The centerpiece of the Affordable Care Act (ACA) was the formation of innovative healthcare delivery designs. Among them were the accountable care organizations (ACOs). These were anticipated to be the key drivers of healthcare savings and innovation. Their goal was to improve quality, adjust utilization, and reduce both Medicare and private healthcare costs.
There are currently about 127 ACOs around the country. Some are quite old. More are being formed while others are being closed or restructured. To date, approximately half of the ACO’s currently in existence are owned by physicians; the other half are owned by hospitals.
Shared Risk – Shared Savings?
We understand accountable care organizations as shared risk shared savings designs. The ACA prompted newer ACOs that are quality-driven integrated care and coordinated care organizations developed primarily by hospitals. Local physician groups and hospital networks are technologically connected and participate contractually in a shared risk and shared savings model of care. Technology enables care to be delivered efficiently within these integrated healthcare networks (usually 3-7 hospitals) with a goal of improving clinical outcomes while reducing costs, especially those stemming from re-admissions and excess utilization of expensive healthcare services.
The Centers for Medicare and Medicaid Services (CMS) established 32 Medicare ACOs called Medicare Pioneer Accountable Care Organizations. It’s only been a short while (12-24 months), since Medicare Pioneer ACOs have been solidly up and running. There are 19 Pioneer models in existence.
For those pioneer models that dropped out, the most consistent reasons were that their financial and quality metrics were based on national trends. Despite improved utilization, improved care quality, better care coordination, and lower costs, they could not make their shared risk/shared savings economic model work!
CMS reported last year that 13 of the total 32 Pioneer ACOs have produced a shared savings. Overall, CMS generated a gross savings of $87.6 million in 2012 and contributed nearly $3 million to the Medicare Trust Fund. Only two pioneer ACOs had shared losses totaling $4 million.
Although the ACOs’ designs are meant to create long-term savings, for some, the savings has been considerably lower than projected. Of the pre-Pioneer group, about half—54 ACOs—generated an aggregate savings of more than $126 million. According to CMS, these 54 ACOs also generated $128 million savings for the Medicare Trust Fund.
So what are we learning? The ACO model does not necessarily fit every region or healthcare delivery network. Most ACOs improve health care quality through better utilization and care coordination. Clinical outcomes may in some cases be better. Some ACOs, however, may be at the wrong end of the risk curve, with a preponderance of high risk patients not necessarily producing shared savings. Over time, they are not financially viable models in their market.
Next Wave: Larger Integrated Delivery Networks (IDNs)
What will happen next? The ACO model will continue to evolve but will do so by expanding within integrated delivery networks (IDNs). Systems of five hospitals will have to combine with larger IDN systems to make very large IDNs. This is a consolidation process. Larger IDNs will strive for better, more integrated health information technologies. Because of size, they will better leverage medical purchasing. Creating better care coordination and quality programs and achievement of better clinical outcomes will be an enormous administrative and clinical challenge for ACOs and the IDNs.
The enormous process of creating larger IDNs will mean substantial investments in fully integrated, cutting edge, health information technology. It will also mean a new page in coordination of relationships among hospitals and integrating their policies and procedures. All medical and other suppliers and vendors, including advertisers, marketers, the pharmaceutical industry, and a whole host of other supporting industries will be impacted. Patients will unexpectedly become part of a larger system and experience the complexities of integrated services associated with consolidated models.
The momentum has silently begun for this consolidating and evolving process. It will be important to evaluate whether these expanded IDN models, which contain ACOs, will reduce risk and produce shared savings for the hospitals and for the partnering physicians. More importantly, let’s hope they provide seamless, high-quality care and improved clinical outcomes for patients.
By Philip P. Gerbino, PharmD, President Emeritus, University of the Sciences