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

About Philip P. Gerbino, PharmD

Dr. Gerbino heads up our Calcium Advisory Board and will ensure we leverage the appropriate clinical expertise on all initiatives. He recently retired as president of University of the Sciences, where he served for more than 16 years and helped to guide the growth of the 190-year-old institution from its roots as Philadelphia College of Pharmacy and Science (PCPS) into the five colleges that now comprise the University. Under his leadership, the University built on its esteemed reputation and is now home to 25 undergraduate and 20 graduate programs. More than 3,000 students have enrolled in the University’s premier programs in the health sciences, ranging from pharmacy (with its direct entry doctoral program), to pre-med, to physical and occupational therapy, to healthcare business and health policy. Dr. Gerbino is a Fellow of the College of Physicians of Philadelphia and a member of the American Pharmacists Association (APhA), Academy of Pharmacy Practice and Management, and the American Society of Consultant Pharmacists (ASCP). He received the 2010 Frank Baldino Jr. CEO of the Year Award from Pennsylvania Bio and was the 2006 recipient of the Phi Lambda Sigma-Procter & Gamble National Leadership Award. An ardent advocate of life sciences, he has served on editorial and advisory boards of pharmacy, medical, and healthcare publications, and is a consultant on strategic planning, marketing, and new business development to the pharmaceutical and healthcare industries. Dr. Gerbino has and continues to serve on boards of private and public healthcare companies, and regional professional and civic organizations, most recently being named chair of the board of directors at BioAdvance after six years as a board member. Other regional board affiliations include the University City Science Center, the University City Keystone Innovation Zone, Quaker BioVentures, and Pennsylvania Bio. He is a past president of APhA and a former civilian pharmacy consultant to the Air Force Surgeon General. An accomplished professional chairman and facilitator, Dr. Gerbino has published and lectured extensively. Prior to being named president at University of the Sciences, Dr. Gerbino served as dean of the School of Pharmacy and Vice President of Academic Affairs. He also retains the title of Linwood F. Tice Professor Emeritus at the Philadelphia College of Pharmacy. Dr. Gerbino earned his B.S. in Pharmacy and his Pharm.D. from PCPS, where he worked for more than 30 years as an educator and administrator.

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