PharmExec Blog

So, Where Are We with ACOs?

Tom Norton gets to grips with what an Accountable Care Organization is … and what it is not.

Sixteen months into the new Healthcare Reform law, many continue to wonder about the status one of the most confused aspects of the new HCR — the elusive Accountable Care Organization, or ACO. And why are ACOs viewed this way? Simply stated, the heated debate over exactly what an ACO is … and what it is not … has not been resolved as of this writing.

And really, if you think about it, this unsettled state of affairs is somewhat odd. The ACO concept is fairly well defined in the HCR Act, and since it is based on years of theoretical research conducted by the Dartmouth Health Care Atlas, you have to wonder, “What can be so misunderstood about the idea?”   The answer is, apparently a lot.  Today, it is clear that even those experts tasked with setting up the new ACO’s (hospitals, doctors groups, healthcare provider organizations, etc.) are struggling mightily to get a handle on this concept.

Questions like, “Aren’t ACOs really just modified PPOs?”; or, “Really, they must be just good old, off the shelf HMOs, right?”;  or how about, “They have to be something new.  Maybe a potent combo of HMO/PPO?”…are being debated daily in healthcare journals, newspapers, policy websites, and, importantly, in the healthcare board rooms of America. As of today, the “answer” to all of this is a thoroughly jumbled mix that is comprised of differences in geography, service area populations, and local medical cultures.

As a result of all this quibbling, there is now a growing portfolio entitled, “This is what an ACO really is.”  And given the variety of answers in that file, probably the more daunting challenge for ACOs is, once you think you actually understand what an ACO actually is, how the heck do you execute one these things in the real world?

A Review of Actual ACO Execution
Probably the most useful way to approach this ACO execution question is to consider those ACOs that are planned or actually up and running; those entities that are “thinking about” an ACO launch; and still others that are not acting at all.  Let’s quickly review a few of each, remembering that the official CMS ACO Medicare launch date is January 1st, 2012, less than six months from today.

Planned & Working ACOs…
As of this writing, we have found a limited number of actual ACOs that are up and running.  However, many groups do seem near an activation stage for later this year.  For example, in a recent membership survey, the publication CIMO (Chief Medical Information Officer) found that 17% of members surveyed reported they were planning to launch their ACO by January 1, 2012.  While not an overwhelming response, this is not an insignificant group indicating planned forward action on ACOs, soon.

Beyond this, certainly the most prominent functioning ACO to date is the successful pilot being run by the California Public Employee Retirement System (CalPERS). Launched in January of 2010, this program is currently delivering care to about  40,000 patients. According to information released by CalPERS in April, (and heavily endorsed by CMS) this ACO approach includes a diverse partnership with the Hill Physicians Medical Group, Catholic Healthcare West, and the Blue Shield of California Health Maintenance Organization (HMO) (An HMO?  We’ll come back to this point, in a moment).  The CalPERS’s ACO goal, similar to that stated in the HCR law, is creating “an integrated health care approach that improves health care quality and reduces costs.”

Early examples of cost savings in this CalPERS ACO pilot include a 17 percent reduction in patient re-admissions; a half-day reduction in the average patient length of stay; a nearly 14 percent drop in the total days patients spend in a facility; and a 50 percent reduction in the number of patients who stay in a hospital 20 or more days.  Overall, CalPERS is saying this ACO is likely to result in $15.5 million in total savings when the pilot ends in December of this year.

So, on the face of it, this all sounds pretty good, even impressive!… Indeed, CalPERS is so enthusiastic about the pilot that it is talking about rapidly expanding the model for its entire public employee population in CA.

So all is happiness and light with this California ACO experience.  Except for one thing.  Let’s go back to the primary service point in the CalPERS program.  Yup.  It’s an HMO (Blue Shield of California Health Maintenance Organization).  So when others are thrashing about trying to determine what an ACO really is, and how to execute it … is what’s old (HMOs), now brand new (ACOs)?? That is, is an ACO really just an HMO?  Indeed, is this significant CalPERS success just another point of disagreement?

Those “Thinking About” ACOs…
It’s pretty clear that those currently “thinking about” establishing ACOs — currently make up the vast majority of the potential ACOs groups.  They know a lot about ACOs; continue to research and ruminate about them carefully; but right now, they aren’t committed to the ACO concept.

