ACOs – Will Growth Continue?

The number of accountable care organizations (ACOs) across the U.S continues to steadily increase with nearly 1000 in operation or planned, vs. fewer than 100 five years ago. This past January, CMS announced 121 new Medicare ACO participants and the growth trend is likely to continue, according to a December report from Leavitt Partners which predicts that 105 to 176 million patients may be covered through an ACO by 2020.

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ACO Growth

Of the 28M lives currently served by ACOs, approximately two-thirds are in commercial ACOs and the remainder in government ACOs, primarily Medicare. This number has not yet reached “critical mass” or a “tipping point” according to most industry experts. As a result, actions over the next two or three years will determine the future of ACOs.

At the same time, there are headwinds. The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) proposed rule issued in April  says physicians participating in many existing ACOs and ACO-like arrangements, including most Medicare ACOs, will not qualify as an Alternative Payment Model (APM). This means they won’t be eligible for Medicare incentives starting in 2019, based on 2017 performance and structure.

A recent IRS ruling adds another barrier for ACOs dealing with commercial carriers. The IRS denied the ACO’s request for tax-exempt status, saying the ACO did not meet the test for tax-exempt status because it was not operated exclusively for charitable purposes.

We start with an overview of the headwinds, then describe the current ACO landscape.

MACRA: Qualifying as APMs

The Medicare Access and CHIP Reauthorization Act of 2015 (MACRA) proposed rule estimated that as few as 30,000 physicians could qualify initially for APM payments, which are seen as more lucrative with less-burdensome quality reporting, compared with the alternative Merit-based Incentive Payment System (MIPS) track.

The proposed rule says only the following APMs will qualify participating physicians for bonus payments and exemption from MIPS reporting:

  • Comprehensive Primary Care Plus (CPC+)
  • Next Generation ACO
  • Medicare Shared Savings Program (MSSP) Tracks 2 and 3
  • Oncology Care Model with two-sided risk
  • Comprehensive ESRD Care (for large dialysis organizations)

Although the proposed rule states that CMS will continue to add to the list of qualifying APMs, bundled payment programs and Track 1 MSSP ACOs were not initially included. 95% of the 434 MSSP ACOs are in Track 1, according to a CMS official, and participating physicians would not qualify for APM payments. In addition, physicians participating with approximately 800 hospitals in the Comprehensive Care for Joint Replacement (CJR) model also would not qualify for APM payments.

A release from U.S. Department of Health and Human Services (HHS) acknowledged a number of physicians who participate in existing APMs will not qualify for MACRA bonus payments. As an alternative, the proposed rule aimed to offer them financial rewards within MIPS “to make it easy for clinicians to switch between the components of the Quality Payment Program based on what works best for them and their patients,” the release stated. HHS officials noted that they expect most Medicare clinicians to initially participate in MIPS.

The preliminary appeal of the APM track for physicians was the accompanying 5% annual bonus which provides a more generous annual update through 2024 than that available through MIPS.

At the same time, its worth noting that the proposed rule also established three financial risk criteria that APM participants need to meet:

  • Marginal risk of at least 30%
  • Minimal loss rate of no more than 4%
  • Total potential risk of at least 4% of expected expenditures

Impact of Proposed APM Rules

According to a NAACOS survey, if the proposed APM requirements are finalized, 56% of Medicare ACOs are likely to leave the MSSP, which hosts the vast majority of Medicare ACOs. 11% of such ACOs were unsure whether they would remain in the program and 32% said it was very or somewhat likely that they would stay in the program (with 2% of respondents ineligible to remain in Track 1).

In a poll conducted in February by RBMA, 77% of the 94 respondents reported they are not participating in an ACO. Nearly two-thirds of these respondents (63%) indicated they are not currently participating in an ACO and have no intention of ever participating, while an additional 14% reported they are not currently participating, but are considering doing so in the future. Of the remaining 23% currently participating in an ACO, almost 10% have achieved shared savings while 14% have not. The results are noticeably similar to those of an August 2013 poll, which found 74% were not participating in an ACO (with 23% considering doing so) and 26% actively participating, including only 5% that had achieved shared savings and 21% that had not.

