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Accountable Care Organizations Grow, But Face New Challenges

Accountable care organizations have become a staple of value-based care, but the organizations now face different challenges, such as cultural change and contract management.

An industry expert explores why accountable care organizations are growing and the new challenges they face as the model matures

Source: Thinkstock

By Jacqueline LaPointe

- Since the Affordable Care Act paved the way for accountable care organizations (ACOs) in 2010, healthcare providers have increasingly turned to the alternative payment model as a way to engage in value-based care across patient populations.

In just seven years since the act, the healthcare industry has seen the number of ACOs grow from just 61 in 2011 to 923 ACOs by the first quarter of 2017, a recent Health Affairs blogpost revealed.

In the past year alone, the number of ACOs operating rose 11 percent and the volume of ACO contracts in place grew by about 13.8 percent.

As a result, more than 10 percent of the population belonged under an ACO contract by the start of 2017.

David Muhlestein, Chief Research Officer at Leavitt Partners, discusses accountable care organization growth and challenges.
Source: Leavitt Partners

READ MORE: Core Competencies for Accountable Care Organization Development

David Muhlestein, PhD, JD, Chief Research Officer at Leavitt Partners and co-author of the Health Affairs blogpost, explained that the ACO’s maturity as an alternative payment model is the primary driver for its recent growth.

“We are really five years into the ACO movement in which they have been actively paying providers under these payment models,” he recently told “There has been more time to grow. These organizations that have been engaged for a long time have a better sense of what their opportunities are and what their challenges are. They have a chance to start to expand the number of contracts that they are entering.”

ACOs have had a head start compared to other alternative payment models, such as bundled payment arrangements like Medicare’s Comprehensive Care for Joint Replacement Model from 2015 and disease-specific structures like the CMS-run Oncology Care Model from 2016.

Despite the alternative payment model’s maturity, Muhlestein pointed out that ACOs still face a number of challenges, especially regarding organizational transformation, downside financial risk, health IT implementation, and contract management of multiple ACO deals.

Inspiring organizational transformation across the ACO

When healthcare providers partner to develop an ACO, leaders should align each facility’s culture with the ACO’s value-based care delivery and reimbursement goals, he suggested. The organizational change needed includes implementing a new cultural approach to managing patients as well as modifications to existing processes and systems.

READ MORE: How Pioneer ACOs Earn Shared Savings, Improve Care Quality

“The organizations that have been successful have a way of inspiring people and helping them want to practice medicine differently,” he said. “Changing the protocols and procedures that they are using to engage with their patients to in turn manage an entire population is key. That is the first part of it.”

While ACO participation is voluntary by hospital or practice, earning provider buy-in with organizational transformation is not always easy when providers have been practicing fee-for-service medicine for decades.

“What you have to have is buy in, but effectively getting buy in is hard.”

READ MORE: Understanding the Value-Based Reimbursement Model Landscape

Without provider buy-in, ACO success may be in jeopardy, a 2016 American Journal of Managed Care study indicated. The early experience of a non-risk bearing Medicare Shared Savings Program ACO revealed that limited provider engagement acted as a barrier to achieving ACO goals because providers were not motivated to participate in care transformations necessary for the model.

“What you have to have is buy in, but effectively getting buy in is hard,” Muhlestein stated. “It’s always been hard to inspire or change people or do anything in this regard. In healthcare, it’s not different.”

Generating provider buy-in for ACO transformation has been particularly difficult for healthcare because of the uncertainty of its business case, he added. While the ACO model is mature compared to other alternative payment models, value-based care and reimbursement is still a new initiative for many providers.

A recent Physicians Practice survey found that 46 percent of providers and healthcare leaders are still uncertain about how value-based reimbursement will impact their revenue.

Another MGMA poll from 2017 also found that about one-half of healthcare professionals were split on whether their organization’s physicians feel positively or negatively about value-based reimbursement.

About 40 percent also said their physicians view the shift away from fee-for-service payments as negative.

“When changing the organization culturally, you also have to figure out how you make the business case that it really makes sense to make these investments and change,” Muhlestein explained. “There are some organizations that have done it, but very few have successfully made that mental shift to this point.”

“They are in a financial dilemma where…the future that is going to come at some point but isn’t going to be this year and is not going to be next year.”

The shift to value-based reimbursement is also more of a journey than an overnight achievement, which may cause providers to pause before backing care transformations in favor of just the new model.

“Fee-for-service has been really good for a really long time for a lot of these organizations,” he added. “They need to recognize that times will change. But times haven’t changed yet. So, they are in a financial dilemma where the financial business case is the same for fee-for-service, to maximize revenue, while at the same time preparing for the future that is going to come at some point but isn’t going to be this year and is not going to be next year.”

Some ACOs have attempted to inspire organizational change by offering financial incentives to providers for participating in care transformations or value-based care delivery. About 39 percent of provider compensation offers across healthcare organizations in 2017 included a production bonus tied to quality metrics, a recent Merritt Hawkins survey uncovered.

While the share of provider compensation bonuses linked to value-based metrics increased from just 32 percent in the previous year and 23 percent in 2015, Muhlestein suggested that provider incentives cannot replace organizational transformation.

