Accountable Care Organizations

VII. Key Issues: Regulation & Reform >> C. Health Reform >> Affordable Care Act (ACA) >> ACA and the Health Sector >> General Provisions Affecting Multiple Sectors >> Accountable Care Organizations (last updated 2.4.17)
Lead Editor – Dana Beezley-Smith, Ph.D.


Under the Affordable Care Act, the Centers for Medicare and Medicaid Services (CMS) launched the Medicare Shared Savings Program (MSSP) and the Pioneer Accountable Care Organization (ACO) Program for groups of health care providers that join forces, with or without hospitals or health plans, to form legal entities agreeing to take responsibility for the quality, cost, and overall care of a population of patients. ACOs are also being created by private entities such as hospitals and insurers.
According to CMS, a Medicare ACO is formed by a group of providers and suppliers of services (for example, hospitals, physicians, and others involved in patient care) that work together to coordinate care for the Medicare Fee-For-Service beneficiaries they serve. Quality measures for MSSP and Pioneer ACOs can be found here, while 
quality and financial performance data are posted at and CMS’ Physician Compare website.
Rationale: Practice-based Population Health. “The U.S. Agency for Healthcare Research and Quality (AHRQ) recently coined the term ‘practice-based population health (PBPH),’ in which the term ‘population’ refers to any group of people under the care of single physician, group practice, PCMH or ACO. Primary healthcare is increasingly moving in the direction of a PBPH (Practice-Based Population Health) model, which assumes that medical providers are responsible for increasing the overall health of the population they manage, and not just for treating individual patients who present in their office for care. This shift is driven primarily by financial changes in healthcare reform.” (New York State Psychological Association, January, 2014)

Medicare Shared Savings Program (MSSP)

Under MSSP, CMS assesses an ACO’s quality and financial performance based on a population of assigned beneficiaries to determine whether the ACO has met the quality performance standards and reduced growth in expenditures compared to a historical financial benchmark.
Medicare continues to pay individual providers and suppliers for specific items and services furnished to Medicare beneficiaries assigned to an ACO as it currently does under the Medicare Fee-For-Service payment system.
The Medicare Shared Savings Program (MSSP) is currently the dominant Medicare ACO model and its P4P comes in the form of shared savings. ACOs that meet or exceed a minimum savings rate (MSR) and satisfy minimum quality performance standards are eligible to receive a portion of the savings they generated. In order to determine whether an ACO is to receive shared savings or is responsible for losses (for those ACOs that have elected to operate under a two-sided performance-based risk model), CMS develops a financial benchmark based on historical expenditures for beneficiaries assigned to the ACO. The amount of an ACO’s shared savings or losses also depends on its quality performance. 

MSSP Tracks

  • MSSP Track One: ACOs are eligible for 50% of the shared savings generated, but do not share in the losses. Total shared savings are capped at 10% of the baseline benchmark.
  • MSSP Track Two: ACOs are eligible for 60% of the shared savings and 40-60% of the shared losses. Total shared savings are capped at 15% of the baseline benchmark and total losses are capped at 5-10%.
  • MSSP Track Three: ACOs are eligible for 75% of the shared savings and 40-75% of the shared losses. Savings are capped at 20% of the baseline benchmark and total losses are capped at 15%. This model is planned for 2016.

Shared Savings

  • Quality Performance: To ensure that ACOs are providing quality care while lowering costs, CMS ties an ACO’s share of the savings to a quality score. The quality score is calculated by tying ACO performance on 33 measures spanning four domains to a sliding scale point system. The ACO’s points for each measure are added together for each domain (patient/caregiver experience, care coordination/patient safety, preventative health, and the at-risk population) and divided by the total number of points in each domain. The percentages are then averaged to determine the ACO’s quality score.
  • Financial Performance: Baseline cost of care is determined by a three-year look back at risk-adjusted per capita average Medicare Part A and Medicare Part B expenditures, for the assigned beneficiaries. The expenditures are then risk-adjusted using the CMS Hierarchical Condition Categories (HCC) originally developed for Medicare Advantage, the Medicare managed care program. The cost of care for the performance year is determined using the same methodology, but for the performance year time period.
  • To calculate the final shared savings/losses, the performance year baseline expenditures are subtracted from the performance year expenditures. If the ACO generated savings, which are outside the minimum shared savings rate (a percentage applied to the difference that ensures savings were not due to normal variation, which is generally set anywhere from 0.5% to 3.9%), then the ACO is eligible for a share of the savings. To determine the ACO’s portion of the savings, the quality score is multiplied by the maximum amount of shared savings available to the ACO.

Costs of MSSPs

  • How Much Does it Take to Run an ACO? “To better understand how much investment is needed from the ACOs themselves, survey respondents were asked to describe their start-up and ongoing operational costs. 

    • Just over half (51 percent) of the ACOs who responded said that the investment was very significant, 36 percent said it was significant, seven percent said it was more than nominal, five percent said nominal, and one percent said the investment was negligible.
    • When looking at survey respondents of those part of a single ACO versus multi-ACO, or those who share centralized operations across many ACOs, the findings are interesting. As seen in figure 4, when comparing the investments to participate in the MSSP, 81.3 percent of the single ACOs indicated the investment to be significant or very significant where as 98 percent indicated the same for multi-ACOs.
      • A little over half (51 percent) of single ACOs selected very significant to describe the investment to participate in the MSSP, 31.3 percent selected significant, 8.3 percent more than nominal, 7.3 percent nominal, and 2.1 percent negligible.
      • Over half (56 percent) of multi-ACOs selected very significant, 42 percent significant, two percent more than nominal, and zero percent selected nominal or negligible.
    • When looking a little deeper into the operating costs, the survey asked the respondents to put a dollar amount to their recent estimated costs. The average cost of single ACOs are almost two million ($1,943,276), whereas the average cost of multi-ACOs is almost one million ($974,289) and the average for all survey respondents is between both of those amounts at $1,622,032. The range across all of the survey respondents is significant, ranging from as low as $185,000 to as much as $9,500,000.
    • These numbers do not reflect the narrative that many ACOs provided explaining additional costs, which are challenging to separate from the cost of the health system that is making investments to move towards value across the system. For example, the electronic health record (EHR) is a tricky expenditure for ACOs to tease apart from the larger system; many of the respondents just left that category as zero, in fact. Another example is annual quality reporting for which the ACO often utilizes existing hospital staff and does not count as an expense against the ACO.” (National Association of Accountable Care Organizations, 5.24.16)

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Pioneer ACOs

A creation of the Center for Medicare & Medicaid Innovation, the Pioneer ACO Model is designed for health care organizations and providers that are already experienced in coordinating care for patients across care settings. It allows these groups to move more rapidly from a shared savings payment model to a population-based payment model on a track consistent with, but separate from, the MSSP.
According to CMS, the payment models being tested in the first two years of the Pioneer ACO Model are a shared savings payment policy with generally higher levels of shared savings and risk for Pioneer ACOs than levels in the Medicare Shared Savings Program. In year three of the program, participating ACOs that have shown a specified level of savings over the first two years will be eligible to move a substantial portion of their payments to a population-based model.
In order to receive savings or owe losses in a given year, ACO expenditures must be outside a minimum corridor set by the ACO’s minimum savings rate (MSR) and minimum loss rate (MLR). If savings/loss is within this corridor, no payment is made to the ACO or owed to CMS. If the Gross Savings/Losses percentage is outside this corridor, then the ACO splits the overall savings/loss with CMS.
In 2012, Pioneer ACOs were not paid for their performance on quality measures, but according to Modern Healthcare, in the second year (2013) and beyond, “any financial payouts from savings are dependent on how well ACOs perform on quality.”
The program began with 32 participants; as of Spring, 2016, 9 entities remain Pioneer ACOs.

Pioneer Program Evaluation

Office of Inspector General,  Office of Audit Services (May 2016) Observations From Our Review of CMS’s Administration of the First Performance Year of the Pioneer Accountable Care Organization Payment Model.

  • CMS Did Not Publicly Disclose Certain Retroactive Payment Arrangement Selections for Performance Year 1. Pioneer ACO agreements generally provided that the selection of a payment arrangement was binding for PY1. Amendments to the agreements were generally permitted when mutually agreed upon in writing by the parties. In April 2013, after the close of PY1 when Medicare claims data became available to determine shared savings and losses, CMS transferred five Pioneer ACOs from a two-sided risk model with potential for either shared savings or shared losses to a one-sided risk model with no risk of shared losses, retroactively effective for PY1.
  • CMS Did Not Have Access to Data Needed To Verify Shared Savings and Loss Calculations. CMS should have verified the contractor’s calculations because, according to officials of several Pioneer ACOs, these calculations used a methodology that was not standard in the health care industry. Because CMS did not verify the contractor’s calculations, it did not have independent assurance that Pioneer Model PY1 shared savings of $65.6 million and a shared loss of $2.5 million, totaling net reported shared savings of $63.1 million, were accurate.
  • CMS Did Not Promptly Process and Collect the Only Shared Loss. CMS did not formally record the loss as money due to the U.S. Treasury until after we inquired on November 19, 2013, as to whether the loss had been collected, and CMS did not collect the $2.5 million shared loss until December 26, 2013. As a result of delayed processing and collection of the PY1 shared loss, CMS did not comply with the Pioneer ACO agreement.
  • CMS Performed Two Pioneer ACO Pilot Audits and, Although Not Required To Do So, May Not Have Communicated and Resolved the Results. CMS awarded a contract to monitor Pioneer ACOs that included routine audits ‘to begin around June 2012.’ The contractor performed pilot audits of two Pioneer ACOs and prepared draft reports, both dated February 2013. In the two pilot audits, the contractor found a total of 10 reportable issues of noncompliance with specific Pioneer Model requirements and 4 notable deviations from either the Pioneer ACOs’ internal policies or good management practices… good management controls for monitoring and communications indicate that CMS should have ensured that it documented end-of-audit discussions with each auditee, including providing each auditee with its final audit report and resolving the findings. CMS did not provide documentation of its formal end-of-audit discussions or documentation showing that the audit reports had been sent to the audited Pioneer ACOs.
  • CMS Did Not Always Maintain Complete Pioneer Accountable Care Organization Agreements and Other Key Documentation. CMS lost much Pioneer Model documentation, including email supporting one Pioneer ACO’s election of an optional technical adjustment (not a change in payment arrangement selection) that eliminated a PY1 shared loss exceeding $2 million. It was only after we requested this key email that CMS recovered a copy from an official of the affected Pioneer ACO.

