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Grading ACOs: report card time: we've learned a lot about ACOs--do they pass or fail?

Saving money while raising the quality of health care has been the central focus of the health care industry--from providers to health insurance carriers--since the arrival of the Patient Protection and Affordable Care Act (PPACA). One of the biggest drivers of both cost savings and increased quality was the implementation of accountable care organizations (ACOs).


In August 2015, the Centers for Medicare & Medicaid Services (CMS) released its 2014 financial and quality performance results for its Medicare ACOs. According to CMS, ACOs in its Pioneer ACO Model and Medicare Shared Savings Program (MSSP) generated more than $411 million in total savings in 2014--which would seem to indicate that ACOs are working, and working well.


There's another piece to the puzzle, however. Of the 353 Pioneer and MSSP ACOs, 97 qualified for shared savings payments upwards of $422 million. So a little math seems to indicate the opposite: ACOs actually cost CMS $11 million in 2014.

Are ACOs really the health care delivery sea change that the world was promised by PPACA, or are they a flash in the pan? How has consolidation in the industry affected ACOs and their efficacy? And how sustainable are the savings returns?

Now that analysts and policy experts have more data from the CMS programs, answers to some of these questions are finally coming to light--but slowly.


One important component is that Medicare ACOs are "not captive," notes Jennifer Searfoss, founder and chief executive officer at SCG Health. "A Medicare beneficiary who's in an ACO can choose to seek care anywhere. If you're trying to bend the cost curve, it's really hard to do so when patients can seek care wherever they want."

Private insurance carriers, on the other hand, can impose financial penalties on patients who choose to seek care outside their ACOs, perhaps making the patient responsible for the entire cost of out-of-network care, a powerful incentive to stay within the boundaries of the ACO. And that, Searfoss says, can have a big impact on the bottom line. "The thing that everybody pays attention to is dollars. The cost is what actually steers it."

An L&M Policy Research Report on the CMS ACOs released in March 2015 estimated that the 32 Pioneer ACOs did significantly reduce Medicare expenditures compared to market trends; however, there could be a law of diminishing returns in effect. The report said that total savings per beneficiary per month was $35.62 in 2012 and $11.18 in 2013(data for 2014 was not yet available). This indicates that although ACOs could be a key to driving down health care costs, the savings won't last forever.

"Once the government or commercial payers have wrung the savings from the system and picked the low-hanging fruit, what then?" asks Matthew P. Amodeo, a partner at Drinker Biddle & Reath who specializes in accountable care arrangements. "They're just going to squeeze provider reimbursement rates even lower. Providers see the writing on the wall, which is why they're trying to become their own insurance companies."

Providers, he added, will have to manage care to a fixed budget as carefully as possible. And the 15 percent administrative overhead that's associated with the health insurance carrier might seem like a relatively easy target as providers' abilities to generate savings diminishes.

"I'm not bullish on ACOs," said Sally Pipes, president and CEO at Pacific Research Institute. "I think they're the next reincarnation of the HMO (health management organization), which really failed the American people in the early 1990s, because the incentive is wrong. It's not about patient care; it's about reducing cost."

Pipes notes that 16 of the original 32 Pioneer ACOs dropped out of the program.

And providers within ACOs who have focused on "low-hanging fruit," looking for places to cut costs instead of ways to better manage patient care, will not see long-term cost savings results. Robert Bonhag, founder and chairman at Deming Metrics Institute, notes that ACOs were founded upon the same principles by which Geisinger Health System operates--not surprising, considering Glenn Steele, Jr., the president and CEO at Geisinger, presented a model for ACO implementation in 2011 that heavily influenced the CMS approach.

"ACOs were based upon how we can get a provider incentivized to manage a patient,'' says Bonhag. "So you've got to try to change your practice pattern, get your care managers in line with you to actually hand-hold your patients through and manage their illness."

Many see the current ACO models as the first steps of a longer journey--a learning experience, in other words, and an opportunity to tweak and understand what works and what doesn't.

"I think ACOs have the potential to drive improvements in quality, patient experience and affordability, but the potential has not yet been realized," says Bill Kramer, executive director for national health policy at the Pacific Business Group on Health.

He notes that shared savings models have shown some success, but primarily, "they provide the opportunity to test a variety of models, and they have encouraged a range of provider systems to embark on the ACO path, ranging from those that are the most well-developed and able to take on greater accountability to those that are just getting started."


According to the 2015 Kaiser Employer Health Benefits Survey, and many other sources, the answer is a resounding "no." Kaiser found that Americans pay an average of $89 a month in health insurance premiums and $1,318 out of pocket per year--10 years ago, the annual out-of-pocket cost was $584.