Clearly the most notable in this group would be several entities that participated in the CMS Physician Group Practice (PGP) Demonstration project that ran from April 2005 to March 2010.  Ten, large regional organizations including groups like the Marshfield Clinic of Wisconsin; Everett Clinic of Washington State; Park Nicolette Group of Minnesota;  The University of Michigan Hospitals of Ann Arbor; etc … joined CMS with the high hopes of proving that the ACO concept was workable and, in fact, the “next big thing” in healthcare delivery.

However, when the results of the five year project were announced this past winter, it was clear that nine out ten of those participating entities were unhappy with the ACO concept. Indeed, the only member of the pilot group that seemed to be marginally pleased with the outcome was the Marshfield Clinic.

Things got even more interesting this March when CMS announced its “real world” ACO rules would be based on the increasingly controversial results of the five year PGP pilot. When this information was released, the nine pilot groups that did not like the PGP pilot were direct in expressing their displeasure with CMS’s “real world” vision for ACOs. In fact, the nominal winner in the PGP pilot, the Marshfield Clinic, joined the other nine groups in stating there were major problems with the proposed CMS ACO rules.

Jointly, the ten PGP participants sent a letter to CMS expressing concern over many of CMS’s ACO decisions.  Highlights included:

·       In the CMS demonstration, all 10 sites received up to 80 percent of verified savings to Medicare.  In the real world, CMS proposed that only 50 percent or 60 percent savings in the ACO program would go to the ACO.  The 10 found this unacceptable.

·       Additionally, under the CMS “real world” rules, ACOs are to be subject to penalties if they don’t hit savings and quality targets, called a two-sided risk model.  In the demonstration pilots, CMS did not penalize the ACOs for not meeting these goals.  The 10 were not pleased with this rule.

·       Finally, to participate in the “real world” ACO program, sites will have to subject themselves to additional government scrutiny and regulatory burden.  For example, they will have to let CMS review their marketing materials and invite additional reviews of business arrangements by the HHS Office of Inspector General and the Federal Trade Commission.  The response?  As one pilot ACO participant drolly observed, “Everybody invites the OIG over to dinner, right?”

In sum, not an overwhelming endorsement from the PGP participants of the proposed CMS ACO rules…

So, as we back away from those “thinking about” establishing an ACO, you gotta say, there is just a lot of uncertainty out there.  And, really, I’d say, that’s probably a bit of an understatement.

Those who are “Just Saying No”…
In contrast to all the uncertainly of the last group, there is one growing collection of key healthcare entities out there who believe have the ACO conundrum all figured out.  Their approach to this boggy territory?  Well, they are just saying “No” to establishing Medicare ACOs.

Certainly the most important voice among these naysayers is the prestigious Mayo Clinic of Rochester, Minnesota.  Remarkably, shortly after the issuance of the CMS ACO rules in the spring of this year, Mayo responded bluntly, and curtly to the news: “Mayo Clinic is not going to participate in a Medicare accountable care organization under the circumstances proposed.” Dr. Douglas Wood, Mayo’s chairman of health care policy and research, went on to say, “Mayo does not want to significantly change what it believes is its current efficient, patient-friendly program, and so, will not be participating in the new CMS ACO venture, at least as currently structured.”

Shadowing the stunning Mayo rejection came word from the American Medical Group Association, the trade association representing most potential ACO organizers, that 93% of their membership would not be participating in the CMS Medicare ACO concept.

So, in a sense, that was that. The combination of one of the most legendary health centers in the US, along with a major association representing most of the future, potential ACOs, collectively turned their backs on one of the key centerpieces of the new HCR law. We can only imagine the reaction at CMS when these Mayo/AMGA statements were received in Washington, DC.  No doubt, it must have fallen somewhere between a debilitating anxiety attack … and simply running up a crisp white flag.

So, to begin to wrap this up, I think it’s fair to say that even a very strong CMS ACO advocate would have to agree that ACOs are “just beginning to get traction” in the HCR schematic. Beyond the continuing debates over the ACO theory, right now, it’s pretty apparent there just isn’t much ACO infrastructure in place. With the exception of the successful CalPERs ACO, which as we have pointed out is actually premised on a long functioning California HMO, and the prospective 17% of those in the CMIO survey who say they are “planning to implement in 2012,” there is little public  evidence that a broad ACO activation is underway.

Further, the reported difficulties of the participants in the CMS PGP Demonstration project, along with the follow-on negative response to the March 2010 “real world” CMS ACO rules, have caused most organizations that are supposed to be moving towards establishment of ACOs to be either cautiously designing unique ACO approaches that will benefit their organizing group…or finds them “standing down” until the smoke clears around the ACO issue.

