ACOs may need tweaks but model likely here to stay

Alternative healthcare payment models got a lot of attention in recent weeks after the government announced more Medicare payments would focus on quality and value, rather than quantity of care. One of the leading health models moving in this direction is the Accountable Care Organization (ACO), which is a network of health providers that coordinates care and receives bonuses when it meets quality and efficiency targets.

ACOs create incentives for health providers to work together closely and focus on keeping patients healthy, rather than simply receiving payments for services that treat their ailments (fee-for-service medicine). Under the ACO model, provider networks share in the savings when they keep costs down and meet quality benchmarks. Depending on the program, they can also share risks, such as paying penalties if they don’t meet certain performance and cost savings benchmarks. Ideally, the organization changes how it practices medicine, with the end result not just cost savings for both the providers and payers but also better care.  

The Affordable Care Act spurred and accelerated the creation of ACOs, and made it clear the direction in which health care is moving: payments based on performance.

But even as the Centers for Medicare and Medicaid Services touts the benefits of such models, the jury is still out on how well ACOs are working. On February 6, dozens of health care groups sent a letter to CMS that questioned the viability of the Medicare Shared Savings Program for ACOs, as it currently stands. (MSSP is different from the Pioneer ACO program, which offers participants more risk and more rewards.)   

The letter, signed by a long list of health care provider organizations, pointed to first-year performance data from November that showed that slightly more than half of the participating ACOs reduced costs enough to save Medicare money. But only about half of those ACOs – 26 percent of the total number participating – actually shared in those savings.

As currently designed, the MSSP program places too much risk and burden on providers with too little opportunity for reward in the form of shared savings.

The letter goes into many other specifics, but the key argument is clear: There needs to be a better balance between risk and reward.

Other methodologies used in ACOs have been critiqued, too.   

In Managed Care Magazine, writer Peter Wehrwein writes about the Pioneer ACO program and highlights the challenges of sharing in both savings and financial risks, and the difficulty of striking an appropriate balance between those two.

Wehrwein profiles Sharp Healthcare System’s decision to leave the Pioneer ACO program, in part to avoid paying a penalty. The San Diego-based system was poised to get penalized “even though it launched seven care management programs, reined in hospital readmissions, and reduced its high rate of skilled nursing home utilization.” The article goes on to explain some of the program’s shortcomings, according to Sharp, such as not taking into account regional differences in the area-wage index, which is used to calculate Medicare reimbursements. If details such as those were adjusted, Sharp might have been sharing in the rewards instead of dropping out, Wehrwein wrote. (Here’s another good account of Sharp’s ACO story.)

But evaluating ACOs isn’t just about the finances. To ensure that patients’ quality of care isn’t being sacrificed in the process, Medicare uses quality measures, such as how well ACOs help patients with diabetes, to evaluate care. 

Last year, Kaiser Health News analyzed the 2012 data on patients’ experiences with ACOs and found wide differences in patient care across the spectrum of ACOs.

And, in December, David Muhlestein, an ACO expert at healthcare consultancy Leavitt Partners, co-authored a Health Affairs analysis which found ACO quality results were “good but not great.” Through an extensive analysis of finances and quality measures, he found that improved quality was not associated with better financial results – at least not yet.

Right now, there isn’t enough time to show a strong correlation between cost savings and quality measures, Muhlestein said in an interview with Reporting on Health. ACOs may have found ways to lower costs in the short term, but need more time to roll out long-term process changes that could ultimately result in better care.

But changing an entire system takes time. The transition to more coordinated care that provides better access and care while lowering costs is tricky and requires a lot of buy-in from providers, Muhlestein said. And the challenges and needs are distinct, depending upon who is running the ACO. For example, small physician groups might need to integrate electronic health records while large hospital systems may already have strong communication lines established.

“It’s that transformation that’s hard,” Muhlestein said. “They try different approaches and keep plodding onward. A lot of it is finding your own path and seeing what works.”

Overall, he said, some ACOs are doing well and some are not, but there are enough positive results to maintain optimism about the model.

Photo by DFAT via Flickr.