Next Generation ACO Program

  • Obamacare’s Renewed Effort to Cut Medicare Bills After Setbacks. “Health systems in at least 14 states are joining a new version of a program under Obamacare meant to lower costs in the half-trillion-dollar Medicare program, after some groups quit an earlier effort… In all, 21 systems are taking part in the Next Generation Accountable Care Organization program, which started on Jan. 1, the Centers for Medicare and Medicaid Services said Monday. (Bloomberg Business, 1.11.15)
  • Eight Key Insights on This Week’s ACO Participation Announcement. “With 147 renewing ACOs and 100 new ACOs in the 2016 MSSP cohort, the number of MSSP ACOs grew to 434. In addition, 21 ACOs joined the new Next Generation program. The 100 new MSSP ACOs this year is up from last year’s 89 new ACOs and likely reflects providers’ expectation that the transition to value-based payments is becoming more inevitable in both public and private markets. Moreover, CMS reported that the number of beneficiaries served by ACOs in Medicare’s programs has grown from about 5.9 million in 2014 to 8.9 million at the beginning of 2016. The growth of participation in two-sided risk models (22 ACOs in Track 2 or 3 of MSSP and 21 ACOs in Next Generation) further evidences the growing move toward risk-based payments.” (The Advisory Company, 1.15.16)
  • CMS Announces Next Generation ACO Participants. “CMS has officially launched its Next Generation Accountable Care Organization Model this year with the selection of the first 21 participating ACOs. For those familiar with the ACO world, these organizations may sound familiar. The ACOs selected have significant experience with accountable care through initiatives such as the Medicare Shared Savings Program and the Pioneer program. ACOs in the program will take on higher levels of financial risk and reward in an effort to move more fee-for-service Medicare payments into alternative payment models by the end of the year.” There are 21 ACOs participating in the Next Generation ACO Model. (Becker’s Hospital Review, 1.11.16)
  • CMS Announces Next Generation ACO Model. “The Next Generation ACO Model is an initiative for ACOs that are experienced in coordinating care for populations of patients. It will allow these provider groups to assume higher levels of financial risk and reward than are available under the current Pioneer Model and Shared Savings Program (MSSP). The goal of the Model is to test whether strong financial incentives for ACOs, coupled with tools to support better patient engagement and care management, can improve health outcomes and lower expenditures for Original Medicare fee-for-service (FFS) beneficiaries.” (Center for Medicare and Medicaid Services, 3.10.15)
  • The Next Generation ACO: Why CMS is Offering Higher Risks, Higher Rewards. “CMS expects just 15 to 20 organizations to participate in the model, with three initial performance years and two optional one-year extensions. If the pilot is successful, CMS will move the model into the Medicare Shared Savings Program. However, according to CMS data, just five of more than 400 Medicare Shared Savings Program ACOs are participating in Track 2 of the program — the two-sided risk track —and participants in the Pioneer Program — which moves from high-risk to full risk — have dwindled to 19 from 32 participating organizations. Based on this past performance, are healthcare organizations even ready for the Next Generation ACO? ‘Most ACOs are not ready to take on more risk — most are not even taking downside risk at all — but a handful would like to take on more,’ said David Muhlestein, PhD, JD, senior director of research and development at Leavitt Partners, who spoke with Becker’s Hospital Review to distinguish the model’s new features and implications… As a result, Dr. Muhlestein said, it may be a model that becomes a long-term goal for most ACOs to move toward since most ACOs in the MSSP will not be able to take on full risk any time soon.” (Becker’s Hospital Review, 4.1.15)
  • Through the Eyes of One ACO: Deciding on Next Generation ACO. “As the most advanced accountable care organization (ACO) model, Next Generation ACO has its appeal. However, it is the riskiest model, and one ACO explains why it decided to stay with the Medicare Shared Savings Program… Since our desire is to be rewarded for our regional efficiency and not be gambling on the uncertainty of a singular benchmark year, we will be sticking with MSSP for 2017. We hope that CMS will continue to refine the Next Generation ACO model so that it rewards long-term improvement relative to regional competitors and takes into better consideration variability in setting savings benchmarks. We also hope that other payers offer ACOs similar contact options so that incentives can be more fully aligned and simplified. Taking on risk is a huge commitment by a physician-led ACO, whether it is a full risk such as Next Generation ACO or less risk such as Track 2 of the MSSP. A temporary, 5% bump in fee-for-service payment is not the answer. We need better benchmarks and lower risk. Risk that is tied to the finances of the ACO as we have advocated for represents the best way to move ACOs to 2-sided risk.” (American Journal of Managed Care, 5.27.16)

Comprehensive ESRD (End-Stage Renal Disease) Care (CEC) Model

Medicare ACO Track 1+ Model

On December 20, 2016, CMS announced the creation of the new Medicare ACO Track 1+ Model. The new model, beginning in 2018, will allow clinicians to join Advanced Alternative Payment Models to improve care and potentially earn an incentive payment under the Quality Payment Program, created by the Medicare Access and CHIP Reauthorization Act of 2015 (MACRA).  The new Medicare ACO Track 1+ Model will test a payment model that incorporates more limited downside risk than is currently present in Tracks 2 or 3 of the Medicare Shared Savings Program in order to encourage more rapid progression to performance-based risk, particularly for small practices.

ACO Development and Evolution

  • Accountable Care Organizations: Can They Rein In Health Care Spending for States? Provided in this work are conflicting theories and definitions of the ideal ACO, as well as details of existing accountable care programs and government and private efforts to establish new ACOs. American Academy of Family Physicians, Government Relations Division, January 10, 2011.
  • The Regulation That Could Determine the Future of Health Care. “The Obama administration has just published the final Accountable Care Organization rule. You can read all 694 pages of it here… This is not the administration’s first crack at encouraging ACOs. A proposed rule in April, which detailed the requirements to become an ACO, was greeted with howls of protest by the provider community… CMS made a lot of other adjustments too that make the program easier to participate in, like lowering the quality reporting requirements and eliminating requirements that ACOs show significant use of electronic medical records. As one CMS official put it this morning, the agency wanted to ‘smooth the on-ramp’ into the program.” (Washington Post, 10.21.11)
  • ACOs By the Numbers: Where Are We Now? (8.16.13) “Here are some of the main takeaways, by the numbers:
    • 488 – The number of ACOs Leavitt Partners is tracking as of the end of July 2013. That’s more than double the number from June of last year. Generally, ACO activity tends to correlate with population density, the firm observed.
    • 52 – Percentage of ACOs engaged in a contract with CMS to provide care to Medicare beneficiaries through the Medicare Shared Savings Program or the Pioneer ACO Model. This is a marked turning point; non-Medicare ACOs have been dominant since the inception of the ACO concept.
    • 4 – Different models that have emerged, although none has yet established itself as the most successful. Leavitt Partners designates the four models as:
      • Formed by smaller physician groups. These involve fewer physicians and patients and may be more conducive to more personal patient engagement and coordination of care. Leavitt lists Primary Partners in Florida as a prime example of this model.
      • Governed by large hospitals. Because they cover more lives, these kinds of ACOs have an increased need for advanced health technology and reporting tools. That’s illustrated by Abbington Health and Independence Blue Cross’s deal with tech firm Lumeris.
      • Include multiple hospitals and physician groups. The large number of entities involved in these ACOs makes them especially reliant on technology to integrate care at multiple locations.
      • Formed by states for Medicaid populations.  Colorado, Oregon and Utah are a few of the states that have formed ACO entities comprising multiple providers and community resources.” (Med City News, 8.16.13)
  • CMS Reports 123 New MSSP Accountable Care Organizations. “Doctors, hospitals and other health care providers have formed 123 new Accountable Care Organizations (ACOs) in Medicare, providing approximately 1.5 million more Medicare beneficiaries with access to high-quality coordinated care across the United States, Health and Human Services Secretary Kathleen Sebelius announced today… Since passage of the Affordable Care Act, more than 360 ACOs have been established, serving over 5.3 million Americans with Medicare.” (Center for Medicare and Medicaid Services, 12.23.13)
  • Obamacare’s Renewed Effort to Cut Medicare Bills After Setbacks.
    • Of the 32 systems that began the five-year Pioneer program, just nine remain for 2016, its final year. Seven of them are starting in Next Generation this year. The others have exited or moved to other Medicare programs.
    • Dartmouth-Hitchcock health care system left Pioneer last year after getting a penalty for failing to meet savings benchmarks. And although it believes in the aims of ACOs and was accepted into the Next Generation program, Dartmouth-Hithcock didn’t sign up for this year. The risk of another penalty was too high, according to Robert Greene, the system’s executive vice president and chief population health management officer. The system will make a decision on 2017 after seeing the government’s savings expectations, he said in a telephone interview.
    • Overall, there are more than 8.9 million Medicare beneficiaries covered in several different kinds of accountable care programs, the Administration said Monday. About 37.8 million people are covered by traditional Medicare and another 18.1 million in the privately run Medicare Advantage program.
    • Pioneer participants, including Dartmouth-Hitchcock and Maine’s Beacon Health, have said the program was tougher on health systems that already had relatively low costs.” (Bloomberg Business, 1.11.15)
  • Growth And Dispersion Of Accountable Care Organizations In 2015. “In January, an additional 89 provider organizations joined the Medicare Shared Savings Program (MSSP) as accountable care organizations (ACOs). While this year’s new entrants are a smaller cohort than those that joined in 2013 and 2014, they represent a continuation of the expansion of the accountable care movement.
    • Over the past year, approximately 120 organizations have become ACOs in public and private programs, bringing the total to 744 since 2011.
    • There has been continued growth in the number of people covered by ACO arrangements. Since the start of 2014, an estimated 4.5 million more people have been included in accountable care arrangements, bringing the total to 23.5 million covered ACO lives.
    • Of these, only 7.8 million are part of the Medicare ACO programs (Pioneer and Medicare Shared Savings Program), meaning that the majority of ACO volume is coming from the commercial and Medicaid sectors.
      We predict that ACOs will cover over 70 million people by the beginning of 2020, and more than 150 million people in 2025. Worst-case scenario models see ACOs decreasing in size within two years, and best-case scenarios put the majority of Americans into ACOs by 2018.” Muhlestein, David.  (Health Affairs, 3.31.15)
  • ACO Tally as of January, 2016. 
    • “CMS’ January 11 announcement of the new and renewing Medicare ACO participants indicated both an increase in the number of ACOs and ACO covered lives. The now 477 CMS ACOs that are participating in one of four CMS models—the Medicare Shared Savings Program (MSSP), Pioneer, Next Generation ACO (NGACO), and Comprehensive ESRD Care (CEC) —are currently responsible for 8.9 million lives, up from 7.3 million in April 2015.” (Leavitt Partners, 3.2.16)
    • “Whether the program will be sustainable is unclear. As of January 1, 2016, more than 400 ACOs participated in MSSP, CMS said in the final rule. These include 147 ACOs with 2012 and 2013 agreement start dates that entered into new 3-year agreements January 1, 2016, and 100 ACOs that entered the program for the first time on January 1. In addition, 21 ACOs have signed up for the Next Generation ACO model, a higher-risk track that is in a demonstration phase. A year ago, MSSP included about the same number of ACOs, and in December 2014, 330 ACOs participated in MSSP. So the growth of the program has clearly leveled off. Moreover, very few MSSP participants are taking two-sided risk, which CMS views as essential to incentivizing changes in healthcare delivery.” (Medscape Medical News, 6.13.16)