Certainly, the happiest folks in the entire ACO swirl right now are the Mayo Clinic and the members of AMGA who have made the call to simply say “no” to whatever it is that an ACO may turn out to be, come what may from CMS.  Obviously, they believe there are significant downsides to establishing ACOs and they are not afraid to walk away from the concept.  All of that said, it really is an amazing stand if you think about its significance to HCR program.

So, where are we with healthcare reform’s ACO’s?  At the least, all of this suggests substantial problems for the formal CMS launch of Medicare ACOs next January, 2012.  In fact, taking a broad look at the facts in hand, I think you would be safe in saying that with less than six months to go before the official CMS ACO start-up date, the ACO concept is actually in fairly deep trouble…And if that’s true, that important fact and what it portends for the overall implementation of the 2010 HCR law must be viewed as a key, critical development for HCR.

Those are my thoughts on the state of affairs with HCR’s ACO concept. I would welcome your thinking on this ongoing, important aspect of the new law…

Tom Norton

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  1. Posted July 14, 2011 at 4:11 pm | Permalink


    It is great to see the discussion of ACOs enter the pharma arena! You raise some important points in your musing of the topic. We agree with some of your points on the historical review but we take a slightly different perspective on the status of the current concept and land in a notably different place on the state of affairs with the accountable care concept.

    We agree that the definition of what an ACO is has not been resolved entirely, but we believe this misses the point of the impact of the principles of accountable care on the healthcare delivery marketplace. The definition is evolving, as might be expected. The bigger issue in our opinion is that the concept has already moved from government mandate to market implementation. And the government is supportive of the involvement of and collaboration with third party commercial insurers. More on this later….

    In terms of the “is it really a modified PPO” or “is it an off the shelf HMO” question, I wouldn’t waste my time figuring this out. The market is moving ahead. Suffice it to say that the new market landscape will be characterized by integrated systems of care enabled by electronic health platforms.

    A much better question is your allusion to “who is doing what?” Clearly the organizations in the PGP Demonstration project have invaluable experiences. While they might have concerns about the proposed CMS regulations, they have all also signed on for PGP2. And there are many more activities underway around the country. These activities are not limited to the handful of ‘usual suspects’ in the integrated delivery system sector.

    My company HYGEIA Consulting Group has just completed a major report on the status of accountable care and its progress. We review policy, approaches to implementing accountable care and implications for the pharmaceutical industry. We also provide profiles of 12 healthcare delivery organizations around the country, their strengths and preparedness for accountable care implementation. We profile Marshfield Clinic, which you identify as participating in the PGP, but we also include a wide range of other types of organizations. I think you might be surprised at the momentum underway around the country.

    In particular, we make note of those organizations with experience managing risk and the benefit that this affords them as the structure of the market changes. We believe that in many ways the CMS ACOs were just a catalyst for change. Market forces are now being fueled not only by provider groups aligning and executing against the principles underlying accountable care but in part by national insurers such as Aetna and Cigna who are investing heavily to become leading players. By one account, Aetna has invested $2 billion. And this is just the beginning.

    In our recent report, we interviewed key policy thought leaders and executives of provider organizations. We offer both the theory and insights on practical application. We believe that the time is now for pharma to pay attention and consider implications for who are the customers of the future, how sales and marketing will occur, how pharma will participate as a voice at the table as alliances are formed, etc. We know that some of our pharma clients are taking a “watch and wait” attitude, but we think this is a strategic error of large proportion. Our goal is to help our clients navigate the new market structure for sustainable success.

    Tom, in essence, we do not agree with your conclusion that “the ACO concept is actually in fairly deep trouble.” As one of our respondents in our research suggested, “Originally we thought we‘d set up an ACO through CMS but instead we‘ll do it with a private insurance carrier. It doesn‘t matter whether you call it an ACO or not.”

    We believe market transformation is underway. Please feel free to contact us to discuss either our current report or any additional business questions you may have. We’d be happy to help and look forward to hearing from you!

    Julie Stafford, Ph.D.
    HYGEIA Consulting Group

  2. Mark Zezza`
    Posted July 19, 2011 at 11:26 am | Permalink

    A reason why ACOs seem to be elusive is because of their flexibility in structural design. That is, the ACO concept focuses more on the development of functional standards rather than organizational standards. This approach allows for participation in ACO programs beyond HMOs and integrated delivery systems and recognizes that improving the way health care is delivered will require different solutions across different local markets.

