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Accountable Care Movement Taking Hold Throughout the Market, Surprising Many Industry Thought Leaders

12 Nov 2012 | by Nancy Fabozzi
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The November 2012 issue of Health Affairs takes a look at the rapidly emerging market for Accountable Care Organizations (ACOs). Among several articles about ACO’s in this month’s issue is an informative piece by Harris Meyer that provides a good overview of where things towards the end of 2012. Meyer, H. Many Accountable Care Organizations Are Now Up and Running, If Not Off to the Races. Health Affairs, 31, no. 11 (2012): 2363-2367. Available at http://content.healthaffairs.org/content/31/11/2363.full.html

 

ACO Demographics

The article points to research from Leavitt Partners indicating that, as of early October 2012, a total of 318 public and private ACOs were in existence in 48 states, with another 26 ACOs in the planning stages. Out of the total 318 ACOs, 161 work with private payers, 126 with public payers, and 31 with both private and public payers. The majority of the ACOs are sponsored by hospital systems and independent practice associations, while others are sponsored by commercial payers or nonprofit community organizations. The article mentions that, even though hospitals have taken the lead in ACOs up ot this point, there is a growing trend for more physician groups to get involved in ACO formation. At this time, most of the ACOs are based in larger metropolitan areas, particularly in Southern California and Boston. Other states and cities picking up in ACO formation include Minneapolis, Detroit, and central Ohio. In addition, Medicaid ACOs are starting or are planned in Massachusetts, New Jersey, Arkansas, Utah, Colorado, and Oregon. The article mentions the experiences of several public and private ACOs across the country including North Texas Specialty Physicians and Texas Health Resources, Optimus Health Partners in north central New Jersey, Advocate Health Care in Illinois, Dignity Health in California (formerly Catholic Health West), and University Hospitals in Cleveland.

The Purpose of ACOs

ACO’s are primary care focused entities designed to improve the quality and efficiency of patient care by enabling better coordination of care among a range or providers and settings. They are designed to operate with a global budget that will be used to care for a defined patient population. There is a considerable financial risk component to the ACO model. Specifically, if ACOs are able to meet or exceed designated performance standards, they will share cost savings. However, ACOs may also lose money if performance standards are not achieved. Even though many ACOs in existence today do utilize a fee-for-service model, it is hoped, although not proven by any means, that ACO’s can ultimately help to “bend the cost curve” by shifting providers from volume-based fee-for service reimbursement to performance-based global payments per members.

As Meyer points out in the Health Affairs article, it’s too early to tell whether public and private ACOs can accomplish their goals around reducing costs and improving quality. The provision of healthcare services in the U.S. is complex, multi-faceted and notoriously difficult to coordinate across an extremely fragmented delivery system. Furthermore, ACO’s depend heavily on primary care providers who are in increasingly short supply. Another concern is that implementation costs for ACOs, including administrative infrastructure and health IT systems, could be so high as to cancel out any potential savings resulting from better care coordination. Finally, many ACO’s should expect to confront challenges in branding and building awareness of the concept of accountable care among key stakeholders including physicians and patients. Nascent ACOs must have strategies in place to explain why these new organizations could be of value to them and to encourage them to consent to sharing their health data across the ACO so that it can be leveraged to improve quality and efficiency.

Overcoming Initial Skepticism

When CMS released the initial ACO regulations on March 31, 2011, there was a great deal of skepticism among many analysts—including yours truly—about the feasibility of the market taking to what was seen as a significantly complex and rather risky new model of care. However, the initial rules were subsequently revised and relaxed a bit so that, as is now increasingly apparent, more participants have been encouraged to take the plunge. This is the case for ACOs catering to public payers (that is, Medicare and Medicaid), and private commercial insurers like Aetna, UnitedHealth, and others. In fact, our recent discussions with industry thought leaders indicate that 60 to 80 percent of the commerical payer market is currently moving in the direction of ACOs. So, no doubt about it--the ACO movement is gathering steam. Whether or not they will ultimately be successful is another issue.

What's Driving the ACO Movement?

If we take a closer look at what is driving the ACO movement, we can point to three key issues—1) the impact of healthcare reform; 2) growing concerns about excessive costs; and 3) market consolidation. Clearly, the fact that we now have more certainty about the fate of the Affordable Care Act (ACA) is a major driver for ACOs. The re-election of President Barack Obama pretty much removes the majority of lingering doubts about ACA, ensuring that focus will now shift away from debating its legitimacy to implementing its key provisions. As reality sinks in, the need to transform patient care becomes more clear and that means ACOs will continue to grow and will, in fact, accelerate quite rapidly. Complaints about the excessive costs of healthcare are nothing new. However, there is growing consensus that fee-for-service simply does not encourage clinicians to practice cost-effective medicine. Most industry thought leaders believe that the U.S. healthcare system is irrevocably moving away from fee for service. The key focus now is on controlling costs and preparing for shifts in payment models. As the healthcare market rationalizes in response to market pressures, horizontal consolidation and vertical integration will continue to drive the development of ACOs. Hospitals will continue to merge and physicians, who have been slower to form ACOs than hospitals, are increasingly recognizing the need to form strategic partnerships with hospitals and/or be owned by them outright.

Where Things are Headed

The move to ACO’s will result in integrated, coordinated entities that depend upon data analytics and metrics to ensure the quality of care and contain costs. Such entities must be enabled by a robust IT infrastructure. It is inevitable that ACO’s will need to extensively leverage health IT to effectively carry out their mission. The core IT infrastructure for ACOs includes EHRs, HIEs, business intelligence and predictive analytics, clinical decision support, and patient portals including PHRs. None of this comes cheap. Cost estimates for building the IT infrastructure for ACOs range from $1 million to $4 million and up, depending on the number of providers involved in the ACO.

No one really knows if ACOs will fully deliver on their promise to improve care and control costs. What we do know is that the experiment is well underway and there will likely be many bumps in the road. Expect to see an increasingly elastic definition the concept of an ACO and adjustments in how these organizations are formed and operate to transform healthcare. The move away from fee-for-service and towards integrated, accountable, value-based care requires extensive capabilities in health IT.

We expect the ACO movement to be a key market driver for health IT purchasing over the next 12 to 24 months.

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