Other Models

  • The National Rural ACO: A New Player in the Rural ACO-Convening Space. “Initial up-front investments and risk-related uncertainties around ACOs create formidable care coordination barriers to rural providers. Most rural providers don’t qualify for CMMI and CMS incentive programs due to insufficient patient volumes and beneficiary assignment issues. These providers also lack the cash reserves necessary to build the infrastructural architecture associated with ACOs. Enter the National Rural Community ACO (NRACO) whose executive summary states: ‘[f]acing reimbursement cuts from all payers, rural providers are forced to choose between the unacceptable risk of embracing the new delivery model without financial support and predictability or dying a death of a thousand cuts being forced to gradually reduce services and risk eventual closure.’ NRACO hopes to form an alliance of rural providers who would jointly benefit from care collaboration and population management.” (Leavitt Partners, 8.20.13)
  • Broadening the ACA Story: A Totally Accountable Care Organization (TACO). “Now is the opportune time to ride that wave and make sure that Medicaid’s ACOs are driving toward total accountability, particularly as the Medicaid-covered population is expanding. Innovation funding from the ACA, as well as leading-edge philanthropies like The Commonwealth Fund and Kaiser Permanente Community Benefit, are enabling states to build upon the strongest pillars of their community-based delivery systems to create ACO models that focus more keenly on the wide-ranging medical, behavioral, and social needs of their highest-cost patient subsets.” (Health Affairs Blog, 1.23.14)

ACO Attrition


Health Affairs. (1.29.14) “In 2014, many of the earliest ACOs will begin to show results. The importance of these initial results cannot be understated. Many organizations that have considered pursuing accountable care contracts are eager to observe how their peer institutions perform. Consistently positive results will help these organizations that are sitting on the sidelines to decide to move toward value-based payments. Conversely, consistently negative, or even ambiguous, results will not only discourage potential ACOs from forming, but will lead to existing ACOs abandoning their current value-based contracts.” 

  • Eight Key Insights on This Week’s ACO Participation Announcement. “Earlier this week, the Centers for Medicare and Medicaid Services (CMS) announced the 2016 ACO cohorts, including new and renewing ACOs for the Medicare Shared Savings Program (MSSP) and ACOs joining the Next Generation ACO Model…More than 60 ACOs from the first three MSSP cohorts chose not to renew participation for 2016. And based on the figures CMS released, another 23 from more recent cohorts seem to have quietly left the program before the end of their performance periods. In addition, just nine ACOs remain in the Pioneer ACO program, which started with 32. But program attrition may not, in and of itself, represent a programmatic failing.  Rather, we should expect some attrition in programs designed to drive dramatic changes in payment and delivery. As CMS’ Patrick Conway noted in a recent interview with us, testing the limits of innovation means that there are some programs that may not fare well in the long term.  It is debatable, however, how much attrition is natural and how much is related to legitimate program shortcomings.” (The Advisory Company, 1.15.16)


  • NAACOS poll of ACO Executives shows that 2/3 of the MSSP ACOs are unlikely to renew their 3-year contract with CMS.” (National Association of ACOs, April, 2014)
  • Insurer’s Retreat from ACO Investment Raises Questions about Medicare’s Program. “Universal American, a publicly traded insurance company that has invested heavily to become the largest operator of Medicare accountable care organizations, will no longer finance existing ACOs where its executives see little hope of financial return. The decision raises questions about Medicare’s ability to expand the program.” (Modern Healthcare, 5.7.14)
  • Only Eight Percent of MSSP ACOs Say They are Likely to Remain in the Program. “Almost all of the ACOs that said in April that they were likely to sign a contract [are] moving to the undecided category. As a result, only 8% of ACOs are likely to sign a second contract and 92% either unlikely or undecided. NAACOS President, Clif Gaus, commented ‘this continues to be the most troubling aspect of the Medicare Shared Savings Program and must be sufficiently addressed in the upcoming CMS proposed rules or the MSSP will no longer exist and the high hopes of DC policy-makers to migrate ACOs to two-sided risk will be impossible.’…ACO respondents reported an annual mean of $1.5 million management costs directly attributable to ACO operations.” (NAACOS, 11.3.14)

Pioneer ACOs

  • Nine Pioneer ACOs Jump Ship After First Year. “Nearly a third of the health systems chosen for the ambitious Pioneer accountable care organization program with Medicare are leaving after the first year of the three-year program…’We really did learn a lot as a Pioneer ACO,’ says Todd Sandman, vice president of strategy at Presbyterian. The decision to leave the program was informed by the data they received from CMS, which showed the health system had not saved money. The biggest problem for the system, he says, was geography — and the fact that there wasn’t much waste to cut. ‘New Mexico has historically been a low-cost and low-utilization environment” compared to other states, Sandman explains. ‘So there wasn’t much opportunity to reduce excess utilization and save dollars.’ Chas Roades, chief research officer at the Advisory Board Company in Washington, D.C., says that’s not surprising. The systems selected to be Pioneers were the crème de la crème — hospitals that have already improved the way their care is delivered. ‘Most of the low hanging fruit is already gone in most cases,’ he says, ‘making it harder to further lower costs.’” (Washington Post, 7.16.13)
  • San Diego-Based Sharp HealthCare Pulls Out of Pioneer ACO Program. “On Tuesday, San Diego-based Sharp HealthCare announced that it has dropped out of the Pioneer Accountable Care Organization program, making it the 10th ACO to do so.” (California Healthline, 8.28.14)
  • Obamacare Savings Experiment Yields Modest Results in Study. “[T]he government may need to make changes to keep hospitals and doctors in the program, known as Pioneer, Harvard University researchers said in a paper published by the New England Journal of Medicine. Since Pioneer started in 2012, 13 of 32 organizations that initially joined have exited.” (Bloomberg, 4.15.15)
  • Dartmouth-Hitchcock to Exit Pioneer ACO Program over Losses, Calls Model ‘Unsustainable.’ “Dartmouth-Hitchcock Medical Center will abandon the Pioneer Accountable Care Organization program, the system confirmed Tuesday, after losing more than $3 million over the past two years in the Centers for Medicare and Medicaid model. Instead, the ACO hopes to join CMS’s Next Generation ACO model in 2016. “We did give CMS our official notice of withdrawing from the Pioneer program for the calendar year,” said Dr. Robert A. Greene, executive vice president and chief population health management officer for the New Hampshire ACO. This happened in September. ‘We looked at our performance and looked at the 2015 performance and we saw the same thing, another penalty. It seemed unsustainable from a financial point of view.’” (Healthcare Finance, 10.20.15)
  • Steward, Mount Auburn Quit Medicare Pilot Program. “Steward Health Care System and Mount Auburn Hospital’s physician network have followed several other providers across the country that have left the pilot, called the Pioneer accountable care organization program, largely for financial reasons. At least half of the 32 health systems that were initially participating in the program have left. Both Steward and Mount Auburn said they will join a similar federal program, which launches next year, because the rules make it more financially attractive to them than the earlier program… the physicians group decided to join the new federal program, called Next Generation accountable care organizations, which Mount Auburn expects will have more favorable rules. ‘We are extremely committed to the concepts of an accountable care organization,’ Spivak said. ‘But because financial benchmarks were changed [under Pioneer], we were at financial risk.’” (Boston Globe, 11.3.15)


IT Problems

  • First Crop of Medicare ACOs Navigate Data Problems. “For the first crop of shared savings ACOs, a number of problems marked their early work, NAACOS survey found, with ‘the overwhelming number of responses’ related to CMS data and ‘learning to access it and process it.’ Among specific problems, health organizations mentioned: ‘finding suitable software,’ ‘meeting implementation schedules,’ ‘delays in getting claims data,’ ‘new skill sets to analyze data,’ ‘addresses of assignees,’ ‘slow stand-up of IT system,’ ‘data inconsistency from CMS,’ and ‘translating the data into actionable information for care managers and providers.’ Those problems may partly be related to IT management, much of which has been outsourced. About a quarter of the ACOs surveyed managed claims data using internal IT, about a quarter used only an external vendor and the rest used a combination. Overall the ACO organizations rated their IT satisfaction at 6.4 on a 10 point scale, with those using wholly outsourced IT reporting more satisfaction on average and smaller ACOs reporting somewhat less.” (Health Care Payer News, 1.27.14)

Impact on Innovation

  • Scott GottliebAccountable Care Organizations: The End of Innovation in Medicine? AEI Health Policy Outlook, 2.16.11.
  • The Real Promise of ‘Accountable Care’. “The early evidence from private and public ACOs suggests that real savings are possible. The right direction for health-care policy is to build on ACO successes through further steps to reward low-cost innovation, while steering support away from health-care providers who are unwilling to change. (Wall Street Journal, 3.4.13)
  • Obamacare’s Accountable Care Organizations Are Too Closed And Inefficient. “ACOs, purported to be an innovative care delivery and payment model where physicians better coordinate, are more accountable for care management and can even profit from savings they create, are inadvertently too closed and inefficient. Owing to their complex nature it is very hard for ACOs to be financially and clinically successful. In part this is because the program is largely closed off from the types of innovation and work flows that could hardwire ACOs to bud, evolve and improve. Rather than introducing a good model and letting industry iterate around it in a hundred different ways, the government too tightly defined exactly how an ACO must form and operate.” Bush, Jonathan. (Forbes Magazine, 5.29.14)