There are opportunities for some patients with chronic conditions to better manage their own care and thus save themselves--and their care providers and insurance carrier--some cash.

Searfoss mentions private insurance carrier programs where diabetic patients who reach certain markers, such as attending all of their medical appointments and maintaining an appropriate A1C level, could "earn" their diabetes management supplies for the year instead of having to pay for them out-of-pocket. "We know how to motivate patients," she says, "but what if you can motivate patients for the right thing, and motivate them for compliance in a way that providers can't?"


Part of the original opposition to PPACA involved objections to potential consolidation in the industry on both the health insurance carrier and the health care provider side. To be effective, an ACO requires high-touch communication between sometimes disparate health care providers. That's much easier when those providers are part of a single network. And the Cigna-Anthem and Aetna-Humana deals only exacerbate consolidation concerns.

Amodeo says another concern was that by allowing health care providers to coordinate for patient care, those providers could be given leverage to negotiate lower rates with carriers, resulting in cost increases for both health insurance coverage and health care services.

"Then came the exchanges, which I think have acted as a counterbalance to that," he says. "Now that there are more potential insureds out there purchasing insurance, the insurance carriers--depending on how successful their products have been and the risk distribution of the population--have been able to counterbalance that leverage primarily by paying lower reimbursement rates for providers in exchange for access to greater numbers of patients."

Marketplace options are one pathway to affordability, notes Pipes, who says that consolidation is "going to lead to less competition and higher prices.

"Our health care system definitely needs some changes to become more affordable," she adds, "but that's not done by controlling how health care is provided; it's done by giving people options in the marketplace."


There's another type of ACO on the horizon; CMS is currently in the midst of a two-year application round for its Next Generation ACO program, which CMS says will "allow these provider groups to assume higher levels of financial risk and reward" than are currently available. Amodeo says that he believes "this new NGACO is a culmination of the refinements" that CMS has made to its Pioneer and MSSP experiments.

And the NGACO includes elements that focus less on historical performance and more on current performance, he adds. "They will reward providers who are more efficient at managing care, as opposed to those who are able to pick the low-hanging fruit."

Kramer describes the NGACOs as a "step forward," but adds that in general, the CMS ACOs are constrained in ways that payers are not.

"The Medicare ACOs are still limited by the underlying Medicare legislation, which limits the ability for patients to choose to exclusively use an ACO and also limits what can be done with regard to benefit redesign," he says. "We need to get to a place where there's a global payment model, not a shared savings model, and we need flexibility in benefit design to encourage improved health and use of health care services."


Bonhag thinks there's room for benefits brokers and administrators as advocates of sorts, ensuring that health benefits carriers are working to manage patients and not simply cut costs. "They could push back against the carriers and say, 'I want to make sure this person gets calls every day or every three days,' be the intermediary to really push the insurer to do what's right," he says. "The insurer is going to try to minimize costs."

Searfoss predicts that brokers can expect to see large employers asking to contract directly with providers instead of working through a health plan. "That's where you're beginning to see more creativity and experimentation," she says, and 2016 is the year to experiment.

And specialists could be an appropriate "hub" around which care can be coordinated and managed. For example, she says, "one area where podiatrists have a lot of chronic problems, especially with worker's compensation, is in the postal service." Could the U.S. Postal Service, or possibly FedEx or UPS, contract directly with podiatrists to implement injury prevention and chronic disease management for workers? And who would help facilitate those discussions?

There are opportunities, too, for self-funded employers who want to align with ACOs in order to drive down their plan costs. "An integrated delivery system can contract directly with a self-funded employer," explains Amodeo. "Sometimes, ACOs will introduce limited-network products where, if an employee chooses an ACO or health system provider, the out-of-pocket costs are less for the employee, and the ACO is able to share in savings with the self-funded employer."

This is beyond a bundled payment, which typically encompasses a single episode of care, he notes. "It's taking that bundle from one discrete service and expanding it to the entire range of health care services available," he said.

Those who understand how accountable care works--as well as which programs and providers yield high-quality results (and which ones don't)--can provide a new sort of connection between health care delivery and employers or individuals.

"I would encourage brokers to look more deeply into the delivery system and the provider networks that are being developed," advises Kramer, "and help their clients identify and choose high-performing provider networks.

"Some of the ACOs being developed by the insurance companies are not delivering significantly greater values," he adds. "The 'centers of excellence' that some insurers have developed are not particularly excellent. I would encourage brokers to become not just product sellers, but product makers."
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Author:Taufen, Amber
Publication:Benefits Selling
Date:Feb 1, 2016
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