Health Reform WK-EDGE Are ACOs ‘truly here to stay’ or ‘a passing fad’?
Monday, May 15, 2017

Are ACOs ‘truly here to stay’ or ‘a passing fad’?

By Kelly J. Rooney, J.D.

One of the many new patient care models being tested by the CMS Innovation Center are the various accountable care organizations (ACOs), stemming from Sec. 3022 of the Patient Protection and Affordable Care Act’s (ACA) (P.L. 111-148), which established the Medicare Shared Savings Program (MSSP). The MSSP initiated a new approach patient care and payments. The aim of the MSSP is to (1) improve outcomes for beneficiaries; (2) improve the value of care by providing better care at the individual level; (3) provide better health for the populations; and (4) reduce the lowering growth in Medicare expenditures by encouraging coordination and cooperation among providers. Participating in the MSSP requires providers, hospitals, suppliers, etc., to organize into ACOs.

Results have varied on the savings achieved by ACOs and the success of participants in these payment models. This Strategic Perspective looks at the practical experience of ACOs thus far and whether they have staying power.


ACA sec. 3021 created the CMS Innovation Center, which directs Medicare and Medicaid programs to test different patient care models, including those focused on payment and service delivery such as ACOs. The models proposed by the CMS Innovation Center are driving the effort to move away from fee-for-service (FFS) payment and instead towards value-based care.

ACO Tracks. ACOs may choose one of three tracks in which to participate: Track 1 is a one-sided model where participants share in savings but are not held liable for a share of losses; Track 2 is a two-sided model where participants share in the losses in addition to the savings, but provides eligibility for increased sharing (up to 60 percent rather than 50 percent); and Track 3 is a two-sided model with higher risks from 40 to 75 percent, but provides participants with eligibility for shared savings up to 75 percent (see Toward value-based payments: Can CMS deliver on goals?, November 4, 2015).

ACO payment models. A number of ACO models have been developed since the creation of the MSSP. No longer active are the Pioneer ACO Model (which rewarded organizations already providing coordinated care for participating as an ACO in the MSSP) and the Advance Payment ACO Model (which provided upfront payments to the participating ACOs to get them started under the MSSP). Ongoing are the ACO Investment Model (another pre-payment approach to getting ACOs off the ground), the Next Generation ACO (NGACO) Model (which provides for greater risks and higher rewards), and more limited ACO models like the Comprehensive End-Stage Renal Disease (ESRD) Care (CEC) Model and the Vermont All-Payer ACO Model.

Performance results. Financial and quality performance data for the fourth performance year for pioneer ACOs (2015) and the third performance year for the MSSP, released in August 2016, showed that Medicare saved $466 million in 2015, up $55 million from 2014. So far the program savings have been lower than expected, and many ACOs have had trouble getting started. The federal government, however, is waiting for significant financial boons from the MSSP.

Although CMS is cognizant that each year will bring attrition in MSSP, so far growth has outpaced attrition. In 2015, 400 ACOs participated in the MSSP, according to the results, and more organizations participate as ACOs each year. In January 2017, CMS announced that 562 ACOs were participating across the MSSP, NGACO Model, and the CEC Model, with 121 of them in a risk-bearing track (Track 2 and Track 3).

Practical experience with ACOs

With all this talk of ACO models, participation, and performance, what does this mean for providers? Providers are left to decide whether to participate and face the consequences, both on revenue and patient experience. To gain the perspective of potential as well as current ACO participants, Wolters Kluwer posed a series of questions to industry experts: Marvin Berkowitz, Director of Data Management, Harvard Medical Faculty Physicians at Beth Israel Deaconess Medical Center, Inc.Andrew Demetriou, Managing Director, Berkeley Research GroupBruce A. Johnson, Shareholder with Polsinelli; and Leonard Lipsky, Member, Epstein Becker Green.

Wolters Kluwer asked the experts a variety of questions; to most, the experts’ answers differed markedly, however, when asked which ACO model providers seem to be the most interested in participating, all agreed that Track 1 models appear to be the most popular. Johnson noted that this model "permit[s] provider organizations to get into population health without downside financial risk." Demetriou explained that under this model, organizations "have the potential for ‘upside benefits’ if they meet certain targets for efficiency and quality, but do not face ‘downside’ risk if they fail to meet the targets."

