ACO squeeze: How much can they really save?

August 5, 2014

Growth of accountable care organizations across the U.S. healthcare market is gaining momentum

No one disputes that the continuing growth of accountable care organizations (ACOs) across the U.S. healthcare market is gaining momentum. Payers and providers alike are following Medicare’s lead on ACOs by launching numerous commercial ventures in 2014.

On July 22, UnitedHealthcare announced an ACO partnership with Banner Health Network covering about 50,000 UnitedHealthcare members in Arizona. A week earlier, Humana and Tenet Healthcare Corp. said they were launching an ACO for Humana’s Medicare Advantage members in Atlanta. Aetna has introduced several ACO ventures since late April, while Cigna says it expects to work on ACOs with 20 to 30 new groups each year. 

There also is consensus that the goal of ACOs is to drive cost savings and improve quality of care. Under the concept, a set of providers-including hospitals and physicians-work collaboratively with payers to cover a defined population across a continuum of care.

Aetna, Cigna, Humana reflect ACO strides, challenges >>

ACOs could make payers more competitive for group business, because savvier employers are keeping a close watch on potentially better ways to deliver care, including narrow- and tiered-networks, and better ways to finance it. But ACOs’ scale of operations, tolerance for risk-sharing, level of sophistication with information-technology systems and relationship among stakeholders vary considerably.

Apples-to-apples comparisons are so difficult to come by given such an amorphous delivery model that, as one long-time industry expert says, “You’ve seen one ACO, and you’ve seen one ACO.” This is creating debate and uncertainty about whether ACOs actually are cutting wasteful spending and achieving better clinical outcomes-and whether results can be replicated.

Expert opinion differs

Against this backdrop, a difference of expert opinion is emerging over ACOs’ potential. Some see strong advantages for payers and providers moving down public and private paths toward collaborative care. Others view the formation of ACOs with shared savings but without shared risk as an unsustainable model, perhaps destined to fail and hamper broader healthcare financing reforms.

Among the skeptics is Robert Berenson, MD, an institute fellow at the Urban Institute and former top official at the Health Care Financing Administration (a predecessor agency of the Center for Medicare and Medicaid Services.)

“There’s lots of activity, but it’s unclear what’s really going on...[and] it hasn’t led to a significant change of the culture and financial incentives that doctors and hospitals are working under,” Berenson says. “The ACO has the incentive to save money, but hospitals and doctors are still under fee-for-service, (FFS)” he adds, “so it seems too minimal a change” to show a serious intent to transform healthcare delivery.

 

Berenson describes Medicare’s financing model for ACOs as a weak one to follow. “There are hundreds of ACOs around, but it only represents a small percent of anyone’s business,” he says. “Instead of shared savings, I’d prefer to see the providers take some financial risk...[but] if you just listen to the industry, they don’t want to take risk at all. My own view is to see many fewer ACOs, but having risk.”

Dick Salmon, MD, PhD, Cigna’s national medical executive for performance measurement and improvement, concedes that Cigna hasn’t moved as quickly as anticipated with provider groups toward two-sided risk for ACOs. “In Cigna’s case, most of our book of business is in PPO plans where patients have open access...so providers are hesitant to take downside risk,” he says.

According to Salmon, however, Cigna’s three-pronged approach-alignment of financial incentives, informatics and care collaboration-is achieving results. 

After implementing extended office hours, patient outreach by embedded nurse care-coordinators and a 24-hour triage phone line for doctor offices, Cigna Collaborative Care physician groups in New England saw their patients’ avoidable emergency room (ER) visits per thousand drop by 15%, and their high ER utilizers’ visits per thousand fall by 30%, from 2012 to 2013. Cigna recently posted this and other data in its latest ACO activity report here

Other insurers confronting a highly competitive healthcare market aren’t waiting to tout their ACOs’ results. Independence Blue Cross announced in mid-July that half of the hospitals participating in its ACO in the Philadelphia region reduced medical costs in the first year, and that nine out of 10 hospitals lowered readmission rates by an average of 16%. All ACO hospitals improved at least one hospital-acquired infection measure or received a top distinction from state regulators for infection control, the insurer reported, and nearly all scored better on measures assessing patients’ experience during hospital stays.

 

Are savings ‘real’?

