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Why Has ACO Growth Slowed?



October 31st, 2013

Both public and private organizations have been aggressively pursuing Accountable Care Organizations (ACOs) as a way to improve health care outcomes, lower health care costs and improve patient satisfaction with care.  With substantive industry interest and popular media coverage, the success or failure of ACOs at achieving their goals has significant implications for the American health care system.

I lead a team that is actively tracking, studying and interviewing organizations that are engaged in a variety of accountable care contracts.  We estimate that the number of ACOs has grown from a few dozen at the end of 2010 to nearly 500 as of the end of September 2013.  After significant growth through the end of January of this year, only 35 new ACOs have been announced (see Chart 1).

Coupled with the slower growth in the total number of ACOs, there has been slower growth in the number of lives covered by ACO arrangements.  We estimate an increase of less than 3 million covered lives in all of 2013, from 17.4 million lives in December 2012 to 20.1 million through the end of September (see Chart 2), and that includes the 106 CMS ACOs announced in January.  This recent slowed growth has raised the question of what this means for the accountable care movement.

Chart 1: Total Number of ACOs over Time; Source: Leavitt Partners Center for Accountable Care Intelligence

Muhlestein-Table-1

Chart 2: Estimated Number of Lives Covered by ACO Contracts; Source: Leavitt Partners Center for Accountable Care Intelligence

Muhlestein-Table-2

After such rapid initial growth in terms of the number of ACOs and the number of covered lives, this significant decrease in growth is surprising.  What’s more important than the reasons for the slowdown, though, is whether this recent trend will continue.  Based on our ongoing study of ACOs, including interviews with current ACOs and ACOs in development, I’ll present three reasons contributing to this slow growth and a cautionary note on the trend moving forward.

Understanding ACO Motivation

Initially, it’s important to understand some of the reasons that providers are accepting ACO contracts.  Some common reasons many current ACOs have cited include (1) organizations wanting to be at the forefront of changing the health care system and (2) those that see the movement toward providers bearing risk as inevitable and are simply trying to prepare for risk-based payments before they are forced into it by outside pressures.  In both cases, these organizations are willing to take a step into the unknown and experiment with unproven models of managing a population’s health.  These organizations, which are at the forefront of care coordination and population management, we refer to as “trailblazers” or, employing on Diffusion of Innovations nomenclature, “innovators.”  Trailblazer organizations are those that experiment with provider risk but have no guarantee that they, or anyone else, will find an approach that will actually accomplish the goals of ACOs.

Reason 1: Tapped Out Market for Trailblazers

A major reason for the recent slowed growth of ACOs is that there are not very many trailblazer organizations left that are ready and willing to adopt accountable care contracts that have not already done so.  Many of the most advanced provider organizations in the country are involved in one type of public (Medicare or Medicaid) or private (with a commercial payer) ACO contract.  Those that haven’t yet started down the accountable care path are content to let others figure out how to successfully manage risk for a population.

Reason 2: No Proven Model to Follow

A second group of organizations that are investigating accountable care see the wholesale movement to accountable care as likely, but differ in one important regard from the trailblazers: they are not, yet, willing to make the transition to accountable care or accept risk.  They are, though, willing to start making steps to prepare to move toward accountable care in the future, such as, for example, by preemptively hiring care coordinators.  These organizations, which we refer to as “followers” are waiting for a proven model to follow.  They are not opposed to accepting risk, but until they see a viable pathway to follow, they are content to wait patiently on the sidelines.

Reason 3: Payer Delays

A third, smaller reason, for slowed growth is the reluctance of payers to offer accountable care contracts.  CMS has moved to a yearly entrance schedule for the Medicare Shared Savings Program consolidating the announcement of these ACOs.  Also, existing ACOs have reported that in some markets there may be only one or two payers that are currently willing to enter into risk-bearing contracts.  While this doesn’t change the number of ACOs, this acts as a significant barrier for existing ACOs that want to expand their number of covered lives.

Future Growth

Of these three reasons, the second is, far and away, the most important.  Non-ACOs represent the majority of physicians, physician groups and hospitals in the country.  For those preparing to become ACOs, when there is not a financial imperative to adopt risk-based payments now, there is a strong incentive to wait for other organizations to blaze a pathway that shows how to accomplish the goals of accountable care. Effectively, it allows existing ACOs to make (sometimes costly) mistakes for the developing ACOs to avoid.

What, then, are these organizations waiting for?  While there is some work that evaluates initial ACOs and their approaches to managing a patient population, much less is known about whether these approaches are effective at managing risk and saving money.  There were the Pioneer ACO results, but they were inconclusive at best and did not explain what ACOs were doing to effectively (or not effectively) manage their patient populations.  Other organizations which have shared their results typically share only those where they succeed (such as by lowering emergency department use) but neglect to share all outcomes (such as whether they saw overall savings).

What, then, is an indicator that potential ACOs will use as to whether current ACOs are successful?  The most important bellwether is the renewal rate of existing ACO contracts.  If organizations are able to realize enough savings that they can remain with their ACO contract, then that is a strong indication to potential ACOs that a viable model exists that can be emulated.  Looking back to the Pioneer ACOs, of the 32 organizations, 30 stayed in the Pioneer ACO program or transitioned to the Medicare Shared Savings Program.  Providers from the two organizations that completely exited the Medicare programs still have non-Medicare ACO contracts.  So, while these organizations left a specific payment arrangement, they continue to be involved in accountable care.  This initial high rate of renewal does provide optimism for the future of the ACO movement.

