A Closer Examination of the Accountable Care Organization Model

The health care analytics group Leavitt Partners reports that 744 Accountable Care Organizations or ACOs have been created since 2011.  These conglomerations of physicians, allied health professionals and hospitals exist to improve patient outcomes, optimize patient satisfaction and minimize cost. The number of Americans currently receiving care through an ACO totals more than 23 million; ACOs operate within all 50 states and typically correlate to population density. Initially created by the Affordable Care Act under the guidance of the Centers for Medicare & Medicaid Services, ACOs are now found within the public and private sectors. What began under the Pioneer ACO Model will soon transition to the Next Generation ACO Model, a higher risk/greater reward model that seeks to further improve on advances forged in early ACO systems. Despite continuing investment in these health care delivery systems, there is still some controversy about the efficacy of the ACO model.  A study conducted by Johns Hopkins found that only 54 percent of ACOs created in 2012 and 2013 through the Medicare Shared Savings Program were able to curtail spending in their first year. These ACOs were able to save Medicare $383 million, enabling 52 to qualify for shared savings. The Johns Hopkins study reported that diversity within the ACO was an important factor in producing cost savings. While an ACO can consist of only one type of constituent, e.g. group practice, hospital or primary care providers, those with ten or more distinct entities were more likely to meet cost saving objectives than those with ten or fewer entities.  This is most likely due to improved synergies within the newly formed network. Some analysts, however, argue that these initial savings are unsustainable. Dr. Lawrence Casalino of Weill Cornell Medical College posits that these initial savings are merely the “low hanging fruit” or easily implemented cost controls.  He and others suggest that future cost controls will be much more difficult to recognize and execute because many health care networks are working at near optimal efficiency. There are also some powerful disincentives for ACOs to produce robust savings from the outset.  The current program for ACOs raises the savings threshold for rewards as each previous benchmark is achieved.  This actually equates to a penalty for a success, which many organizations may be trying to avoid by limiting optimization. Given the rigorous savings/cost structure of the ACO model, it is somewhat surprising that so many medical groups continue to join ACOs. There are currently a number of factors driving this transition, with the first and most important being an industry-wide recognition that ACOs are spearheading the move to a value-based payment system. Few organizations want to be left behind when the rest of the industry has converted from the outdated fee-for-service model. ACOs are also important leaders in health information technology. Because Electronic Health Records (EHR) are integral to improved efficiency across disparate silos within ACOs, many medical groups may seek integration in an effort to mitigate the costs of HIT implementation. Finally, there is a huge financial incentive offered by Medicare.  The government agency has announced that ACOs and medical homes are the organizations it will favor with a large portion of its payments in the next few years.

Written by:  Robert Moghim, M.D., CEO- Moghim Medical Consulting Inc.

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