IRS Ruling Impact

While the recent IRS ruling does not apply to Medicare-only ACOs, it is expected to slow ACO growth unless the ruling is over turned. Especially considering that two-thirds of ACOs to date are commercial. ACO advocates expect that some members of Congress may propose legislation to create a more favorable tax status for commercial ACOs. Certainly commercial insurers and others involved with these ACOs will be lobbying to change the ruling. Otherwise, many feel that the tax implications will prevent the formation of new ACOs and may even cause existing ones that are struggling to disband.

Types of ACOs

According to Leavitt Partners and Stephen M. Shortell PhD, MPH, MBA of the Berkeley School of Public Health, there are 6 major types of ACOs, three that are health system or hospital-centric and three that are physician-centric:

  • Full Spectrum Integrated
  • Hospital Alliance
  • Independent Hospital
  • Independent Physician Group
  • Physician Group Alliance
  • Expanded Physician Group

According to a recent Leavitt Partners survey, the first 2 types have, on average, many more affiliated physicians and a higher percentage of employed physicians vs. the other types.

As a general rule, the physician types are more nimble, allowing them to move faster. In early studies, they have also shown the most success in cost savings. Some think this may be because hospital-centric ACOs face a conflict between keeping people out of the hospital (a major source of cost savings) and their traditional revenue stream from in-patients.

ACO Performance

The New England Journal of Medicine’s recent study “Early Performance of Accountable Care Organizations in Medicare,” assessed the early performance of MSSP ACOs. The study used Medicare claims from 2009 through 2013 and a difference-in-differences design. Researchers compared changes in spending and performance on quality measures from before the start of ACO contracts to after the start of the contracts. The scope included the 220 ACOs entering the MSSP in mid-2012 (2012 ACO cohort) or January 2013 (2013 ACO cohort) and those served by non-ACO providers (control group), with adjustment for geographic area and beneficiary characteristics. Researchers analyzed the 2012 and 2013 ACO cohorts separately because entry time could reflect the capacity of an ACO to achieve savings, and then compared ACO savings according to organizational structure, baseline spending, and concurrent ACO contracting with commercial insurers.

The study’s findings showed greater savings in independent primary care groups than in hospital-integrated groups. The first full year of MSSP contracts directly associated with early reductions in Medicare spending among 2012 entrants, but not among the 2013 entrants. Adjusted Medicare spending and spending trends were similar in the ACO cohorts and the control group during the pre-contract period. In 2013, the differential change in total adjusted annual spending was −$144 per beneficiary in the 2012 ACO cohort as compared with the control group, consistent with a 1.4% savings, but only −$3 per beneficiary in the 2013 ACO cohort as compared with the control. Estimated savings were consistently greater in independent primary care groups than in hospital-integrated groups among 2012 and 2013 MSSP entrants. MSSP contracts were associated with improved performance on some quality measures and unchanged performance on others.

A recent Dartmouth Institute for Health Policy and Clinical Practice study found Medicare ACOs have modest savings in the use of high-cost care such as hospitals (including emergency departments) and skilled nursing facilities. On average, study ACOs saved $136 per beneficiary through better coordination of care. But, savings were $456 per beneficiary for “clinically vulnerable” patients (those e treated for three or more conditions). Not surprisingly, this highlights the importance for ACOs  of coordinating care for those who have the most medical needs. The study can be seen at this link.

Need for ACOs: Lack of Coordinated Care

A recent Nielsen Strategic Health Perspectives survey highlights some of the problems that ACOs are trying to solve:

  • Eighty-nine percent of primary care physicians say they often remind patients about preventive screenings, but only 14 percent of patients say they get these reminders.
  • More than two-thirds of adult Americans are overweight or obese, yet only 5 percent of patients report that their physicians recommended a weight loss program.
  • Only half of patients are experiencing physicians who better know their history, primarily due to the ability to share information through electronic medical records.
  • Patients with multiple chronic illnesses, who would most benefit from care coordination, receive only slightly more follow-ups and care management as everyone else.
  • Only about one-third have 24/7 access to care through their physician’s office other than the emergency room.

ACO Examples

To be successful, ACOs must adhere to the principles of strong philosophical alignment with top management, shared long-term objectives, aligned incentives, transparency and resource commitment, says Blue Shield of California CEO Paul Markovich. He adds there must be a strong belief in these principles from top management and among the ACO’s partners. Trust between providers and a payer is also an important factor and begins with all stakeholders truly wanting to deliver the best quality healthcare for the lowest price. Once trust is established, Markovich says, shared data analytics and payer-provided resources can add to an ACO’s success.

