The last several years have witnessed tremendous growth in the number of American healthcare providers structuring as accountable care organizations, or ACOs. Today, hundreds of ACOs across the nation serve an estimated 12.3+ million Medicare recipients.
More providers are expected to migrate to the federal government’s alternative payment model (APM) programs, including the new ACO Track 1+ Model and the well-established Medicare Shared Savings Program (MSSP).
Just last year, the Centers for Medicare and Medicaid Services (CMS) announced that 99 new organizations had begun participating in MSSP. Another 79 renewed their commitment to it.
That brought the total number of MSSP participants to 480, and the total number of ACOs to nearly 600, spanning all 50 states, the District of Columbia and Puerto Rico.
But what are accountable care organizations? Why are they so important and what’s their place in the move toward value-based care?
Defining ACOs
ACOs were created as a way to fight rising healthcare costs. The US’s expenditure on healthcare, as a percentage of its gross domestic product (GDP), rose sharply over the past 50 years from around 5% in the early 1960s, to 13% in 2000, to almost 18% in 2016.
Healthcare spending over the same period doubled the average annual expenditure undertaken by other nations belonging to the Organization of Economic Cooperation and Development (OECD), according to CMS.
As healthcare executives know, much of the increase is attributable to redundancy, avoidable hospitalizations, preventable medical errors and other system inefficiencies.
The Affordable Care Act (ACA) sought to slow the runaway healthcare cost growth by encouraging doctors, hospitals and other service providers to form ACOs — voluntary cooperatives that facilitate communication, data sharing and transparency between providers and patients.
CMS’ Pioneer ACO initiative was an important milestone in the development of ACOs.
According to CMS, the program was, “designed to support organizations with experience operating as Accountable Care Organizations (ACOs) or in similar arrangements in providing more coordinated care to beneficiaries at a lower cost to Medicare.”
What’s the benefit to the healthcare consumer?
Consider the newly-diagnosed cancer patient, served by an ACO, who now needn’t track his or her own test results, truck medical records back and forth to various specialists involved in treatment, or make multiple phone calls to schedule appointments, verify coverage and sort out benefit payments.
Under value-based care models, the ACO itself is responsible for “connecting the dots” for the patient, coordinating the course of care and following up with the patient to ensure medical compliance.
The thought is that, by breaking down information silos and other barriers to care, inefficiencies can be ironed out of the system, resulting in better-quality care and significant savings for providers, patients and payers alike.
How ACOs Achieve Savings
At the end of each year, Medicare looks at an ACO’s per-patient cost, evaluating the cost of the care it provided against its medical outcomes, then sets a savings target for that ACO in the following year.
To entice ACOs to save without sacrificing quality of care, CMS offers bonus payments for organizations meeting or exceeding its savings targets and medical outcome benchmarks. Essentially, Medicare shares the savings it achieves with its providers. Under some programs, providers may receive as much as 85% of the split — a significant incentive.
But CMS also penalizes poor performance. From the perspective of providers, that’s the risk element of at-risk or risk-based contracts.
An ACO that fails to meet its savings target, or that demonstrates a lapse in the quality of care it provides, receives no bonus payments. If it misses targets by a large enough margin, it may be required to pay back a percentage of its reimbursements.
APM-participating organizations are now held fully accountable for the cost and quality of the care they provide. The hypothesis? Patients served by ACOs will become healthier (in the aggregate), even as the cost of their care stabilizes or falls over time.
ACOs are at the heart of the value-based care philosophy; healthcare organizations profit more by rendering efficient, high-quality care in a collaborative setting, rather than by providing care over a series of unrelated encounters in a siloed environment.
What’s Next for ACOs: Encouraging Smaller Providers to Make the Switch
Larger healthcare organizations and hospital systems seem to be increasingly onboard with – or have at least accepted the inevitability of – the shift. Many are quite happy with their results to date.
“Doing the right thing for the right reason actually does result in a better patient experience, it results in better clinical outcomes, and it does, in fact, save money,” said Jay Cohen, Executive Chairman of early adopter Monarch HealthCare in Irvine, California.
“To see that there’s groups all across the country that are having the same experience that we’re having, it heightens my confidence that this program is going to be successful,” he reported.
But what about smaller organizations and unaffiliated practices?
The aforementioned ACO Track 1+ program seeks to bring them into the fold. It’s designed to encourage smaller practices to participate by offering them less financial risk than Pioneer or MSSP.
Under ACO Track 1+, practices can realize a maximum 50% savings split — less than the 75% split afforded by MSSP Track 3, but still a robust incentive. On the other hand, loss sharing is capped at 30%, making ACO Track 1+ more attractive to smaller or less advantaged provider organizations.
Is your organization making the switch to a Medicare APM?
Are you considering it?
Then keep following this blog for news, insights and helpful analysis on our evolving healthcare system. We’ll keep you informed on important developments as value-based care expands.