ACOs: The Next Wave?

Accountable care organizations -- groups of different healthcare providers that share the responsibility of providing care to patients -- have produced mixed results in the few years they have been on the market, experts say. But companies are nonetheless beginning to gravitate toward them, according to a new survey.

By Carol Patton

Accountable care organizations have been around in some form for more than five years. So far, employer response to ACOs has been guarded mainly because their outcomes are mixed. Although some mature ACOs are delivering savings to their participants, others are still in their early stages of growth. Some employers have adopted a wait-and-see attitude toward the healthcare option. Others are diving in or simply testing the waters in certain markets, hopeful that ACOs can accomplish more than what managed care organizations and health maintenance organizations promised but failed to deliver.

According to a survey conducted in June of 148 national or global employers, by the National Business Group on Health, 21 percent of employers will actively promote or contract directly with ACOs next year, which is expected to double with another 26 percent interested in working with ACOs in 2019 and 2020.

"We've seen an enormous amount of activity in the commercial space over the last five years," says Molly Loftus, chief health actuary and ACO consulting leader at Mercer in Hartford, Conn. "Healthcare costs every year go up faster than regular inflation and it becomes a bigger burden for employers. Everyone is trying to figure out how [to] manage their healthcare spend."

HR professionals working directly with ACOs or accessing them through a traditional health insurance network need to review their financial and health outcomes reports and ask plenty of questions, she says. For instance, inquire about the types of fees your company will pay? What types of savings and outcomes are being generated? How? How much of provider compensation is tied to the delivery of care? What different quality metrics are being used to measure performance?

"ACOs are the next wave," Loftus says, "and have taken on such a life of their own that it's important for employers to educate themselves on what's happening."

While ACOs provide a legal framework for health plans and employers that's compliant with federal health regulations, successful ACOs encourage providers to cut costs through serious financial incentives, says Randy Schultz, an attorney and chair of the healthcare strategic business planning group at Lathrop Gage in Kansas City, Mo.

Incentives assume all shapes and sizes, Schultz says. For example, consider an ACO that keeps an employer's healthcare costs flat. In exchange, the ACO will keep all the savings it has generated.

"The employer focus shouldn't be 'Cut my costs way back,' but rather 'Stop the increase in my costs by ensuring that providers have a financial incentive to continue looking for ways to cut costs,' " Schultz says, adding that even a 5-percent savings on healthcare costs can be huge for large organizations. "Don't think you're going to save 20 percent and keep it. A smarter play is to save 5 percent and give 15 percent back to providers as an incentive to keep you at that 5-percent reduction."

However, the amount of bonuses awarded to ACOs is oftentimes low and rarely compensates for the high cost of developing an ACO infrastructure. He says some ACOs imploded because they couldn't afford to pay for administration, electronic medical records or analytical tools.

"As soon as ACOs started making money, everybody wanted a piece, including the payor source," Schultz says. "Margins were cut back so much that physicians had no incentives to jump through the hoops."

He says ACOs are needed because they give employers and health plans protections against violating federal laws while developing an internal infrastructure that creates a savings vehicle incentive. "An ACO is the package," he says, "not the engine underneath."

There appears to be so much waste in healthcare that no one needs to be greedy or stingy involving incentives. Still, there are other factors that can either launch an ACO's growth or place it in intensive care. Consider that primary care physicians need at least one-third of their patient panels in alternative payment models, says Brian Marcotte, president and CEO at the National Business Group on Health in Washington. 

Marcotte points to other best practices. For example, between 10 and 25 percent of physician compensation should also be at risk for clinical and financial outcomes, clinical guidelines must be embedded in electronic health records and the ACO's care model must integrate behavioral health with primary care, he says.

Since there are many mature and emerging ACOs in the market, the NBGH developed a free ACO toolkit for employers to help figure out each organization's value proposition. It includes the ACO journey map, which helps companies assess six critical competencies of ACOs, and an ACO scoring guide that provides instructions and a detailed definition of each competency

Meanwhile, Marcotte says, employers must also consider the ACO's strategies: How does it interpret risk-sharing? How does it transition physicians out of fee-for-service into alternative payment models? What do HR, the health plan and ACO expect from each other?

Within the next five years, Marcotte says he anticipates that 25 percent of ACOs will mature into either physician-based or hospital-based models and deliver a better employee experience.

"In healthcare, the only thing employers have seen is cost," Marcotte says. "We have to get to the point where we're seeing value, and that we're factoring in the experience of consumers in the model, the outcomes, as well as cost."

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