Care Rationing

  • Accountable Care Organizations: Can We Have Our Cake and Eat it Too? “If ACOs are to effectively slow down health care inflation, they can only do so if they make some compromises in the quality of care they provide patients, that is, they must ration care.” Mantell, Jessica. (Seton Hall Law Review, Vol. 42, 11, 2012)
  • The Affordable Care Act Will Fail Without Patient Engagement. “Simply put, ACOs will try to reduce costs, ration care and overstate quality. ACOs, after harvesting the easy savings from ‘low hanging fruit’ such as non-essential hospital admissions, will turn to care coordination and rationing. Care coordination is wonderful but it costs money and will reach diminishing returns as well. Rationing will be moderated by added ACO regulation and independent quality measures. For their part, ACOs will leverage their scale to reduce competition and impede independent quality measures. EHRs are pitched as essential for care coordination but they are purchased as a strategic tool for gaining share of shrinking markets. Patient engagement, from a health economics perspective, is incidental in care coordination but essential in avoiding the perception of rationing.” (The Health Care Blog, 7.22.13)
  • Obamacare’s ‘Accountable Care’ Experiment is All Hype, No Substance. “In May, the Department of Health and Human Services announced that the law’s “Pioneer Accountable Care Organizations” have saved Medicare $385 million. HHS Secretary Sylvia Burwell proudly proclaimed that this ‘innovative payment model’ has produced ‘substantial savings,’ so she’s now calling for its expansion. That would be a good idea — if Burwell weren’t selling snake oil. There’s nothing innovative about the ‘Accountable Care’ model. It has, at best, generated negligible savings. And it has set the stage for outright rationing of senior medical care.” Pipes, Sally. (Forbes, 6.1.15)
  • Why Are Hospitals Buying Physician Practices and Forming Insurance Companies? “Because this program is part of Medicare’s fee-for-service system, ‘reduce costs’ means ‘reduce services’ – that is, ‘give patients less care.’ The idea is to incentivize providers to encourage patients to utilize less care – say, to recommend fewer surgeries, fewer hospital stays, less frequent follow-up visits, and so on.  One might ask how an ACO is supposed to reduce patients’ utilization of health care…[I]f an ACO controls a large percentage of the available providers, it gets a lot easier to reduce patient utilization. If an ACO wants to, say, try to limit patients to 12 specialty visits a year, it’s much easier if they ‘own’ most of the specialists in the area. If an ACO includes many of the major hospitals, and a significant number of physicians in every major practice area – including, say, imaging facilities and labs (possibly a hospital outpatient lab), then it becomes a lot easier to guide patients to the level and type of utilization desired – which is, for purposes of the Medicare Shared Savings Program, always less utilization. And of course, it is much easier to enforce referral and utilization policies on physicians who are employees of a group running the ACO, rather than simply independent businesses who happen to join an ACO at a given moment in time.” (American Action Forum, 2.16.16)

Care Quality Improvement

  • ACO Contracts May Slow Spending, but Quality May Not Improve, Says Study. “As accountable care organizations proliferate, a new study suggests that overall health spending may slow when hospitals and medical groups agree to the new payment model with even one insurer. That’s good news for proponents of accountable care, who hope to see a change in healthcare financing lead to a fundamental change in healthcare delivery. Now the bad news: The quality of care may not improve for all patients.” (Modern Healthcare, 8.28.13)
  • Changes in Patients’ Experiences in Medicare Accountable Care Organizations. “In the first year, ACO contracts were associated with meaningful improvements in some measures of patients’ experience (timely access to care and primary physician notification of specialty care) and with unchanged performance in others (physician ratings, interactions with physicians, and overall care).” (New England Journal of Medicine, 10.30.14)
  • CMS Innovation Center has Few Concrete Results to Report. “The center’s activities include closely watched tests of accountable care and bundled payments, as well as Maryland’s attempt to revamp how the state pays hospitals. Some initiatives have just begun, but others, such as the Pioneer Accountable Care Organizations, have operated for more than a year. One effort to develop medical homes in federally qualified health centers ended after three years in October. Some of the Innovation Center’s initiatives have had rocky starts. The Pioneer ACOs launched in 2012 with 32 participants but 13 exited the program in its first two years. Another attempt to create ACOs among kidney-care providers has met with concerns. However, at least one Innovation Center effort has produced initial findings. Early results for two measures of Pioneer ACO performance—health spending and quality—show mixed performance among ACOs. Pioneer participants saw quality gains from their first to their second year in 28 of 33 measures, while 11 of 23 participants reduced health spending enough to earn bonuses.” (Modern Healthcare, 12.30.14)
  • Large Performance Incentives had the Greatest Impact on Providers Whose Quality Metrics Were Lowest at Baseline. “Fairview Health Services is a Pioneer accountable care organization in Minnesota. Using publicly reported performance data from 2010 and 2012, we found that Fairview’s improvement in quality metrics was not greater than the improvement in other comparable Minnesota medical groups. An analysis of Fairview’s administrative data found that the largest predictor of improvement over the first two years of the compensation model was primary care providers’ baseline quality performance. Providers whose baseline performance was in the lowest tertile improved three times more, on average, across the three quality metrics studied than those in the middle tertile, and almost six times more than those in the top tertile. As a result, there was a narrowing of variation in performance across all primary care providers at Fairview and a narrowing of the gap in quality between providers who treated the highest-income patient panels and those who treated the lowest-income panels. The large quality incentive fell short of its overall quality improvement aim.” (Health Affairs, April, 2015)
  • MedPAC Study Suggests Different Quality Measures. “Researchers noted there are still few studies comparing the quality and patient satisfaction generated by the three models.. The commission also continued to express concerns about how Medicare measures care quality, saying it relied too much on clinical processes that didn’t necessarily lead to better health outcomes and sometimes placed a heavy reporting burden on physicians and other providers. Among the commission’s alternatives is a new measure called ‘healthy days at home.’” (Family Practice Management, 6.19.15)

Cost Control

Projected Impact

  • CBO projected (12.08) that allowing physicians to form Bonus-Eligible Organizations (BEOs, another name for ACOs) and receive performance-based payments would save $5.3 billion over 10 years. The analysis provides the pros and cons of this approach (Option 37).
  • CBO projected (7.09) that the ACO pilot program included in H.R. 3200 (the House version of the ACA) would save $2 billion in its first 10 years (page 5 of 10).