Some experts remain unswayed by payers’ publicly released ACO data. “In general, I think there have been cost savings [from ACOs], but I’m not sure it’s real...There has been lots of reporting, but there has been limited success,” says David Mirkin, MD, a principal at Milliman, Inc., and chief medical officer for MedInsight, the actuarial firm’s software analytics products.

Currently, payers have numerous ACO
contracts with provider organizations, Mirkin says, but they “don’t have a lot of teeth.” Often, there is a focus on upside only (i.e., shared savings, but not shared risk) or on meeting certain performance targets; and underneath, these ACOs tend to run under FFS. That set-up “makes it very difficult, but not impossible, to deliver cost savings,” he says.

In Mirkin’s opinion, the ACO contracts best able to reduce costs are those with downside risk for providers: going beyond “hitting emergency room and quality outcome targets,” he says. Initially, there might be apparent savings from upside-only contracts because payers will be shifting losses to providers in ways that are not transparent, he says.

For example, a payer may demand a 5% discount on a provider’s fees to put that provider in an ACO’s network. 

“That savings is real, but basically it’s a negotiation for discounts, and not an improvement to the [healthcare delivery] system,” he says.

“I do think two-sided risk will result in cost savings,” Mirkin adds. “The rest of this is about potential.”  

Each payer is approaching accountable care ventures with a different strategy, he says. But Mirkin asserts that none seem to be investing in the management infrastructure needed to make ACOs successful. With so many new ACO initiatives in the works, he asks, who is responsible within the insurance company for that plan’s population? 

“Someone must be looking at [the ACO’s] utilization, quality and financial outcomes, whose job is on the line for that,” he says, “and that person needs clout [within the insurance company]. My understanding is none of the big payers have that. It’s very fragmented.” 

To move providers successfully into risk, Mirkin says that providers, too, must invest in their own infrastructure and build systems that can take data feeds from multiple payers. And payers must “get out of the way” once a provider group-likely contracting with multiple payers, including Medicare-shows the transfer of skills is appropriate, he says.  

 

Staying ‘bullish’ on ACOs

In January, CMS released an analysis of 114 Medicare ACOs launched in 2012. Nearly half had cut costs for Medicare patients, and nearly one-third had saved enough to qualify for financial bonuses. But CMS cautioned that such data are preliminary, and that ACOs’ impact must be tracked over several years. Striking another cautionary note, the Wall Street Journal said these 114 ACOs faced significant upfront challenges in various areas, including technology investment and electronic exchange of health information.

Federal data on Medicare’s ACO programs show steady growth, although the future depends on the next round of regulations. If CMS decides to require two-sided risk for the Medicare Shared Savings Program, one-third of plans say they don’t intend to participate. As for Medicaid, 19 states are using Medicaid accountable care models of some sort, according to the National Academy for State Health Policy. 

Potential investors are being encouraged to stay bullish. In June, the investment website The Motley Fool asserted that ACOs, not health insurance exchanges, represent the “real revolution” under the Affordable Care Act. For “forward-thinking insurance companies concerned about the rising pace of medical costs, ACOs could be a huge way to keep costs under control,” the financial-services firm said.

On the commercial side, payers are reporting rapid gains. “What we have experienced is that our approach has resulted in a very remarkable growth,” Cigna’s Salmon says. 

As of July 1, Cigna had 100 collaborative-care arrangements with 39,000-plus doctors (including more than 19,000 primary care physicians and 20,000 specialists), serving 1 million
customers on its commercial PPO book of business, according to Salmon. That compares with about a dozen pilots in mid-2011 at Cigna. “It’s definitely gone from a pilot program to a core way of how we contract,” he says.

“We have seen significant growth in our ACO business,” since Aetna officially launched a unit devoted to the product a few years ago, agrees Gary Thomas, Aetna’s chief operating officer for Accountable Care Solutions. Aetna’s ACO product basically runs across all lines of business, including fully insured, self-insured, commercial, Medicare Advantage, traditional Medicare and Medicaid. 

Humana also reports that its ACO business, as broadly defined, is taking off. “Today we have well over 900 relationships with provider entities that we call ‘accountable,’” says Renee Buckingham, enterprise vice president for the provider development center of excellence within Humana’s healthcare services segment. That includes joint ventures, medical homes and integrated delivery systems. Of the total, about 100 or so relationships are commercial, according to Buckingham.  

 

Source:  Health Affairs, http://content.healthaffairs.org/content/33/6/964.abstract

Judy Packer-Tursman is a veteran journalist based in Washington, D.C.

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