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No Silver Bullet, but Promising: ACOs and the ACA

12.10.2015

Rocket and bar graphAccountable Care Organizations (ACOs) have been around for about a decade, but their growth appears to be accelerating. By 2020, more than 70 million Americans will be covered by ACOs, according to health care intelligence gatherers Leavitt Partners. That’s up from about 20 million today. As you might expect, the Affordable Care Act (ACA) is considered a key driver in their increasing popularity.

3 basic concepts

Flexible in structure, ACOs incorporate three basic concepts:

  1. They’re led by medical providers who emphasize primary care and are collectively accountable for the quality and cost of the care they provide — regardless of how rudimentary or complex.
  2. An ACO, in concert with payers, establishes and pays (from funds coming from payers) financial incentives to providers and/or provider groups to improve the quality of care and reduce total cost. For example, one incentive may be sharing the benefits of cost savings between payers and providers.
  3. Performance measurement is strong and increasingly sophisticated to facilitate and motivate improvement. The ACO may measure performance itself or engage an independent entity to do so. Payers, by analyzing claims data, also have a window into some performance metrics.


Approximately 750 ACOs exist today, according to Leavitt Partners. ACOs got a big boost from the ACA, which established a framework for their use by Medicare plans however, a minority of people covered by ACOs are Medicare beneficiaries. Several hundred ACOs don’t serve the Medicare population at all, though many serve both Medicare and non-Medicare beneficiaries.

High-deductible connection

Another ACA-related driver of ACO growth is the rapid acceptance of high-deductible health plans. As employees shoulder a growing portion of the cost of their health benefits, they move to the same side of the table as employers — adding momentum to the push for greater value. And with 2018’s scheduled imposition of the 40% “Cadillac” excise tax on health care plans exceeding certain value levels, the drive for cost containment is stronger than ever.

Many, if not most, health care insurers have begun offering ACO-based plans to private employers, typically as part of a PPO. This includes “the big ones” — Anthem, UnitedHealthcare, Humana, Aetna and Cigna.

For example, last year, Cigna unveiled “Cigna Collaborative Care,” a successor to its “Collaborative Accountable Care” offering. According to Cigna, its ACO-based provider contracts have cut emergency room visits in half and achieved “19% to 25% better compliance with diabetes measures.” But ACOs don’t always involve large medical groups. Indeed, Cigna reports that it’s starting ACO-based relationships with small physician practices.

Employers with enough clout in the medical community can bypass insurers and create their own ACO arrangements. That’s what Boeing did with several health care systems around Seattle last year. So far, however, Boeing doesn’t appear to have started a trend.

Evaluation criteria

Events may be unfolding precisely as architects of the ACO concept had hoped. More and more health care insurers and systems are competing on the basis of their ability to assume responsibility for patients’ overall health based on cost and quality of care.

Still, the incorporation of ACO elements into a health plan is no guarantee of value. Also, ACOs vary widely in structure. If your organization intends to start exploring the concept, here are some ACO-evaluation criteria to keep in mind:

Size. A well-managed, full-spectrum provider organization incorporating acute care and standard care elements can have an advantage in the integration of care.

Technology. Managing the health care of any given population requires up-to-date, if not cutting edge, IT to identify and manage high-risk patients.

Risk sharing. How much do provider groups stand to gain or lose under the arrangement? This requires a balancing act. On the one hand, it’s good for providers to have meaningful incentives to generate positive health outcomes and keep costs in check.

At the same time, if penalties for subpar performance are punitive, and an ACO incurs them, the ACO might take shortcuts elsewhere to recoup its financial losses. Expert guidance is generally needed to recognize a fair balance of risk and reward.

Fees. Often, ACO contracts with employers include fees to help defray some of the costs of coordinating medical care. The fees also fund the incentive pool used to reward providers that meet or exceed quality and cost control targets. Such costs may be well justified, but they should be competitive.

Already enrolled

As noted, ACO arrangements often are simply embedded in PPO plans. In fact, you may already be offering your employees such a plan without even knowing it. The health plan might not bandy about the ACO label, or it may use another name.

In any case, if you’re already gaining some experience with an ACO, you should still evaluate the plan to see whether it’s delivering adequate value. Basic questions to ask include:

  • Is our aggregate employee health status positive or negative?
  • What fees and bonuses are we paying?
  • Have we seen demonstrated cost savings from the plan?

Be sure to also determine how popular the ACO option is among the plan provider’s other employer clients. And inquire about what strategies the carrier has to expand and improve the ACO going forward.

Work in progress

If there were a silver bullet to tame upwardly spiraling health care costs and ensure steadily improving quality of care, it probably would have already been fired. But ACOs do show promise, and many health care industry observers urge patience. Although the ACO model has yet to fully accomplish all of its stated goals, it has made significant progress in health care delivery.

Present_RonQuestions about Accountable Care Organizations? 

Contact Ron Present, Partner and Health Care Industry Group Leader, at 314.983.1358 or rpresent@bswllc.com

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