“Can that help? Yes, it can help,” he said. “But it is more than just paying somebody to achieve the results. It is really trying to get them to mentally say, ‘Yes, I want to practice differently.’ Financial models help and organizations are certainly doing that, but it’s not sufficient to make the transformation that’s really necessary within that organization.”

To effectively inspire organizational change that aligns with ACO goals, he advised organizations to assume downside financial risk. Under a risk-based reimbursement structure, ACOs have the business case to convince providers that care delivery changes are necessary for financial success.

Assuming downside financial risk key to developing ACO

Taking on downside financial risk may be a key to ACO success, but very few ACOs have matured from upside-only risk structures. A 2016 Leavitt Partners study showed that 61 percent of ACO contracts only include upside financial risk provisions.

“One reason that a lot of them have not moved to downside risk is that they are not being required to do it, so they have flexibility,” Muhlestein explained. “If you could take risk or not take risk, you would probably rather not take it.”

“Effectively creating the infrastructure to manage a population is not something you do in a year.”

He also stated that ACOs may be risk-adverse or still experimenting with financial risk because they have not been in operation long enough to confidently put ACO revenue on the line in the face of shaky population health management strategies.

“Effectively creating the infrastructure to manage a population is not something you do in a year,” he stated. “It takes multiple years. A lot of these entities are two or three or four years into the program, where they are starting to see what works and what doesn’t work. They are starting to get a sense of what their capabilities are with their performance.”

A crucial component to developing the appropriate infrastructure for understanding how to operate in risk-based contracts is moving beyond the EHR system to more population health management solutions.

“EHRs are not very good for looking at a population,” he remarked. “There are other platforms that are better at saying, ‘What’s really going on? What’s going on across all of our diabetics? Where’s this opportunity to improve our heart failure patients?’”

“That’s the next area. They are moving beyond the EHR. But they are certainly not as far as they know they need to be.”

ACOs that have reached that next area of health IT development have started to integrate more advanced technology use into their routine provider workflows.

“They have not just adopted technology, but they have embraced it,” he stated. “More specifically, effectively integrated into their workflows.”

“They have not just adopted technology, but they have embraced it.”

Incorporating health IT use in provider workflows has helped mature ACOs get the right data to the right people at the right time.

“They have figured out things that work for their own organization to get the data that their providers need in a meaningful format at the right time and appropriate time,” he elaborated. “IT allows them to make changes and try to change what’s going on with the delivery of care.”

With convenient health data access and exchange, ACOs should be able to see whether they are effectively managing populations under risk-based contracts. But leaders should anticipate their comfort levels with population health management and financial risk to come with time.

Once ACOs understand how their population health management strategies would translate to financial benefits, leaders usually shift a majority of contracts to downside financial risk.

“What we tend to see is that when ACOs move toward risk, they try to move all of their contracts toward risk,” Muhlestein shared. “That’s because once they feel comfortable knowing how to manage a population, and they think they are going to be successful at it, the more risk they can take, the better off they are financially.”

“Once you are comfortable it just makes financial sense,” he continued.

Alignment critical to managing multiple ACO contracts

With organizations engaging in contracts with multiple payers, aligning ACO contracts as much as possible is crucial to financial success, Muhlestein stated.

Entering multiple ACO contracts allows organizations to expand their value-based care delivery models to a greater number of patients.

“What they are now doing is putting more of their lives under risk, which allows them to make a decision to put additional resources toward those lives,” he said. “When an organization starts to make changes, certain changes affect every patient, no matter if they’re fee-for-service or in an ACO. But other benefits, such as finding care coordinators for those patients usually doesn’t happen until they start to be part of the ACO or that life or that person is being covered under that contract.”

“When you increase the number of contracts, you can expand some of your programs and really increase the number of people being treated or receiving some of those benefits or some of those services.”

However, differing quality metrics that impact ACO payments can be an administrative nightmare for organizations engaging in multiple contracts.

“We have spoken to ACOs that have 200 different quality measures that they are tracking, but they are really only covering the same 30 measures.”

“One thing that they can do is try to align their contracts to the point that they are not just administratively being swamped,” he explained. “A big part of this is quality metrics.”

For example, assessing A1C levels is a popular measure to evaluate care delivery for diabetic patient populations, but every payer may have different requirements for reporting and evaluating A1C levels.

“A1C levels for diabetics are a very common quality metric where you are trying to manage and see if people are keeping their blood sugar in an appropriate range over the long term,” he elaborated. “There are a hundred different ways that you could incorporate a diabetic blood measure into a population based payment.”

“If you align it so that you are using the same quality measures and you are tracking them in the same way that is consistent, that makes a huge difference and just reduces your administrative complexity,” he continued. “We have spoken to ACOs that have 200 different quality measures that they are tracking, but they are really only covering the same 30 measures, just doing it in lots of different ways.”

As ACOs grow and enter additional contracts, the alternative payment model continues to be a clear pathway to value-based care. But the path is not always smooth.

The federal government and private payers are still attempting to find the right combination of financial incentives and care delivery standards to shift all payments to value-based reimbursements. With ACOs leading the way, leaders should regularly reflect on successes and challenges with the alternative payment model to achieve financial and clinical success.


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