But while they may not be subject to the "downside"—having to share in the losses recognized—savings are certainly not a given. "ACOs have had some limited financial success under the program but the majority have found it challenging to avoid financial losses," according to Berkowitz. He also pointed to the statistics: "For 2015, 31 percent or 120 of the 392 participating ACOs generated savings above the minimum savings rate (MSR) required to receive financial payment from Medicare. Eighty-three other ACOs generated savings that were lower than the MSR and so did not qualify for payment surpluses. The remaining 189 ACO organizations generated financial deficits."

Johnson also pointed to nonfinancial benefits: "Those [organizations] that are participating in MSSP and other models are finding that participation provides a useful means to develop systems, clinical service cultures, and other details that will be instrumental to success down the road. Moreover, MSSP and other Medicare programs provide claims data to the ACO, thereby permitting analysis of data, practice and service providers and thereby facilitating the ACO’s learning curve."

Lipsky brought up organizations choosing to participate in non-MSSP ACOs, noting: "Non-Medicare ACO models have become increasingly popular as states and payers are seeking ways of piloting and transitioning to value-based care for Medicaid populations. Many ACO models also permit providers to be accountable for the care of patients with nongovernmental health care coverage. New York, for example, permits state ACOs to contract with insurers and self-funded employers."

Q: What challenges do providers face in deciding whether to participate in the various ACO models?

It depends on a number of issues, including the permanency of the program, the size of the provider, or the prevalence of ACOs in the community.

Johnson: The initial issue, in particular in today’s environment, is whether ACOs, population health and value based payment is truly here to stay, or whether it will merely be a passing fad. For those providers who do see value-based care as the way of today and the future, then the issue is largely one [of] organization and resources. If an ACO doesn’t . . . exist in a community, it’s challenging for physician communities that are not already organized or who don’t have a third party (e.g., hospital/health system, IPA [independent practice association] or other organization) to facilitate organization to move from concept to formation of an ACO or similar organization. Lastly is the question of resources to support ACO development and operations. . . [i]t follows that providers are concerned about how much it will cost to participate, whether it would burden their practice, and how it will affect their patients.

Demetriou: The key challenges lie in establishing workable governance for the organizations and contractual relationships that promote the objectives of the ACO, rather than focusing on benefits to the individual participants. [Although] ACO participants may have historical working relationships, the ACO concept requires that they emerge from their "silos" as physicians, hospitals, suppliers, etc., and begin to approach new forms of collaboration that focus on improving population health rather than merely providing services.

Berkowitz: Medicare has established the ACO program to provide maximum choice and flexibility to its members. Medicare does not allow ACOs to limit patient[s’] choice in the care they seek from their providers. So there is some challenge in managing patients care within established networks. [Because] patients can switch providers at will . . . it can be a challenge to provide managed and coordinated care to patients who may switch providers and networks for various components of their care.

Q: What challenges are providers facing once they are up and running?

Managing expectations of stakeholders and tracking performance once the organizations are running are both issues, according to two of the experts.

Johnson: The question of whether it’s truly of value to their practice is one [challenge]. Operational challenges (e.g., know-how, data systems, data integration, etc.) with the organizations are also common. My sense is many physicians experience the "crisis of rising expectations" with what the ACO is actually capable of delivering . . . many [practices] will be on the fence for a period of time, but when they jump and actually participate, they will expect (or at least hope) for significant returns sooner rather than later. While those returns might be in the form of better/additional contracts and/or access to patients, they might be less concrete such as access to enhanced communication with their colleagues in the ACO/network regarding clinical matters for patient care, access to data to identify areas for improvement, etc.

Demetriou: Aside from dealing with potential conflicts among the members of the ACO, a key challenge is that the government measures performance based on a retrospective assessment—that is the population on which the ACO is charged with serving is determined in hindsight based on where enrollees sought care. This means that it is difficult for ACO participants to know how they are doing in real time because patients they are seeing may not be attributed to them.

Other experts look to the effects on the provision and management of care to patients.

Lipsky: Participating in an ACO typically means following clinical pathways established by the ACO, which can be a difficult transition for smaller providers, particularly those who are participating in any type of ACO for the first time. Providers must move away from the [FFS] mentality that encourages overutilization, and that is something that, although more and more common, is still difficult for smaller providers to do. Connecting to a single EMR [electronic medical record] system, if required by an ACO, also presents a challenge to providers who are used to their own system and are reluctant to share information with competitors.