Going forward, this rate of renewal will be a strong indicator of whether potential ACOs will become actual ACOs.  The next 6-12 months, in particular, will be very important as ACOs that have been operational for 1-2 years will have the opportunity to renew or cancel their contracts.  If the vast majority (>95%) of ACOs renew their contracts, expect the growth of ACOs to begin again in earnest as the follower organizations begin to choose successful models to emulate.  If a high number of ACOs fail to renew their contracts, the recent slowdown of the increase in ACO lives is unlikely to be temporary and future growth will be weak, if it continues at all.

The future of the ACO movement has moved, for the moment, from the policymakers’ hands and rests with the providers implementing the practical side of accountable care.

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6 Responses to “Why Has ACO Growth Slowed?”

  1. walter kopp Says:

    Great article. I still hope that ACO’s have value and that they will get providers to focus on the issues Jeff raises about the real problems: serious quality/performance defects, terrible care co-ordination and inequities in access to care. My question is who will be the winners and losers in this plan. I had thought that DeVita’s purchase of Healthcare Partners would herald a movement to ACO’s and that they had figured out how to make money on this. My hope has been that they will go into the most inefficient, poor quality, wasteful, high cost areas, like McAllen Tx Now it appears that with all of the purchases of medical groups by hospitals we are seeing strong local market dominance that is keeping savings within communities. This is not bad if they get at the waste and drive efficiency, but it appears that this will be more elusive than we have hoped. We need disrupters in the markets that will encourage change. We must get at 30-40% drop in current costs to achieve the goals of reducing costs and get our GDP for healthcare expenditures near what the next most inefficient country has achieved.

  2. Wes Rishel Says:

    Jeff, your comments seem to assume that a major reengineering of healthcare processes should produce substantial year 1 ROI. Many ACOs, particularly those contracted with private payers, show significantly better results for the patients and physicians that are in the second year of operation. No one would say that the ability of ACOs to bend the cost curve has been disproved. This is particularly true since the cost curve has recently been bent by loss of access by the unemployed. We cannot count on that particular bend going on forever.

  3. Brian Silverstein, MD Says:

    This is a very interesting article and makes a number of relevant points. That being said, about half of the ACOs are from Medicare and there are some time frame facts that account for the number of ACOs. The growth in 2012 was due to the Medicare ACOs announced on 4/10/12, 7/9/12 and 1/10/13. Medicare is now on an annual cycle so although there have been no announcements yet in 2013, that is what would be expected. It is likely that when Medicare does announce the 2014 class, it will result in a dramatic change in the number of ACOs and lives managed.

    It is also likely that commercial ACOs are following insurance enrollment cycles where a majority of them occur around the calendar year. Stay tuned for the 2014 numbers and when we look at this as a year over year growth we may see a different story.

  4. Michael Millenson Says:

    Jeff, while I respect your financial critique, I’m puzzled by the “real problems” part. Inequities in access to care? The most serious inequities are not within the Medicare program, and ACOs were not designed to address that. You might want to talk to your Republican friends. Quality/performance? You’re singing my song, but why don’t you think the provisions laid out at great length in the ACO final rule are inadequate? The ACO folks I talk to seem to be embracing care coordination and quality improvement. Even if, per your financial calculations, they should sit back and count their fee-for-service money a while longer. Michael

  5. MBarbouche Says:

    David-

    Thanks for a very timely piece. The data you present is very intriguing…# ACOs does not correlate in a linear fashion to ACO lives covered. With the super-aggregation of health systems, and by extension, patients managed by these health systems, something will have to give soon.

    I’d offer a friendly “Reason 4″ for the decline in growth: Lack of Data Flow. Just because the health system has installed an EHR, built a data warehouse, participated in numerous incentive programs, and caught a quick nap a couple weekends ago doesn’t mean the system has the data necessary to model new risk relationships, new care delivery approaches, or internal staffing scenarios. Heck, most systems we encounter are still trying to count the number of patients they are now managing…

    The health plans and the health systems need that data to begin flowing. The precious clinical result data, in particular, needs to be recognized as the greatest asset of the practice. That asset needs to be realized–quickly.

    Michael Barbouche
    Founder/CEO
    Forward Health Group, Inc.
    http://www.forwardhealthgroup.com

  6. Jeff Goldsmith Says:

    This is not a mystery. It’s a bad investment to set them up. The Pioneers saved a little over $80 million in their first year. CMS has not released enough information to evaluate ROI, but the Pioneers probably spent between $150 and $200 milliion on consulting and systems and countless hours filling out forms, checking boxes and attending conferences and meetings. CMS needs to be more transparent about its Shared Savings demos, so the broader community can understand what’s going on with them. Press releases don’t get the job done.

    ACO’s also solve the wrong problem. The cost curve is already bent. The spending rate for Medicare in the Pioneers first year: 0.8%, hardly a burning platform. Reducing it by 0.5% is not worth spending all the money setting them up. Most hospitals and physicians are seeing negative cash flow right now. Let’s spend our energy solving the real problems: serious quality/performance defects, terrible care co-ordination and inequities in access to care.

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