Actual Impact

  • ACOs Increase Costs in 2013. According to Kaiser Health News (9.14.15), the two Medicare ACO programs (Pioneer and Medicare Shared Savings) combined raised Medicare spending in 2013 by $3 million.
  • Accountable Care Organizations Eke Out “Teensy” Savings For Medicare. “As Kaiser Health News honestly reported, ‘the bonuses, losses and Medicare savings are teensy sums in the context of a program that spends half a trillion dollars a year on care for the elderly and disabled.’… ACOs can at most generate 3.8% savings if and only if all ACOs perform at the same level as the top 25%, and if and only if every single Medicare beneficiary is covered by ACOs.” Conover, Christopher J. (Forbes, 9.18.14)
  • ObamaCare’s ACOs Saving Medicare A Pittance. “Last week the Department of Health and Human Services released the results for 23 Pioneer ACOs and 220 MMSP ACOs, and despite the triumphant tone of the press release, the results are underwhelming. These ACOs ‘generated over $372 million in total program savings,’ according to the release.  That seems like a lot of money, but it’s a pittance when compared to Medicare’s total $492 billion budget in 2013.  $372 million is about .08 percent of that.” (Hogberg, David, 9.22.14)
  • ObamaCare’s Failing Cost Control. “The law’s ‘accountable care’ experiment is a bust so far. A major claim of ObamaCare’s political salesmen is that it will reduce U.S. health spending. The heart of this claim is the Accountable Care Organization, or ACO, but already evidence is accumulating that it isn’t working.” (Wall Street Journal, 10.20.14)
  • Hoping Medicare’s Payment Reform Reach Doesn’t Exceed Its Grasp. “Through authority and funds in the Affordable Care Act (ACA), Medicare has pursued a variety of new payment models vigorously, especially accountable care organizations (ACOs). The result has been hundreds of contracts with organizations of physicians or physicians and hospitals using these approaches and a rising percentage of payment made through these models… But all is not well. Some ACOs have identified serious problems in algorithms that attribute the use of services by a beneficiary to a specific ACO and pointed out barriers to engaging beneficiaries (for example, lack of incentives to choose clinicians and facilities linked to the ACO). There are also difficulties in quality measurement, especially in how the spending benchmarks are set. Unless ACOs and other organizations continue volunteering to contract with Medicare using these models, expanding the reach of reformed payment will slow or stop.” (JAMA Forum, 4.1.15)
  • Do Accountable Care Organizations Work? “To date, experts say ACOs haven’t lived up to the hype. ‘So far the results have been very disappointing,’ Rivlin said. While the drive to build ACOs to better coordinate care has arguably led some organizations to meet quality metrics, much debate remains about the extent to which that translates to meaningful improvements in care for patients, and, Rivlin said, ACOs haven’t dented cost… ivlin noted many patients don’t know they’re getting care through an ACO; she suggested setting up a system whereby patients enroll in accountable care organizations and similar models. She added that such models need also to appeal to the motives of physicians to provide the best possible care to their patients. ‘We should  increase the incentives, but it isn’t all just about money,’ Rivlin said, calling for improvements to how the quality of care is measured.” (US News, 10.20.15)
  • Association of Pioneer Accountable Care Organizations vs Traditional Medicare Fee for Service With Spending, Utilization, and Patient Experience. “Total spending for beneficiaries aligned with Pioneer ACOs in 2012 or 2013 increased from baseline to a lesser degree relative to comparison populations. In the first 2 years of the Pioneer ACO Model, beneficiaries aligned with Pioneer ACOs, as compared with general Medicare FFS beneficiaries, exhibited smaller increases in total Medicare expenditures and differential reductions in utilization of different health services, with little difference in patient experience… Our study is not without additional limitations. First, CMS selected these ACOs to participate in the Pioneer model because they demonstrated the capacity to manage the care of a patient population and many had experience in risk contracting arrangements; hence, by design they deliver care inherently different from the care received by the typical FFS beneficiary. Second, since it would not be operationally feasible to identify a control group of similarly structured and experienced organizations as Pioneer ACOs, neither the participating physicians nor their aligned beneficiaries were randomized, which means that despite efforts to control for differences in patient characteristics and disease burden, our analyses may not have accounted for unmeasured differences between ACO and comparison beneficiary populations. Third, because each ACO’s comparison group comprised similar populations of geographically bounded FFS beneficiaries, any spillover in practice patterns from physicians affiliated with ACOs to patients not aligned with ACOs would attenuate differences in outcomes between them. Fourth, total spending does not include Part D drug spending or cost-sharing payments by beneficiaries. Fifth, the response rate for the ACO CAHPS survey was only 52.8% and no information is available about nonresponders in any of the CAHPS surveys.” (JAMA, 6.1.15)
  • Study Finds No Clear Winner Among Medicare Payment Models. “As Congress considers how to make Medicare spending more efficient and cost-effective, a new study has found it won’t be as easy as picking a single payment model. The Medicare Payment Advisory Commission, which advises Congress on Medicare, has filed its annual report. Following up on similar research started last year, the group looked at the performance of the three main payment models: fee-for-service (the standard model tied to the provision of tests and procedures), Medicare Advantage (capitated payments per member), and accountable care organizations (groups of physicians and other providers that share in savings and risk). The commission said it found that no one model performed the best across all 78 markets it studied, with fee-for-service being cheapest in 28 markets, ACOs cheapest in 31 markets, and Medicare Advantage cheapest in 19 markets.” (Family Practice Management, 6.19.15)
  • The Coming Shock in Health-Care Cost Increases. “While many reforms are being tested [under the Affordable Care Act], the administration’s main focus has been on creating ‘accountable care organizations.’… The results so far are less than encouraging. Several studies found that ACOs achieved minimal savings after two years. This is not unexpected. Investing in technology, hiring nurses and changing the way care is delivered is complex and takes time to implement effectively. But we don’t yet have evidence that ACOs can reduce costs substantially. The bigger problem is scale. In the advanced [Pioneer] ACO program—which penalizes health-care providers for overspending—13 of 32 participating groups dropped out. In the other ACO program [the Medicare Shared Savings Program, or MSSP] —which rewards organizations for underspending but does not penalize them for excessive spending—the number of new participants is falling, and more than half of the participants are now deciding whether to renew. The fundamental problem with a voluntary program is that to attract participants, Medicare needs to make it easy for the ACO to be rewarded. Paradoxically, this makes it hard to achieve substantial savings.” (Wall Street Journal, 7.7.15)
  • Ezekiel Emanuel Admits ACOs Are Not Cutting Costs. “In the case of the ACO fad, the free-lunch illusion allows ACO buffs to ignore (1) ACO start-up and maintenance costs, (2) CMS’s bonus payments, and (3) the cost to CMS of designing and administering the complex ACO programs. Having convinced themselves these costs don’t exist, or they do but it’s somehow ethical not to mention them, ACO advocates feel free to tell the public that any reduction in Medicare claims payments achieved by ACOs is pure gravy and that ACOs really are the solution to chronic health care inflation…Finding out five years after the ACA endorsed ACOs that ACOs are raising health care spending is absurd. We should never have been placed in this position. CMS, MedPAC, Fisher, Emanuel and other ACO advocates should have done good research on all costs generated by ACOs prior to promoting ACOs. They did not. The least they can do now is warn us that what little data we have indicates ACOs lose money, both for themselves and for society.” (Physicians for a National Health Program, 7.15.15)
  • Effect of Attribution Length on the Use and Cost of Health Care for a Pediatric Medicaid Accountable Care Organization. “Among the 28,794 pediatric patients receiving treatment covering 346,277 patient-attributed months during the study period, continuous attribution to the ACO for more than 2 years was associated with a decrease (95% CI) of 40.6% (19.4%-61.8%) in inpatient days but an increase (95% CI) of 23.3% (2.04%-26.3%) in office visits, 5.8% (1.4%-10.2%) in emergency department visits, and 15.3% (12.5%-18.0%) in the use of pharmaceuticals. These changes in the use of health care resources combined resulted in a cost reduction of 15.7% (95% CI, 6.6%-24.8%). At the population level, the impact of consistent primary care was muted by the many patients in the ACO having shorter durations of participation.” (JAMA Pediatrics, February 2016)
  • ACA Payment Reform Achieves Early Gains. “Accountable care organizations that joined the Medicare Shared Savings Program (MSSP) when it launched in 2012 achieved modest savings while maintaining or improving performance on measures of quality of patient care in 2013, the first full year of the program, researchers at Harvard Medical School found in the first rigorous examination of this key health care payment reform program… because Medicare paid out $244 million in shared-savings bonuses to ACOs in the 2012 cohorts, the lower spending in that cohort did not constitute net savings to Medicare.” (Harvard Medical School, 4.13.16)
  • ACO 552: The Advanced Class. “Clearly anything is better than this – even if it’s worse.  Never mind that Lisa conveniently brushes aside the fact that health care cost increases from 2009 – 2013 were flat compared to GDP rise in that same time span. You are reading that right – health care costs stayed right around 17% of GDP in the current fee for service construct for four years. 2015 saw the first uptick, and the reason according to CMS was expanding enrollment due to the ACA. Apparently subsidizing health insurance for millions of people costs money. The savings that were supposed to offset this expanded coverage were supposed to come from reduced payments to Medicare Advantage plans, and yes ACO’s (among other things – read my prior post). Costs, instead, have gone up, care delivery from the ground level seems mostly the same to me, and some little guy like me who is running around attempting to do the right thing is being advised to cease and desist.” Koka, Anish, MD. (The Health Care Blog, 5.4.16)
  • First-Year Data Mixed for Medicare Shared-Savings ACO. “Data from the first full year of the Medicare Shared Savings Program (MSSP), the largest of the Medicare accountable care organizations (ACOs), showed mixed results in 2012 and 2013, according to new research published online April 13 in the New England Journal of Medicine. The first two groups of ACOs (220 in total) entered the MSSP either in mid-2012 or at the beginning of 2013. The ACOs that joined in 2012 cut spending by $238 million (1.4%) in aggregate (P = .02) with unchanged or improved quality of care compared with a control group of non-ACO providers in the same areas. However, the group of ACOs that joined in 2013 saw virtually no savings (only $3 less per beneficiary) in their first full year (P = .96).” (Medscape Medical News, 4.14.16)
  • Early Performance of Accountable Care Organizations in Medicare.In the Medicare Shared Savings Program (MSSP), accountable care organizations (ACOs) have financial incentives to lower spending and improve quality. We used quasi-experimental methods to assess the early performance of MSSP ACOs… In 2013, the differential change (i.e., the between-group difference in the change from the precontract period) in total adjusted annual spending was −$144 per beneficiary in the 2012 ACO cohort as compared with the control group (P=0.02), consistent with a 1.4% savings, but only −$3 per beneficiary in the 2013 ACO cohort as compared with the control group (P=0.96)… The first full year of MSSP contracts was associated with early reductions in Medicare spending among 2012 entrants but not among 2013 entrants. Savings were greater in independent primary care groups than in hospital-integrated groups.” (NEJM, 6.16.16
  • The Past and Future of the Affordable Care Act. A central feature of the ACA has been the accountable care organization (ACO), the goals of which were to reduce fragmentation and inefficiency by encouraging the innovative redesign of primary health care, measuring health outcomes, and relying on physician-led expert systems and treatment pathwayseven though ACOs have been expanding rapidly in recent years, their short-term effect on cost growth has been modest, with estimates generally less than 3%.” 8,9 Skinner, J, and Chandra, A. (JAMA, 7.11.16)
  • ACO Winners and Losers: A Quick Take. “This is decidedly mixed news for the ACO program. I’ve been hopeful that ACOs had the right set of incentives and enough flexibility to really begin to move the needle on costs.  It is now four years into the program and the results have not been a home run… Right now, we have a classic ‘heads – ACO wins, tails – CMS loses’ situation and it simply isn’t financially sustainable. Senior policymakers need to continue to push ACOs into a two-sided model, where they can share in savings but also have to pay back losses. Barring that, there is little reason to think that ACOs will bend the cost curve in a meaningful way.” Jha, Ashish, MD. (Harvard Blog, 8.30.16)
  • Making Accountable Care Organizations Great Again. “The policy folks have  a problem – their world rests on a conceptual framework that at its core places the ills of health care on the fee for service (FFS) model Medicare was born into. Unfortunately for them, growth in spending in the traditional all you can eat buffet of Medicare FFS has had a sustained surprising slowdown… Perhaps the beauty of the ACO is not getting anything right, but simply threatening to get it right. The Hawthorne effect – when individuals modify or improve an aspect of their behavior in response to their awareness of being observed – is certainly a well described phenomenon… The recent growing ‘evidence base’ emerging to allow alternative payment schemes to take credit for cost moderation will make a lot of people feel good. Physicians who bear much of the regulatory, administrative and cost burden of these schemes shouldn’t be fooled. Open your eyes. Zoom in. And feel free to roll your eyes when you run into the next acolyte of our new world talking breathlessly of Accountable Care Organizations.” Koka, Anish, MD.. (The Health Care Blog, 10.22.16)


