Ask the Expert: Former CMS Head Breaks Down ACO Lessons to Date

Mark B. McClellan
Mark B. McClellan Former Brookings Expert, Director, Margolis Center for Health Policy - Duke University

July 24, 2014

A new approach to delivering — and paying for — health care made its debut three years ago and has been picking up steam ever since. Accountable care organizations (ACOs) are growing rapidly nationwide, offering the promise of coordinated patient care at a lower cost.

Yet, making the transition away from operating as a single, discrete practice unit according to a fee-for-service payment model can, admittedly, be difficult. Created as part of the Patient Protection and Affordable Care Act, ACOs are drawing close scrutiny from many different stakeholders.

Mark McClellan, M.D., Ph.D., recently discussed with AAFP News some early returns on ACOs, including the fact that many physician-led groups are moving to the new payment model. A former administrator of CMS, McClellan now serves as director of the Health Care Innovation and Value Initiative at the Brookings Institution in Washington.

Q: Are ACOs just a repackaged version of HMOs from the 1990s?

A: No, they are different. First, the ACOs directly involve clinicians in accountability for a population of patients rather than simply relying on the health plan. Second, in contrast with the cost-control approach of many managed care plans in the 1990s, there are now more effective tools to do clinical management and handle some form of capitation-based payments.

Q: How does a physician practice make the transition to an ACO?

A: It’s a shift from the fee-for-service model whereby the practice starts to take on the overall financial risk for their patients. This means their approach to care has to change to reduce costs, but it also means they have new resources to make those changes financially sustainable.

Access to physicians or nurses in the practice should increase, ideally, to have 24/7 staffing to help avoid costly complications and avoidable admissions. A patient registry of individuals with chronic diseases or risk factors can help identify where and how to intervene. These are the types of things that, under a fee-for-service payment system, you don’t get paid for, but in an ACO model, you can.

Q: How would you characterize the growth in ACOs to date and into the future?

A: I think accountable care will continue to grow, including payments that are tied more directly to results and that give clinicians more flexibility in how they deliver care. Many ACOs are integrated organizations like Health Care Partners, Monarch HealthCare and the University of Michigan.

But recently, there has been more growth in smaller ACOs led by physician groups, often primary care (physicians). These ACOs may consist of 20 to 30 doctors and are not affiliated with a hospital. They are still physician-owned, but they may be jointly financed by other co-investing organizations, like health plans or practice management programs, that also share in the savings.

Q: Can smaller physician groups be successful within the ACO model?

A: There are some promising ACOs made up of small practices. Some of these practices formed an ACO in a way that builds upon the traditional IPA (independent practice association) model. One of the advantages of the newer, physician-led ACOs is that they have clearer financial benefits to the physicians when they are able to reduce costs.

In contrast to traditional fee-for-service payment, in a physician ACO, when the group takes steps to reduce outpatient visits or hospital visits, they capture the savings. For hospital-affiliated ACOs, some of those savings are offset by reduced payments to the hospital.

There is new, hard work that needs to be done in terms of tracking patients. It’s not just about insurance claims. These smaller ACOs are collaborating on population health management tools and information technology tools. You do need technology infrastructure to support specific changes in care to improve outcomes for your patient.

Q: Can ACOs with no hospital affiliation succeed?

A: Yes. Some of these ACOs are achieving impressive early results, and a lot of physician-led groups are more comfortable taking on population risks. Our research indicates that physician-led ACOs do not have to have a huge impact on care to succeed. For example, a physician-led ACO that reduces hospital visits by 1 percent to 2 percent can double the net revenues for its physicians. It’s a very promising opportunity. A lot of physician groups are interested, and we’re learning more about what it takes to succeed.

Q: What’s an average timeline for an ACO to be declared successful?

A: For those that do succeed, it’s likely to be a marathon and not a sprint. Some ACOs are already reporting gains in terms of improved quality of care, care coordination and cost reduction through steps like better management of high-risk patients and modifying referral and admission patterns. Other steps may take longer. For diabetes management, it could take about 12 to 24 months for improvements in care to translate into significant cost savings. With congestive heart failure, it can happen sooner.

As clinicians in ACOs get more experienced and comfortable with coordinating care and managing a patient’s overall care experience, it’s likely that they will want to implement additional payment reforms to move away from fee-for-service, which, in turn, means more resources for innovative approaches to care.

Q: Overall, how is the first wave of ACOs doing in enhancing quality and reducing costs?

A: In general, the ACOs are doing pretty well in terms of quality of care and improving on important quality measures. Financially, about half of the 114 ACOs participating in the Medicare Shared Savings Program reported that they reduced Medicare spending in their first year of operation.

About 29 percent of physician-led ACOs and 20 percent of hospital ACOs demonstrated large enough savings to qualify for the shared-savings payments. Some private-sector ACOs, like the Alternative Quality Contract developed by Massachusetts Blue Cross, show growing effects on costs over time. It’s likely to be the case that some ACOs won’t succeed and others will.

Q: How do the shared-savings models used by Medicare today compare with ACOs in terms of moving away from fee-for-service?

A: Many private-sector ACO plans and some Medicaid programs are offering bigger shifts away from fee-for-service. As ACOs gain more experience, I think these payment reforms will be more attractive. In addition, some private-sector health plans are including financial and other incentives to attract patients. They might offer discounted premiums or copay discounts for patients who stay engaged with their ACO. In other words, the patients can share in the savings, too. As care continues to get more individualized, patient engagement in the ACO initiatives will be increasingly important.