Berkowitz: Coordinating care for patients with chronic illnesses is critical for ACO success and this requires effective communication and care coordination among primary care providers, specialists, acute care hospitals and nonacute behavioral, rehabilitation and long-term care facility providers. Managing and reducing total medical expenses for the very high cost patient populations is also challenging and requires the engagement of specialist physicians, acute hospitals, skilled nursing facilities (SNFs) and other providers. ACOs need to develop a sophisticated care management infrastructure that proactively manage high cost populations that include cardiac disease, chronic [obstructive] pulmonary disease (COPD), cancer and end stage renal disease (ESRD). It has been found that the 5 percent highest cost patients within an ACO can comprise more than 50 percent of total medical expense. The coordination efforts referenced above are particularly challenging given that providers treating ACO patients may not be part of the same legal or care network (for example, nonacute rehabilitation [hospitals], psychiatric [hospitals], and SNFs may all be separate entities from the acute care hospitals and physician practices that lead an ACO).

Q: From the perspective of value-based care providers participating in an ACO, how well are their expectations being met? (Relating to quality of care, access to care, shared savings levels, associated costs, etc.)

Johnson: In some markets, value based practice is deeply rooted in the organization’s culture (e.g., Dartmouth Hitchcock), and for these organizations, participation in some ACO programs can be disappointing because the bar is high and the likelihood of financial returns is low. In other communities that don’t have a strong value-based culture, but instead have a largely [FFS] culture with high costs of care and relatively lower quality, the potential opportunities are clearer (i.e., for patient care, quality, financial rewards through shared savings, etc.), so even if they’re skeptical, they may be willing to give ACO participation a try. Those in the middle between these two extremes have perhaps the most difficult challenge because they are already in communities where the culture may involve conservative medicine resulting in moderate costs of care, but they also see opportunities for improved quality and efficiency. These middle ground providers may have challenges sustaining excitement and willingness to participate in ACOs, and they may have the biggest challenge in having their expectations met.

Berkowitz: Providers participating in an ACO are dealing with a mixed experience to date. Data indicates that quality measures have improved since the initiation of the ACO program. However, stabilizing and reducing total medical expense has been more challenging. The majority of ACOs have either not generated any savings or they have generated savings below the minimum saving rate (MSR) required to generate financial surpluses.

Medicare patients given maximum flexibility and choice for receiving care may not be open to lower cost treatment options. It has also been challenging for many providers who are accustomed to and comfortable with the [FFS] payment system to adapt to a value based and risk based payment environment. Many organizations are still dealing with a hybrid environment that is part [FFS] and part value based, resulting in incentives that are not always strong enough to change established patterns of behavior. Change requiring reducing the volume of services provided to patients or the exchange of lower cost services for higher cost services result in short-term reductions in revenue for providers. These reductions may be less attractive than potential longer-term gains from ACO financial surpluses that may or may not materialize down the road.

Lipsky: The results are inconsistent. It depends, in part, on whether or not the terms of the ACO’s agreement with payers are reasonable and performance benchmarks are attainable. Providers who are capable of meeting performance benchmarks for shared savings are more likely to continue to participate in such value-based ACOs. But performance feedback and reconciliation of shared savings often does not occur until years later, making it harder for providers who are used to the immediate rewards of [FFS] care to buy into the ACO model. Bridging that gap can make the transition to value-based care in an ACO more efficient and enduring. Additionally, ACOs that receive add-on compensation from payers to assist with care coordination are able to dedicate greater resources to this important function – which should further drive down costs and increase savings for all involved.


Whether ACOs are really here to stay is yet to be seen. More payment models are being tested, but for now, the MSSP appears to be gaining in participation but perhaps not in recognized savings for Medicare or the participants. What that it means for the individual organizations to operate under an ACOvaries greatly. Bruce Johnson summarized the realities of the program: "Overall, I think it’s fair to say that the MSSP, [NGACO], and other ACO programs are designed to not simply provide rewards to those who participate, but instead, they require investment and effort to yield success and rewards. As are result, some of the participants who thought ACO participation would be an easy way to get some extra money have learned that isn’t necessarily the case, and those are the participants and ACO organizations that are likely weighing whether to continue participate and evolve, or perhaps plat another path forward in the value-based environment."

Attorneys: Bruce A. Johnson (Polsinelli PC). Leonard Lipsky (Epstein Becker & Green, P.C.).

Companies: Harvard Medical Faculty Physicians at Beth Israel Deaconess Medical Center, Inc.; Berkley Research Group

MainStory: StrategicPerspectives NewsFeed AccountableCareNews PhysicianNews QualityNews VBPNews

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