 65 patients attributed to the ACO there was a substantial shift in this population that occurred almost monthly. We learned that despite the fact that ACOs were expected to build a broader network, support it with an IT framework that does not exist out of the box, and hire people to better coordinate care and, in many ways do just about everything a Medicare HMO does, the rules were entirely different and this continues to cause confusion.

So why are the statutes different when the desired result for Medicare Advantage and ACOs are the same… better outcomes and less cost? The fact is ACOs have succeeded perhaps more than any other component of the ACA to save money and put in place organizations that will continue to create savings for Medicare. We have learned a lot about changing the program to make it fair and more equitable but the point people have missed is that we have changed Medicare permanently. With MA plans representing over 30% of the 5.3 million Medicare beneficiaries and Medicare ACOs representing a substantial 18% of the remaining eligible beneficiaries, we envision a time very soon when the majority of beneficiaries will receive care or benefits through these local medical enterprises versus the Medicare program directly. This will create…dare I say it?… competition between ACOs, MA and Medicare for these dollars.

People have also missed the very real point that physicians are not treating ACO patients differently from non-attributed/assigned Medicare ACO patients in their offices. All of the support and tools are applied to everyone, creating a multiplier effect for this legislation that translates into the fact that up to 4 times as many people are treated in an ACO setting as are reported to be attributed through the program. This also means the savings could be much greater than the $400 million reported in the last performance period. This begins to explain why the government is willing to gamble another $114 million to invest in Rural ACOs so they can make the leap to another year of operation and generate savings. As savings are reinvested into stabilizing the startups and we see some consolidation of ACOs into more regional frameworks, we are seeing private investment capital being brought to bear upon IPAs and ACOs who are looking for growth.

The pathway is pretty clear; after a bumpy start physicians who had never done care management are doing it and in many areas doing it VERY well. That means the potential to create savings is in fact growing as benchmarks are refined and rules for the program clarified. No one said this was going to be easy. It is a grand experiment, this reform of ours. Its ability to reset the foundation for value based care management and delivery has slowed Medicare spending and CMS is more than happy to see physicians happy with their new medical enterprise engine. With any luck the only unhappy people are those patients in rural areas asking their congressmen why they can’t be a member of an ACO. And yes, this is happening already.

The ACOs have not failed at all. Expectations were set much too high. In order to achieve economies of scale for rewards, there were operational, technological, and marketing changes that needed to occur in a very short timeframe. Additionally, most of the rewards were based on process measures rather than experience or outcomes measures. In the adoption of CDHP, for comparison, it’s been more than 20 years since they were introduced, and in the commercial arena, they have not eclipsed one third of the population.

In the value-based design arena, it took 8 years for benefits designs to adopt them in chronic care management, yet employers experienced much lower engagement and outcomes levels than “promised” because they did not insert the operational, communication and data capabilities to support value-based decisions year over year. ACOs, whether Medicare or Commercial ACOs, will succeed when the rewards are based on meaningful, measurable and sequential results over time.

The jury is still out on ACOs…and will be for several years to come.

It has become clear that there are many deal-killer flaws inherent in the structure of the Medicare ACOs. These flaws MUST get fixed in the ACO reg revisions Medicare will announce sometime this fall. Examples include patient attribution methodologies, formulas for sharing savings (need to provide more upside incentive), formulas favoring certain geographies, spelling out the migration path toward requiring downside risk, etc. These flaws have been thoroughly aired, and my best guess is that Medicare will sincerely attempt to fix most of the problems. However, it will take several cycles to see whether existing ACOs drop out, whether new ACOs join, and whether quality and cost results improve.

On the commercial side, we just don’t know — these are private companies. The flavor of things I read and hear is generally guardedly positive. Several of the national plans have verbalized undying support for accountable care.

One more HUGE development –the recent survey from the Catalyst for Payment Reform shows that 40% of commercial sector payments to doctors and hospitals now flow through value-oriented payment methods; this is up from 3% in 2010 and 11% in 2013.

This is a significant and unexpected announcement–no one expected the market to shift so rapidly. The effect will be to set in concrete strong expectations that payment reform is inevitable. Thus, even the most reluctant of ACOs will probably decide to continue playing the game, even if their hearts might not be in it.

Tell the jury to expect a very long trial.