  • Why ACOs Are Struggling: What Does It Mean for You? “The future of the ACO model is not secured, and the bottom lines of the hospitals and participating physicians need to be financially secure, so unless the ACO is a fully integrated system, the parties typically come to the table to continue to try to maximize their own income. This involves negotiation between the ACO participants related to delivery system change and shared-savings distribution, so it is important for physicians to identify the leverage they will have before they wholeheartedly jump into an ACO model. It also involves a clear recognition of the magnitude of potential savings. If there is a lot of waste to cut from the system, there will be more shared savings to distribute. If the hospitals and physicians in the ACO have already adopted lean methods, less shared savings will result. It is important for physicians to understand the magnitude of shared-savings opportunities before they agree to reduce service volume in a material way.” (Medscape Business of Medicine, 9.5.13)
  • National ACO Survey, November 2013. “The NAACOS survey provides a first look at the startup costs for the 2012 MSSP ACOs and finds them to be higher than estimated by CMS but considerably lower than many other estimates. The average first 12 months start-up cost per ACO of $2,000,000 is strong statements (sic) about the high level of risk ACOs are willing to take in order to transform care in their community. Since savings are slow to flow as result of data and complex reconciliation process, ACOs will have to assume the risk of almost a second full year of operations until their cash flow can be replenished with shared savings from CMS (if any). This means that the average ACO will risk $3.5 million plus any feasibility and pre-application costs until it can see any cash flow relief from possible savings.” (National Association of ACOs, 1.17.14)
  • Unclear How ACOs Will Split the Cost Savings. “The big selling point for ACOs is that they will improve quality of care while also lowering costs, and the physicians can share in those savings. But just how much physicians will get is not yet clear… Earning any meaningful amount of money in the first few years is unlikely, and even then it will be offset by the investment required by the member physicians, she explains… She understands physicians wondering if ACOs are just a dressed up version of HMOs, PPOs, and capitation. A few years from now the effort may not even be called accountable care, Berman says, depending on how successful ACOs are. But the overall concept will stay, she believes. ‘Two years from now we may talking about ACOs or about value-based reimbursement in general, but that train is leaving the station,’ she says. ‘There are so many commercial ACOs now, and you see a lot of payers dedicated to risk-based models with their physicians. Physicians are right to be skeptical, but be adaptable as well because value-based reimbursement is here.’” (Health Leaders Media, 6.12.14)
  • One-Quarter Of ACOs Save Enough Money To Earn Bonuses. “About a quarter of the 243 groups of hospitals and doctors that banded together as accountable care organizations under the Affordable Care Act saved Medicare enough money to earn bonuses, the Centers for Medicare & Medicaid Services announced Tuesday. Those 64 ACOs earned a combined $445 million in bonuses, the agency said. Medicare saved $372 million after accounting for the ACOs that did not show success, including four that overspent significantly and now owe the government money… A list of bonuses for those ACOs is available here… The second, smaller group of 23 ACOs are in the Pioneer ACO Model. They have more experience, and the financial incentives are larger. Out of this group, 11 earned bonuses, Medicare announced. Three other ACOs in this Pioneer ACO Model lost money, and three more took advantage of a Medicare option that allows them to delay evaluation until after they have three years of experience.” (Kaiser Health News, 9.16.14)
  • National Association of Accountable Care Organizations Comments on ACO Results. “We are also pleased the taxpayer has saved money and the overall system is responding to the need to improve health and reduce costs. However, only 53 of the 220 Medicare Shared Savings (MSSP) ACOs will receive payments for their success and recoup some portion of their investment. In total, hundreds of organizations with thousands of doctors, hospitals and other healthcare providers have invested over $1 billion of their money in the ACO program but have received only $372 million in return. NAACOS CEO, Clif Gaus said, ‘This raises serious questions about the sustainability of the program under the current rules. With Medicare cost growth at a record low, now is the time for the government to invest in and support the long-term goal of a national ACO network and not just take, or be satisfied with, savings from a minority of ACOs at the risk of the majority of ACOs abandoning the program.’” (NAACOS, 9.17.14)
  • Is Obamacare Changing The Way Doctors Practice Medicine? “A study in the Journal of the American Medical Association finds generally that the experience of the pilot ACO projects has been fairly dismal. In their first year, only 29 percent of the physician-led ACOs and only 20 percent of the hospital-sponsored ACOs turned a profit. And among those that did so, the results were fairly mediocre. Further, to help the ACOs perform better the Obama administration has spent tens of millions of dollars on demonstration programs and pilot projects, investigating coordinated care, integrated care, managed care, pay-for-performance medicine, electronic medical records systems, etc. The result? Three separate Congressional Budget office reports have concluded that none of this is working, or at least not working very well. (See here, here and here.) So what’s wrong with ACOs?” Goodman, John C. (Forbes, 9.25.14)
  • Changes Needed To Fulfill The Potential Of Medicare’s ACO Program. “The Medicare Shared Savings Program (MSSP), Medicare’s main program for accountable care organizations (ACOs), has grown rapidly since it began in 2012. It added 89 new provider organizations earlier this year, bringing the total to over 400 Medicare ACOs across the country… As we noted in a recent post, early results show that the Medicare ACOs have achieved high quality in many areas, while only a quarter of the MSSP ACOs have been able to reduce spending enough to share in savings generated from their efforts so far. The Pioneer ACO Program has also experienced mixed results to-date, and as we describe below, may transition to a ‘next generation’ ACO model.” (Health Affairs, 4.8.15)
  • Pioneer Accountable Care Organizations: Traversing Rough Country. “In theory, ACOs should be attractive to physicians. They provide an opportunity to proactively improve care for patients. They are an alternative to other methods of controlling costs, such as cuts in payment rates and extensive use of prior authorization. But for ACOs to be broadly successful, they will need stronger incentives, closer ongoing connections with patients, better logistical support from Medicare, and regulatory relief. For ACO programs to grow and be sustainable, physicians and hospitals must believe that they will be at least as well off financially if they become a high-functioning ACO as they would be if they continued with business as usual… Funds to reward successful systems will come from lower rates of payment increases over time for physicians and hospitals not in ACOs and from lower payments to low-performing ACOs.” (JAMA, 5.4.15)
  • Changes in Medicare Shared Savings Program Savings From 2013 to 2014. “In the Medicare Shared Savings Program (MSSP), participating accountable care organizations (ACOs) are eligible for shared-savings bonuses from the Centers for Medicare & Medicaid Services (CMS) if spending for their patient population falls below a financial benchmark. In 2013, the first full year of the MSSP, modest spending reductions were entirely offset by bonus payments… By 2014, spending reductions in the MSSP exceeded bonus payments, suggesting that shared-savings contracts without downside risk for excess spending—in which 95% of MSSP ACOs currently participate—may be a fiscally viable alternative payment model for Medicare. The growth in MSSP savings suggests continued growth may be possible, particularly if incentives for ACOs to lower spending are strengthened,1,3,4 though results may not generalize to future years and cohorts. Findings from subgroup analyses suggest that physician-hospital integration is unnecessary for ACO success and that CMS’s plan to lower benchmarks for ACOs with high spending toward a regional average should proceed cautiously, lest the MSSP lose its most valuable participants.5,6” (JAMA, 9.9.16)

Impact on Mental Health Care

  • Early Efforts By Medicare Accountable Care Organizations Have Limited Effect On Mental Illness Care And Management. We examined changes in mental health spending, utilization, and quality measures associated with ACO contracts in the Medicare Shared Savings Program and Pioneer model for beneficiaries with mental illness, using Medicare claims for the period 2008–13 and difference-in-differences comparisons with local non-ACO providers. Pioneer contracts were associated with lower spending on mental health admissions in the first year of the contract, an effect that was attenuated in the second year. Otherwise, ACO contracts were associated with no changes in mental health spending or readmissions, outpatient follow-up after mental health admissions, rates of depression diagnosis, or mental health status. These results suggest that ACOs have not yet focused on mental illness or have been largely unsuccessful in early efforts to improve their management of it.” (Health Affairs, July, 2016)

Impact on Minority Populations

  • ACOs Serving High Proportions Of Racial And Ethnic Minorities Lag In Quality Performance. “We analyzed racial and ethnic disparities in health care outcomes among ACOs to investigate the association between the share of an ACO’s patients who are members of racial or ethnic minority groups and the ACO’s performance on quality measures. Using data from Medicare and a national survey of ACOs, we found that having a higher proportion of minority patients was associated with worse scores on twenty-five of thirty-three Medicare quality performance measures, two disease composite measures, and an overall quality composite measure. However, ACOs serving a high share of minority patients were similar to other ACOs in most observable characteristics and capabilities, including provider composition, services, and clinical capabilities. Our findings suggest that ACOs with a high share of minority patients may struggle with quality performance under ACO contracts, especially during their early years of participation—maintaining or potentially exacerbating current inequities.” (Health Affairs, January 2017)

