Editor’s note: This post was authored by Madeleine Phipps-Taylor on behalf of the West Coast Harkness Policy Forum

There are currently over 740 commercial, Medicare, and Medicaid accountable care organization (ACO) contracts operating in the U.S. This new health care contracting mechanism has grown rapidly over the last three years, and yet the future of the model is by no means secured. Across the U.S. there have been rumblings about the model’s financial attractiveness, complexity, and impact.

At what seems to be a moment of reflection—as the new Centers for Medicare and Medicaid Services (CMS) rules for ACOs are finalized—we wanted to consider how much momentum has been gathered and whether the movement is going to reach a tipping point, after which ACOs will become a permanent fixture in the health care landscape.

Accountable Care Organizations are groups of providers who take on contractual responsibility for the cost and quality of care for a defined population. These structures were first codified in the Affordable Care Act of 2010, but have spread from Medicare and Medicaid to commercial payers, too. Generally the goal of ACOs is to achieve the Triple Aim of improved outcomes and higher patient satisfaction at reduced cost. Quality of care is gauged through a series of outcome and process measures such as the rate of flu vaccinations or a patients’ reported health status.

Typically, additional payments (above and beyond the usual fee-for-service reimbursements) are linked to an ACO’s performance against these measures and are calculated as a proportion of the difference between a benchmark cost per patient and what the ACO actually billed Medicare. While it is still early days, the model is showing positive results, with a 1.2 percent reduction in cost in the first year of the Pioneer ACO program relative to a comparison group, and a savings per beneficiary of $427 in 2012, and $134 in 2013.

To understand the perceptions of the current ACO trajectory, we posed a simple question to a roomful of eminent health policy researchers and health executives from around the San Francisco Bay area: in the current environment which is the most likely scenario for the future of ACOs?

  1. All-out success and the best thing to happen to medicine since the discovery of penicillin?
  2. “Bobbing along” with a thousand weeds blooming alongside a thousand flowers? or,
  3. Catastrophic failure?

The answer across the room was clear: we are currently “bobbing along,” whereas most were hoping the movement would be heading for an all-out success.

The main reason given by those present for “bobbing along” was the tension of moving to a population health model while still operating in a fee-for-service world. The addictive pull of predictable and timely fee-for-service incentives was too great for all but the very best providers to overcome. New ACOs may realize early wins, but at the provider level it still does not make sense to invest money and effort in longer-term, more transformative work. The risk of integrating care without further alignment of financial incentives is simply too high.

Our experts’ views seem to stand in contrast to those of public officials, who are attempting to increase the momentum of the ACO movement. For example:

  • In January, Health and Human Services Secretary Sylvia Mathews Burwell announced The Centers for Medicare and Medicaid Services’ (CMS) ambition for 50 percent of traditional Medicare payments to be tied to quality and value through alternative value-based contracts by 2018, with ACOs being a principal vehicle for this shift.
  • The newly passed Sustainable Growth Rate Repeal and Medicare Provider Payment Modernization Act 2015 (otherwise known as the “doc fix”) will differentiate payment rates for physicians based on whether they are in an ACO or not. The difference would be substantial by the end of the decade and would certainly encourage some of the late adopters to join the ACO party.
  • Work still continues in Washington DC and within states to harmonize quality metrics among payers to reduce frustration for physicians and staff trying hard to hit the targets under alternative payment models (for example, should diabetics have hemoglobin levels below seven or eight for a given patient’s plan?).

But even these federal and state efforts may not be enough to reach the tipping point of no return. No one believes there is a silver bullet to fix all the problems of a fragmented and hugely expensive health care industry. Yet the last three years alone have shown there is certainly no lack of creativity in finding solutions. The level of innovation and pace of change over the last three years has been impressive. But there is that nagging thought: yes, that’s good, but could we do even more to reach the tipping point?

Our group, which included three international perspectives (Canada, Australia, and the United Kingdom), offered a number of suggestions for accelerating the growth of ACOs.

