From The Editor | January 12, 2012

The ACO 'Guinea Pigs'

Ken Congdon, Editor In Chief of Health IT Outcomes

By Ken Congdon, editor in chief, Health IT Outcomes

On December 19, 2011, the Centers for Medicare and Medicaid Services (CMS) selected 32 healthcare systems to take part in the new Medicare Pioneer accountable care organization (ACO) initiative. 80 systems actually submitted formal applications to take part of the program. However, CMS selected its 32 finalists based on their accountable care experience and readiness, as well as their commitment to basing the majority of their annual revenues (by the end of 2013) on patient outcomes that involve shared savings and financial risk.

The 32 healthcare systems selected to participate in the ACO Pioneer program include: Allina Hospitals & Clinics, Atrius Health, Banner Health Network, Bellin-Thedacare Healthcare Partners, Beth Israel Deaconess Physician Organization, Bronx Accountable Healthcare Network (BAHN), Brown & Toland Physicians, Dartmouth-Hitchcock ACO, Eastern Maine Healthcare System, Fairview Health Systems, Franciscan Alliance, Genesys PHO, Healthcare Partners Medical Group, Healthcare Partners of Nevada, Heritage California ACO, JSA Medical Group, Michigan Pioneer ACO, Monarch HealthCare, Mount Auburn Cambridge Independent Practice Association (MACIPA), North Texas ACO, OSF Healthcare System, Park Nicollet Health Services, Partners Healthcare, Physician Health Partners, Presbyterian Healthcare Services-Central New Mexico Pioneer ACO, Primecare Medical Network, Renaissance Medical Management Company, Seton Health Alliance, Sharp Healthcare System, Steward Health Care System, TriHealth Inc. and University of Michigan.

ACO Pioneers: The Risks & Rewards
The ACO Pioneer program began on January 1, 2012, and hopes are this effort will prove the accountable care concept. Proponents believe ACOs have the potential to lower costs while improving accountability and quality by transforming the organization and delivery of healthcare. In fact, the Department of Health and Human Services estimates that $1.1 billion in savings could be realized from the ACO model.

ACO Pioneers have the opportunity to be the first to realize these savings and benefit from this new payment structure. However, like any pioneer, they also assume a great deal of risk — the first of which is financial risk. While CMS offers five Pioneer payment options, all of them involve a risky bonus/loss structure after the second year of the program. Furthermore, CMS can choose to terminate contracts with healthcare systems that do not average at least 2% savings over the first two years of the program. In short, if a member of the ACO Pioneer program doesn’t perform well, it can significantly damage the revenue and profitability of the system.

Pioneer ACOs will also face several structural challenges while operating under the CMS rules for ACOs. For example, Medicare ACOs can only rely on their systems of patient care to lower costs and improve quality. They are not allowed to leverage standard beneficiary managed care tools such as prior authorization, limited provider networks, or cost-sharing differentials. This will likely alter many Pioneer ACOs current practices and processes, creating an inevitable learning curve.

CMS and the health systems selected to participate in the Pioneer program should be commended for their ACO efforts to date. But, make no mistake about it, there is a lot at stake here and the entire industry will be scrutinizing the results of the initiative. The ACO Pioneer program will be instrumental at demonstrating whether the ACO concept is viable or a pipe dream. Pioneer ACOs are the best chance to prove the ACO concept once and for all. They represent the facilities that are best prepared to operate in an ACO environment (e.g. they have a pre-existing ACO-like infrastructure and significant financial resources). If Pioneer ACOs fail, then less capable healthcare organizations will certainly not find success with the ACO model. Even if Pioneer ACOs succeed, questions will remain as to whether the rest of the healthcare industry can feasibly establish ACOs in a timely manner and without going bankrupt in the process. Hopefully, the Pioneer program provides the industry with a blueprint that allows it to accomplish just that.