Analysis: CMS Reports

  • Accountable Care 2.0: It’s a Journey, Not a Program. “CMS released a long-awaited checkpoint status on its Pioneer ACO program. Of the 32 entities enrolled in the program, according to CMS:
    • 2 (6%) will leave the CMS ACO program altogether
    • 7 (22%) will eliminate the down-side risk component by reapplying under the MSSP program
    • 32 (100%) improved quality of patient care & rated highly on patient satisfaction scores
    • 18 (56%) achieved some cost savings, 13 (41%) saved enough to share savings with Medicare
    • 2 (6%) cost Medicare more and will owe $4M back
    • 12 (38%) did not achieve significant savings
    • $140M in total savings, $52.4M in total losses, $76M in shared shavings to be returned to 13 (41%) Pioneers
    • $33M in net savings for the Medicare Trust Funds (Accountable Delivery System Initiative, July 17, 2013)
  • Medicare Won’t Give a Straight Answer on Obamacare Cost Savings. “The Centers for Medicare and Medicaid Services announced Thursday that overall, provider groups involved in Medicare ACO programs saved a total of $380 million in the first year. Sounds like a lot of money, but CMS declined to explain which hospitals were winners and which were losers, how it compared to expectations and how much the participants invested in coordinating care. Also missing is the scale of the savings; CMS did not provide the context of total spending by the ACOs… For provider networks still considering whether or not to become an ACO (which Muhlestein calls ‘ACOs-in-waiting’), today’s news is actually ‘a net negative.’ That’s because the savings, when averaged over the approximately 1.6 million lives covered by those ACOs, were only about $80 per person for the year, or a little less than 1 percent of spending. ‘It’s not insignificant, but it’s not what you’d consider a huge success,’ Muhlestein said. He adds that it’s unclear whether the savings covered the cost of the ACOs’ initial investment in information technology, nurse care coordinators, and any other upfront costs to become an ACO. That gives the ACOs-in-waiting little incentive to become an ACO right away, he said.” (Washington Post, 1.31.14)
  • Analysis of Early Accountable Care Organizations Defines Patient, Structural, Cost, and Quality-of-Care Characteristics. “Synopsis: Accountable care organizations (ACOs) in Medicare are up and running, but little is known about the initial participants in these programs. Key Findings:
    • ACOs participating in the programs were most heavily concentrated in the South. ACO patients were more likely to be older than 80, white, and have higher incomes than other Medicare fee-for-service patients. They were less likely to be covered by Medicaid or disabled.
    • At baseline, ACO patients had 5.8 percent lower total costs of care than non-ACO patients ($7,694 vs. $8,164).
    • Fewer than half (46%) of the ACOs had a participating hospital.
    • The typical hospital participating in an ACO was a large, nonprofit teaching hospital. The quality of care provided by participating hospitals was similar to that of nonparticipating hospitals.
    • Hospital referral regions (regional health care markets) containing ACOs tended to have larger populations and higher total Medicare spending per beneficiary. These regions also had fewer hospitals beds—though more providers, both primary care physicians and specialists—per capita.” (The Commonwealth Fund, January, 2014)
  • ACO Results: What We Know So Far. “More important than providing a pulse on the ACO movement, the true value of these results lies in their ability to influence those organizations considering entering into the world of accountable care. These results represent a variety of sources including large health care systems, smaller physician groups, private payers, government contracts, etc. This makes them applicable to a wide variety of providers cautiously considering accountable care. The results here go beyond answering the question ‘is it working?’ They show winners and losers in the ACO game and highlight successful strategies as well as potential pitfalls.” (Health Affairs Blog, 5.30.14)
  • Interpreting the Latest ACO Study. “After one year (i.e., in 2012), Pioneer ACOs saved money (1.2%) and maintained or improved in various measures of quality of care. As much as you can take any findings about Pioneer ACOs to the bank, you can take these. No, they’re not based on a randomized design or natural experiment. No, there’s no highly plausible instrumental variable design, nor one I could imagine. So of course there are plenty of threats to a causal interpretation.
    • Even ACOs that had dropped out of the Pioneer program had achieved savings. The good news is they didn’t drop out because they were failing to save money. The bad news is that they dropped out even while saving money, not exactly a good policy outcome.
    • ACOs with higher initial spending achieved greater savings than initially lower-spending ACOs. It is, perhaps, not the wisest thing to do to penalize already relatively efficient ACOs. At the same time, it is, perhaps, not the wisest thing to do to expect relatively inefficient ACOs to become too efficient too quickly. Of course we’d like optimal efficiency tomorrow. But, again, in a voluntary program, too much pressure just forces organizations out.
    • There were no difference in savings achieved by ACOs that are financially integrated groups of physicians and hospitals versus those that are independent physician groups. Contrary to many claims, consolidation between physicians and hospitals is not necessary to reduce costs and maintain or improve quality. However, such consolidation increases market power with respect to private insurers, raising prices. These findings suggest that consolidation serves no useful purpose except to the consolidating organization itself. We should remain very wary of any claims that it does so.” Frakt, Austin. (Incidental Economist, 4.17.15)
    • Medicare ACOs Continue To Show Care Improvements — And More Savings Are Possible. (11.4.15) Mark McClellanS. Lawrence Kocot, and Ross White. “On August 25, the Centers for Medicare and Medicaid Services (CMS) released financial and quality performance data for  the third performance year (PY3) of the Pioneer ACO Program and second performance year (PY2) for the Medicare Shared Savings Program (MSSP). The latest Medicare ACO results in the Pioneer and MSSP programs provide some grounds for optimism, but also reinforce certain concerns. On the one hand, the quality of care delivered to beneficiaries through these ACO programs continues to trend positively, and the Medicare program as well as beneficiaries and health care organizations are also getting some savings. On the other hand, savings remain relatively modest especially in the MSSP, with only a subset of ACOs earning significant savings even after two years.
      • Overview Of Pioneer ACO PY3 Results. Three-quarters of ACOs in the Pioneer Program (15/20) were able to reduce their costs relative to their financial benchmark in 2014, with more than half (11/20) reducing costs significantly enough to earn shared savings. However, five ACOs had spending higher than their benchmarks, and three of those had high enough spending relative to their benchmarks that they were subject to a repayment penalty.
        Pioneer ACOs are continuing to improve the quality of care they deliver to beneficiaries, with improvement on 28 of 33 quality measures and an average improvement of 3.6 percent across all quality measures compared to Performance Year 2 (PY2). Particularly large improvements occurred in medication reconciliation (70 percent to 84 percent); screening for clinical depression and follow-up planning (50 percent to 60 percent); and qualification for an electronic health record incentive payment (77 percent to 86 percent).
      • Overview Of MSSP PY2 Results. CMS reported that the MSSP increased total savings for Medicare in performance year 2 to $465 million, compared to $383 million in 2013. In contrast to the Pioneer program, the average savings per ACO declined while the total number of participating organizations increased substantially.
        Although 92 ACOs reduced their spending enough to qualify for shared savings, six of these ACOs failed to satisfactorily meet quality reporting requirements and consequently left shared savings on the table ranging from $900,000 to $5 million. The other 86 ACOs that qualified for shared savings received payments of more than $341 million, ranging from $660,000 to $22.7 million with an average of approximately $4 million per ACO.
        Only three ACOs participated in the two-sided risk track in 2014, and all had lower spending than their benchmarks. Two of them saved enough to qualify for shared savings.
        Measured quality continued to improve in most dimensions: MSSP ACOs reporting in both 2013 and 2014 improved on 27 of 33 quality measures, including patients’ ratings of clinicians’ communication; beneficiaries’ rating of their doctor; screening for tobacco use and cessation; screening for high blood pressure; and Electronic Health Record use.
        There continues to be almost no correlation between overall quality scores and savings among the MSSP ACOs, as we previously noted in reviewing the first-year results. While some ACOs are succeeding in improving quality and lowering costs, most organizations have not yet found a clear path to doing both at the same time. There is no clear or automatic relationship between higher quality and lower spending; achieving both is not so easy.
      • Other Findings. In their recent blog post, David Introcaso and Gary Berger noted that physician-based ACOs performed better than hospital-based ACOs, and those with rural health clinics or federally qualified health centers performed even better. Going along with these findings, while there are many ACOs that have succeeded and many that have not at every size level, smaller ACOs continue to perform somewhat better on average than their larger counterparts. Exhibit 8 shows that ACOs with fewer than 6,500 attributed patients averaged savings of 1.5 percent, compared to just 0.50 percent savings for ACOs with over 20,000 attributed patients.” (Health Affairs, 11.4.15)
  • Medicare ACOs: Incremental Progress, But Performance Varies. “Nine ACOs chose to remain in the Pioneer ACO Model in 2016, the last year for the program. Six of those participants earned shared savings in 2015 and only one failed to reduce spending in 2015… Despite indications of positive trends in shared savings and quality improvement, some analysts continue to question the true impact of the Medicare ACO programs in meaningfully reducing costs both for individual ACOs and for the federal government. Although the percentage of ACOs earning shared savings has increased year-to-year, fewer than one in three participants have been able to reduce costs enough to be rewarded for their efforts and only about half of ACOs have been able to reduce costs at all. Without greater assurance of potential shared savings, some ACOs could choose to abandon their efforts altogether, particularly if they see no return on investment from the significant start-up and operations costs necessary to enter and maintain participation in the MSSP… Finally, the federal government has not seen significant financial benefits from the MSSP so far. Jha observed that the amount paid out in shared savings to MSSP ACOs in 2015 ($645 million) actually exceeded savings to CMS ($429 million), resulting in a net impact to CMS of -$216 million.” (Health Affairs, 9.21.16)

Criticism of the ACO Model

Items are in chronological order.

  • Why Accountable Care Organizations Won’t Deliver Better Health Care—and Market Innovation Will. “In theory, ACOs provide financial incentives to health care organizations to reduce costs and improve quality. In reality, given the complexity of the existing system, ACOs will not only fail; they will most likely exacerbate the very problems they set out to fix. ACOs will concentrate more and more power in fewer and fewer organizations, allowing them to become ‘too large to fail.’ Such a system undermines competition and entrepreneurship—the bedrock of innovation and job growth in this country. There is no evidence that supports the use of untested, complex organizational structures to improve quality of care and reduce costs.” Numerof, Rita. (Heritage Foundation, April 18, 2011)
  • Lessons from the Physician Group Practice Demonstration — A Sobering Reflection. “In early August, the Center for Medicare and Medicaid Services (CMS) announced the results of the Physician Group Practice (PGP) Demonstration project. Although the headline of the press release was glowing — ‘Physician Group Practice Demonstration Succeeds in Improving Quality and Reducing Costs’ — the reported information suggests more mixed results. These results should dampen unreasonable expectations, particularly in terms of potential savings, for accountable care organizations (ACOs), which were modeled after the PGP demo.” (NEJM, 11.3.11)
  • Herzlinger Predicts ACOs, PCMHs Will Fail. “Accountable care organizations and patient-centered medical homes are unlikely to succeed. Those are two predictions from Regina E. Herzlinger, a professor at the Harvard Business School who has successfully predicted some of the most powerful trends in health care since the 1990s. Arguably, most of her predictions about health care have come true or are about to… ‘I hope I’m wrong about this, but I believe that with some exceptions, ACOs will not succeed,’ she says. ‘ACOs will implode just as capitated HMOs imploded in the 1990s. People say that won’t happen because we have better data now. Wish it were true, but we don’t have better data now. The electronic medical record systems don’t talk to each other and the public health insurance exchanges are largely a dream waiting to happen, rather than a reality. Another reason ACOs will implode is that it will be difficult for anything but an organization that has been at it for a long time to develop the team culture needed to be an ACO,’ she adds.” (Managed Care Magazine, April, 2012)
  • Poised for Growth, Commercial ACOs Also Face Considerable Challenges. “What’s the catch? The increasing number of commercial ACOs might indicate that most industry players think accountable care is the way to go to increase care quality and reduce health care costs. However, while Medicare ACOs must meet quality measures outlined by CMS, organizations between private insurers and health systems are not held to the same standards… Health economists say the care model could have one major pitfall: fewer independent providers. A larger market share for big health systems that have formed ACOs ultimately could lead to fewer choices for patients. Another catch is that by reducing patients’ use of health care services, providers’ revenue decreases. Health care consultants also say that incentive payments for ACOs could fall short of start-up costs.” (California Healthline, 5.21.14)
  • Accountable Care Organizations: What is the Evidence? Describes the history of efforts relating to ACOs. “The ACO model is spreading rapidly in the United States. To date, there is very little data available on the effectiveness of this ACO model in reducing health care costs and improving quality of care. The data that are available show mixed results. There is also a dearth of data available on what steps ACOs should take and what investments they should make in order to be most effective. While the ACO model may be a promising step on the road to system-wide health reform, it is not yet well supported by data, and it comes with risks. It is essential that ACOs be closely monitored to ensure that patients receive necessary care and that cost savings come from care coordination rather than reductions in care.” (Vermont Legal Aid, January, 2014)
  • Why We Have so Little Useful Research on ACOs. “There are two reasons for this information vacuum. The first is the definition of the ACO. ACO proponents have never defined the ACO; they have told us only what they hope ACOs will do (they tell us they want ACOs to ‘hold providers accountable’). The second problem is the cavalier attitude toward evidence with which ACO proponents and analysts approach ACO research. Until the US health policy community addresses these problems, the dearth of useful research on ACOs will continue… The ACO fad illustrates all three characteristics; The concept is very abstract; its proponents gave it a label designed to manipulate rather than illuminate (it implies that the medical profession, one of the most regulated professions on the planet, is ‘unaccountable’ and ACOs, at long last, are going to change that); and there was very little evidence supporting the claims made for the ACO when it was sold to Congress and very little now.” (The Health Care Blog, 2.16.16)
  • How Not to Research ACOs. “In short, if there is a paper out there that could refute my claim that we have no useful research on what ACOs do for patients that distinguishes them from non-ACO providers, this paper should be it… But the paper fails to provide any useful evidence on ACOs. With two exceptions, it doesn’t even resort to anecdotes, which is a common tactic among ACO proponents and analysts… The Physician Group Practice Demonstration, which CMS ran from 2005 to 2010, is widely regarded by ACO proponents and neutral observers alike as a test of the ACO concept. That demonstration showed that the ACOs saved CMS a grand total of three-tenths of a percent after taking into account the bonus payments CMS made to ACOs (but not taking into account the expenditures ACOs and CMS incurred to set-up and run ACOs).” (The Health Care Blog, 2.22.16)
  • Why We Know so Little About ACOs: The Managed Care Culture at Work. “The solution to this problem is not to ask CMS to produce more data. Nor is the solution to hope the NCQA or some other organization will ‘certify’ private-sector ACOs with requirements like those CMS has published for its ACOs. The solution is for ACO proponents to admit the ACO has no there there and to fix that problem… The idea that all problems with our health care system, or at least the most fundamental problems, flow from the fee-for-service system is the primary example of such excessively abstract thinking. It is the original intellectual sin that has contaminated the health care reform debate ever since.” (The Health Care Blog, 3.16.16)
  • The ACO Delusion. [W]ith little regard to intent, and with an eye on the end result, I say unequivocally: ACOs do not work… To summarize:
    • ACOs that joined in 2012 demonstrated savings of $144/beneficiary
    • ACOs that joined in 2013 saved $3/beneficiary
    • There was no meaningful difference in value delivered to patients within ACOs
    • There were no net savings to Medicare after accounting for bonus payments paid to ACOs
    • ACOs that consisted of primary care physicians saved significantly more money than groups integrated with hospitals