    CMS is explicitly recognizing the need for variety by even offering different ACO programs. For example, in recognition of their relatively extensive experience with the ACO model, the PGP participants will be given the opportunity to participate in a more advanced Medicare ACO program (so, despite their criticisms, the PGP sites will likely continue to be Medicare ACOs). Similarly, there is a Pioneer Medicare ACO program for other provider groups that have extensive experience with managed care, capitation payments or ACO-type contracts with private payers. These options recognize that some provider groups may be better prepared than others to take on more financial risk and be in better position to coordinate care across the full continuum of services. The Medicare Shared Savings Program (with the tweaks likely to occur while CMS incorporates comments on the proposed rule into the final rule) may still be the better option for “beginner” ACOs.

    Aside from the Medicare programs, it is important to remember that there are also numerous ACO initiatives in the private sector with varying degrees of performance and functional standards. There are also many other value-based initiatives (e.g., medical homes, hospital readmission reduction programs, pay-for-performance, etc…) that are complementary to ACO objectives and can also be used to help jump-start an ACO.

    Thus, given the variety in what an ACO could look like, it is best to think about what an ACO should be doing when trying to describe an ACO. Five critical functions for ACOs that are commonly cited (if not required) are highlighted below:

    1 – Develop ways to innovate care in order to become more efficient while improving patient outcomes. Again, these innovations will differ across ACOs. Some may focus on diabetes care or reducing unnecessary hospital admissions. Others could focus on reducing unnecessary ER visits, better medication management, better patient education of self-management techniques, telephonic medicine, or more standardized practice patterns that are in greater alignment with clinical guidelines. The list of potential innovations is nearly endless and can include items as simple as getting doctors and nurses to wash their hands more frequently.

    2 – Continually evaluate which innovations are working and where additional gaps in care exist. Innovations that are working should be expanded as appropriate, while resources for those that are not should be redirected elsewhere. New innovations should be developed as needed to address additional gaps in care.

    3 – In order to do the evaluations above, robust performance measurement is needed that provides meaningful evidence of what works and what does not. This evidence will be critical to getting patients more engaged in their care, helping physicians and other providers identify best practices, and helping ACOs build business cases for the investments needed to innovate the way care is delivered.

    4 – ACOs will need to enhance their health information technology (HIT) infrastructure to support the care coordination involved with innovating care and coordinating more efficient care, as well as being able to rapidly evaluate their care improving interventions.

    5 – Payment reform is needed to support the investments required to improve the way care is delivered and to change the incentives for practicing medicine from higher volume to higher quality and more value. While payment reform should include shared savings payments, ACOs (and aspiring ACOs) should be leveraging additional revenue sources and incentives. This includes the internal physician compensation mechanisms available to the ACO (or each provider group and hospital participating in an ACO), as well as additional pay-for-performance programs and other value-based purchasing initiatives being developed by Medicare and other payers. There are also multiple grants available to physicians and hospitals to assist in the development of a more robust HIT infrastructure.

    There is fairly clear consensus that the state of our health care system is unsustainable and something needs to be done sooner rather than later. As time continues to pass and the debates continue on how to best reform our health care system and reduce our deficit, it will be increasingly difficult to choose options that promote systematic change towards the type of care that is more aligned with what ACOs are supposed to be able to do. This is because it will take time to become a successful and effective ACO – i.e., to develop a robust HIT infrastructure, robust performance measurement, and effective clinical innovations.

    ACOs are meant to be a long-term solution to our health care problems, by promoting systematic change to our health care system. However, time may be running out as the deficit continues to grow, health care costs continue to rise and the baby-boomers begin to flood the health care system. Thus, over time, more drastic solutions such as significant provider payment cuts or reductions in benefits will become the only solution. The problem with these solutions is that they are likely not to improve the way care is delivered.

    Many providers recognize that change is imminent and will want to be on the forefront of that change. Many payers also recognize this and hence are helping to support efforts for more systematic change. This is evidenced by the number of ACO-type activities that are moving forward in the private sector as well as with Medicare. Even if only 17 percent of providers (based on the CMIO reference) are ready to official enter into an ACO contract today (or within the next 6 months), that could be more than enough to build momentum for a much greater and needed impact within the next few years. It will be critical to have some major movement sooner rather than later and to evaluate these early adopters and disseminate best practices as quickly as possible.

    Also, in some ways it may be better to have a more judicious start to the ACO movement as not every provider is ready to become an ACO. CMS and other payers should balance the need for widespread change with being overzealous and extending resources for care that is not likely to result in improvements.

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