Those declaring a “systemic failure of ACOs” are premature and shortsighted. With the accelerated growth trajectory seen by ACOs (fewer than 100 in mid-2011 to over 550 in 2014) market adjustments are part of a natural evolution where strategic shifts, reengineering, and exits are commonplace. It’s corporate survival of the fittest. Smaller, less organized ACOs with weak infrastructure, inconsistent stakeholder buy-in, and a silo operating mentality will fade away, without question.

If only half the current ACO pool remains, you still cannot call the ACO movement a failure. They have changed healthcare delivery and redirected policy forever, bringing a national focus on improving patient outcomes and moving away from misaligned fee-for-service payment models. A study released this past July estimates that $1 out of every $5 in reimbursements is now paid under an arrangement in which providers are rewarded for improving care and lowering costs. That’s not going away.

Providers of care are accepting the concept of putting skin in the game. Pay-for-performance (P4P) reimbursement, from basic risk sharing to episode of care payments, are rapidly moving healthcare toward a financing system grounded in outcomes and value based purchasing. We’re seeing the leverage of incentives and disincentives based on quality of care and patient clinical results take center stage. For Medicare, embracing principals of P4P meant ACOs generated over $372 million in total program savings, with ACOs qualifying for shared savings payments of $445 million. They must be doing something right.

In fact, “ACO 2.0” is likely to emerge with new thinking: forget shared risk, let’s take it all and become a health plan!

As mega-hospital systems continue to acquire physician practices (42% of doctors are practicing as salaried employees of hospitals) more will become licensed health insurers selling directly to consumers to take control of the complete patient lifecycle. Over the last two-years, coast-to-coast, the market has seen multiple examples of hospital systems and successful ACOs entering fully insured markets by introducing Medicare Advantage and/or ACA Marketplace exchange-ready individual medical products.

Learning from ACO successes is where a discussion about the future needs to turn. It means widening the circle of influence among providers to be “accountable” to patients for the quality, appropriateness, and efficiency of health care provided. It’s a renewed commitment to more effective interactions with patients to inspire higher levels of engagement that invites them to be an active, confident participant on their care team. And, it’s an ability to create and deliver a healthcare consumer experience that serves to both attract new patients and retain them long enough to improve care, improve health outcomes, and lower costs.

Notwithstanding the outlook of some pundits, and less-than-stellar results for a number of participants in the Pioneer ACO program, the prognosis for the Accountable Care Organization (ACO) is good.

The healthcare industry’s shift from a fee-for-service model to a fee-for-value payment model has been in motion for years. The Affordable Care Act has simply hastened the shift. According to Catalyst for Payment Reform, currently 10.9% of commercial payments are value-oriented (designed to cut waste or improve performance). In 2010, that number was only 1%-3%. This is a marked increase that will only accelerate.

It is important to point out that there is a difference between Accountable Care Organizations and accountable care. While accountable care works when there is alignment between all healthcare stakeholders, the success of Accountable Care Organizations depends on the contractual arrangement between payers and providers. When well-formed, ACOs (commercial or Medicare) let providers and payers collaborate to improve the health of the populations they serve. The issue with some of the original ACOs (Medicare specifically) is that the baseline is reset every year, which effectively means that costs have to be driven out year after year. When given the right conditions, gains can be seen in the first few years, though eventually a plateau is hit as people will always require healthcare.

Still the ACO model brings providers and payers closer to the classic economic principal-agent scenario. As agents, each organization is aligned to serve the best interest of the principal (the patient). By pooling their knowledge and sharing the risk, the outlook for better health and wellness for the principal is improved and the agents are duly rewarded for their success; thus reinforcing the value proposition of the ACO.

The ACO model works best when organizations have some experience with coordinated, patient-centered care, an understanding of the market conditions in which the ACO operates and a clear understanding of the total population to be served. The key to achieving accountable care via the ACO is to create a governance structure that will sustain the alliance through ups and downs and align incentives of all the stakeholders. In addition, organizations will need to clearly understand the drivers to create high quality, cost-efficient care and focus resources in those areas. Lastly, monitor the effectiveness of programs to determine if the efforts are having an impact or not. The remaining Pioneer ACOs provide evidence that this risk-sharing model can bring success when those required foundational elements are in place.

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