    This early data should give policy makers pause.  This was not a positive study, and it importantly re-enforces some significant concerns for physicians that are at the tip of the health care delivery spear.  These concerns may be difficult to comprehend to the folks making decisions at one thousand feet… so allow me to take you to ground zero.” Koka, Anish, MD.  (The Health Care Blog, 4.25.16)

  • Population Health to Trump ACOs, athenahealth CEO Jonathan Bush Says.“One emerging healthcare trend Bush took dead aim at: Accountable Care Organizations, or ACOs. ‘You want me to play a game where it costs me a billion dollars to join and three years later, if I win, I get a half a billion dollars? That’s not a good game,’ he said. And Bush suggested a different approach. ‘Population health is the way to trump that game, to start playing a new game where you aggregate share and then you can be a little more aggressive with the analytics that come out that show you obvious things that you can act on.’” (Healthcare IT News, 10.26.16)

Poor Research Foundation

“Elliott Fisher, a physician at Dartmouth-Hitchcock Medical Center, coined the term ‘accountable care organization’ and in 2006 published a landmark article proposing that hospitals be transformed into ACOs… Fisher consulted with Congress on the concept, and shortly after the ACA’s passage, former administration officials Nancy-Ann DeParle and physicians Robert Kocher and Ezekiel Emanuel penned an op-ed urging providers to accept careers in Big Medicine… However, the drive to large medical systems was a mistake, Kocher now admits. In a July commentary titled ‘How I was wrong about Obamacare,’ he concedes that provider consolidation ‘is more likely to be a barrier to better care’… It’s important to realize that the ACO is a model rooted not in research, but in wishful thinking. Don McCanne of Physicians for a National Health Program bristled at the vagueness of the idea in 2011. ‘Accountable care organizations began as an abstract concept of integrating health care providers into a not-yet-defined entity that would be rewarded for improving quality and reducing costs. Without knowing what they were, Congress included them in the Affordable Care Act.’” (The National Psychologist, November/December, 2016)

Consolidation of Health Systems

  • Unchecked Provider Clout In California Foreshadows Challenges To Health Reform. “California’s experience is a cautionary tale for national health reform: It suggests that proposals to promote integrated care through models such as accountable care organizations (ACOs) could lead to higher rates for private payers. Because antitrust policy has proved ineffective in curbing most provider strategies that capitalize on providers’ market power to win higher payments, policy makers need to consider approaches including price caps and all-payer rate setting.” (Health Affairs, April, 2010)
  • Hospital Operators and Obamacare: Prescription for Change. “America’s hospitals are… in the midst of dramatic change, much of it due to the ‘Obamacare’ health reforms. The most visible change so far is that big hospital companies are getting bigger… Others are going further, turning the industry’s business model on its head. In Massachusetts, Steward Health Care Systems is trying to drive patients out of its hospitals and into cheaper clinics… As for ACOs, they have had a good start: more than 250 have been formed so far. But their success is difficult to predict.” (The Economist, 6.29.13)
  • FAQ On ACOs: Accountable Care Organizations, Explained. “Many health care economists fear that the race to form ACOs could have a significant downside: hospital mergers and provider consolidation. As hospitals position themselves to become integrated systems, many are joining forces and purchasing physician practices, leaving fewer independent hospitals and doctors. Greater market share gives these health systems more leverage in negotiations with insurers, which can drive up health costs and limit patient choice. But Lieberman says while ACOs could accelerate the merger trend, consolidations are already ‘such a powerful and pervasive trend that it’s a little like worrying about the calories I get when I eat the maraschino cherry on top of my hot fudge sundae. It’s a serious public policy issue with or without ACOs.’” (Kaiser Health News, 4.16.14) 

Advantages of Small Practices

  • According to Study, Small Practices Have Fewer Preventable Hospital Admissions. “Despite common assumptions that larger practices offer better care, a new study finds that those with 1 to 2 physicians had 33% fewer preventable hospital admissions than practices with 10 to 19 physicians. Practices with 3 to 9 physicians had 27% fewer admissions… Further research on why smaller practices have fewer preventable admissions will be important as medical models head toward acquisitions, mergers, and hospital employment of physicians, the authors conclude.” (Medscape Medical News, 8.19.14)
  • How I Was Wrong About ObamaCare. “Well, the consolidation we predicted has happened: Last year saw 112 hospital mergers (up 18% from 2014). Now I think we were wrong to favor it… What I know now, though, is that having every provider in health care ‘owned’ by a single organization is more likely to be a barrier to better care. Over the past five years, published research, some of it well summarized on a Harvard Medical School site, has indicated that savings and quality improvement are generated much more often by independent primary-care doctors than by large hospital-centric health systems.” Kocher, Bob, MD. (Wall Street Journal, 7.31.16)
  • Response to Kocher: Absolution. “Dr. Kocher just penned an op-ed in the Wall Street Journal acknowledging that it was a mistake to try to snuff out the private practice physician… Dr. Kocher’s remarkable admission may indeed be a genuine desire to get it right, but it is important to mention (as he does in his op-ed in the Wall Street Journal) that he is a partner at Venrock, a health care venture capital firm in Silicon valley, and that he is on the board of a company called Aledade.  Aledade – a company founded by another former regulator turned entrepreneur Dr. Farzad Mostashari – seeks to organize independent physicians into accountable care organizations (ACOs) for a monthly fee.  So after helping create a regulatory construct for paying physicians – the ACO – while in government, Drs. Mostashari and Kocher have now started a company that has ‘unparalleled regulatory expertise’ to help the private practitioner succeed and stay independent by joining/forming a physician ACO… Drs. Kocher and Mostashari will continue to do penance on their apology tour as they now seek to champion the cause of the private practice primary care physician by enslaving them in their latest model.” Koka, Anish, MD. (The Health Care Blog, 8.1.16)
  • Impact of Smaller ACOs. “[I]t is worth noting that physician-led and smaller ACOs have continued to perform better on average than their larger counterparts. Exhibit 5 illustrates that ACOs with less than 6,500 attributed patients achieved average savings in 2015 nearly twice as high as those with 6,500 to 9,000 attributed patients — an increase in the trend from 2014. (To improve comparisons we preserved the same clusters used for 2014 evaluation, which resulted in less even quintiles for 2015.) Furthermore, ACOs with 13,000 or more patients, on average, experienced financial losses in 2015. These results continue to support the argument that physician-led ACOs may be well equipped to succeed at accountable care despite often having less start-up capital and less experience at bearing financial risk.” (Health Affairs, 9.21.16)
  • Primary Care Continuity Tied to Fewer Hospital Admissions. “Patients who saw the same general practitioner a greater proportion of the time experienced fewer admissions to hospital for ambulatory care sensitive conditions than other patients,” write Isaac Barker, a data analyst at the Health Foundation, London, United Kingdom, and colleagues… Patients were stratified into three continuity of care groups on the basis of Usual Provider of Care Index score: low (52,550 1); medium (96,902 2); and high 81,020 3). The researchers found variability in continuity of care scores across general practices, with patients in smaller practices experiencing higher continuity of care (average score, 0.70) in comparison with patients in larger practices (average score, 0.59).” (Medscape Medical News, 2.1.17)

Medicare Access & CHIP Reauthorization Act of 2015 (MACRA)


  • New Push for TeleHealth in ACOs. “NAACOS has co-signed a letter to HHS urging CMS to grant a waiver to permit all ACOs to use and bill for TeleHealth services. HHS clearly has the authority but so far has been unwilling to exercise it.” (National Association of ACOs, 6.6.14)
  • Unplugged Accountable Care. “The successful ACOs, particularly those owned by large health systems, have a new mantra: forget shared risk, let’s take it all and become a health insurance plan! As mega-hospital systems continue to acquire physician practices (42% of doctors are practicing as salaried employees of hospitals) more will become licensed insurers to take control of the complete patient lifecycle. Coast-to-coast we’ve seen multiple examples of hospital system ACOs enter the fully insured markets by introducing Medicare Advantage and/or ACA Marketplace individual medical plans ready to sell directly to consumers.” (Lindsay Resnick, 12.1.14)
  • CMS Releases Proposed Changes to the Medicare Shared Savings Program Regulations. (December 1, 2014)
  • New ACO Rules Would Delay Penalties an Extra Three Years. “The new (proposed) rule would give ACOs, both new and existing ones, an extra three years before they faced penalties, for a total of six years. Sean Cavanaugh, Medicare’s director, said the change was one of many prompted by concerns raised by ACOs. “The notion that 36 months later you’re going to be at downside financial risk is pretty intimidating,” he said in an interview. However, the extra time would come at a price: ACOs that after their first three years decide to avoid penalties for the next three could keep no more than 40 percent of the money they save Medicare, rather than the 50 percent maximum they can keep during their first three years… Some ACOs have complained that providers that are already practicing efficiently are having a harder time producing savings than less efficient ones.” (Kaiser Health News, 12.3.14)
  • IRS Rules Most ACOs are Not Tax Exempt. “The IRS rejected a request for an ACO’s tax exempt status, on the basis that the ACO was not organized exclusively for charitable purposes. Historically, ACOs do receive tax-exempt status if they participate exclusively in the Medicare Shared Savings Program (MSSP) or another similar government program. This ruling may have major implications for tax exempt status for other commercial ACOs that do not participate in MSSP or work exclusively with Medicare/Medicaid patients. The ruling does not make it impossible for a commercial or partly-commercial ACO to receive tax- exempt status, but unless the ACO can demonstrate significant benefit to the community, the company is unlikely to receive 501(c)(3) status.” (National Journal, Leadership Council, 6.1.16)

Blogs and Resources

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