In Arizona, Sonora Quest Laboratories, a joint venture owned by Banner Health and Quest Diagnostics Incorporated, has been working to fully integrate the laboratories of the University of Arizona Health Network with those of Sonora Quest and Laboratory Services of Arizona- the Banner inpatient lab organization. Banner Health participates in multiple ACOs and has been successful with Medicare’s Pioneer ACO program. In a recent keynote, President and CEO David A. Dexter discussed how Sonora Quest Laboratories is changing in the ways needed to support physicians delivering care to ACO patients.

Dexter emphasized the importance for all lab organizations to understand the “Triple Aim of CMS” in order to succeed during the ongoing transformation of healthcare; i.e.

  1. Improve population and community health;
  2. Seamless coordination of care; and,
  3. Reduce per capita costs through improvement.

“ACOs need data analytics in real time that is delivered to care coordinators to make it actionable. This data also needs to support providers’ key metrics for CMS. The ACO data load into the population health software is typically four to 12 weeks behind real time,” Dexter continued. “That creates an opportunity for Sonora Quest Laboratories to provide their data in real time to both the ACOs and the clinicians treating the ACO patients. We are investing significantly in information technology so as to provide such data in real time.”

Similarly, in the New York metro, Northwell’s lab division has formed a laboratory joint venture. Executive Director and Senior Vice President for Laboratory Services at Northwell Health, James M. Crawford, MD, PhD, says his lab’s strategies to add value contribute to improved patient outcomes while helping reduce the cost-per-encounter. “Through standardization and some consolidation, the JV is on track to deliver $40 million in savings to the partners in the next 30 months. It is also positioned to expand its market share of office-based physicians in the region.” Crawford continued. “Our decision was to partner with an organization that is already at the front edge of genetic testing and was willing to collaborate with us in ways that fully support our clinical mission to our parent health system. We then spent almost three full years visiting potential partners, developing a request for qualifications (ROQ); then doing site visits of the respondents to the ROQ. Late last year, we wrapped up negotiations with our choice of a business partner. In January, we launched a shared genetic testing partnership with Bio-Reference Laboratories, Inc., of Elmwood Park, New Jersey.”

ACO Alternatives

Bundled payment initiatives have some characteristics of ACOs but are generally not as complex. But they offer similar potential to enhance care coordination, just in a more narrow scope.

According to CMS, more than 1,500 facilities nationwide are currently testing bundled payment innovation models. These numbers will continue to grow as HHS moves forward with its goal to tie 50% of all traditional or fee-for-service Medicare payments to quality or value through APMs, ACOs or bundled payment arrangements, by 2018.

So far, the bundled payment model is working. More than 80% of participating hospitals report improved patient engagement, reduced administrative costs, and increased alignment with physicians.

Summary

The move toward ACOs and similar forms of payment based on cost and quality outcomes is expected to continue. At the same time, ACOs are still very immature and their future is by no means guaranteed. The industry has survived many early ACOs struggling and even leaving Medicare. At this point, if early data showing savings and improved outcomes are borne out, more ACOs will be formed and others will be expanded. But if the cost savings can’t be shown or if ACOs continue to face legal, tax or other impediments, the future will be much more limited. At this point in time, it is too early to tell which way the momentum will take the industry.

1 Sampson, Catherine, “Number of Accountable Care Organizations Continue to Rise,” RevCycleIntelligence, April 28, 2016 Daly, Rich, “Many Existing APMs Excluded under Proposed Physician Pay Rules,” HFMA, April 28, 2016
3. RBMA Radiology Hot Topics February 3-10, 2016 (pdf)
4. McWilliams, J. Michael; Hatfield, Laura A; Chernew, Michael E; Landon, Bruce E; Schwartz, Aaron L., “Early Performance of Accountable Care Organizations in Medicare, New England Journal of Medicine, April 13, 2016 DOI: 10.1056/NEJMsa1600142
5. Moody, Katherine, “Blue Shield Of California CEO: ACO Success Happens When You ‘Stick To The Principles‘,” FierceHealthPayer, May 10, 2016
6. Michel, Robert, “At Executive War College 2016, Two Big Lab Market Trends,” Dark Intelligence Group Vol. XXIII, No. 6, May 2, 2016
7. Curry, Angie; Fee, James, “Ramping Up for Bundled Payments: Fostering Alignment Between Hospitals and Physicians,” hfma, May 1, 2016