Give A Clearer Vision Of A Sustainable Model For The Future

The Centers for Medicare and Medicaid Services could present the full spectrum of models now, even if only a very small number of providers can apply for them in the short term. Any economist, and many a health administrator, will tell you that the ACO Shared Savings model is not sustainable in the long term. So, let’s work out what would be sustainable and start to socialize the ideas now. Instead of CMS giving providers a few months to consider the next model, they could have years, even if the fine details are still being worked through.

In the shorter term, CMS and other payers could start to reward ACOs for absolute efficiency, not just improvements in efficiency. For example, target efficiency could be tied to a selected percentile of the current total cost distribution. This would mean that your “ACO per beneficiary” benchmark (the target cost per person you are trying to beat to get shared savings) would either be set as it is currently—based on your historic performance—or at, for example, the 20th percentile of the distribution across the country, whichever is higher. Then the very efficient providers wouldn’t be discouraged from taking part, and everyone would be able to see that the model could be sustainable.

Offer More Help For Those Trailing Behind The Curve

Commercial payers and CMS could provide greater technical assistance and infrastructure support to small and/or rural physician practices so that they do not drop behind in terms of quality or in finding a new sustainable business model. Appropriate adjustments for the structural costs of serving remote and vulnerable populations should be negotiated into the fabric of ACO contracts by payers and providers if they are to be sustainable.

In areas that are really behind the curve, states could take more extreme measures, such as establishing Special Enterprise Zones for Health with tax breaks, low cost loans, and more regulation waivers for kick-starting the transition to population health.

Have A Consistent And Persistent Approach To Changing Clinical Culture

Professional associations could take on the challenge of modifying best practice guidelines, certification, and re-certification to achieve the triple aim in their specialty, taking advantage of the new assets clinicians now have through their ACOs. Typically, ACOs deploy care coordinators, risk stratification analytics, and top-of-their-license care teams. These resources may be more community-oriented (and less inpatient-oriented); finding ways for specialties to work more effectively with these new assets could bring huge benefits.

Indeed, more hospital doctors may find themselves looking outwards to managing patients in the community setting, rather than in the hospital, even for moderate to highly complex cases. This is about culture change through medical education and re-education at scale. The professional associations are best suited to lead such an effort to help clinicians who were originally trained in a fee-for-service world convert to this new population health thinking.

There may also be a role for existing clinically integrated systems to help others learn how to re-focus typically hospital-centric medicine towards more community-based care. Those that do this well already can illustrate how it can be done in practice, while still maintaining a sustainable business model.

Help Providers Better Understand Risk

Providers need a better handle on insurance risk, so that small and medium size ACOs can reasonably and safely take on the appropriate amount of risk. This is a tricky point, with the added confusion of insurance regulations that vary greatly by state. The regulations are complex but important to ensure that people are protected, should their insurer go bankrupt.

The regulations stipulate risk pool sizes, financial reserves, and re-insurance rules to handle an outbreak of disease, a really harsh winter, or negligent administration. State officials, providers, and payers need to discuss further how ACOs could take on the full insurance risk that would be needed under a globally-capitated ACO payment model (in which the ACO would be directly responsible for all costs of care). Further discussion is also needed regarding ACOs’ assumption of partial risk under the Shared Savings ACO model. Clear and conclusive policies on ACO risk-bearing at the state level may help successful ACOs expand further and faster. This may also help to bridge the gap between the Shared Savings model built on fee-for-service, and the more extreme capitated, full-risk model.

Encourage More Praise And Publicity

Lastly, more positive publicity would help. Not wanting to fuel the anti-Obamacare backlash, Medicare has been wary of too much publicity until the program was working. It may be at the point now where, without some positive publicity, the public will never start to demand the better care and lower costs that ACOs can provide. Currently a patient may be getting better care but not know that it was the ACO that was the reason behind it. If providers are proud of their performance, let’s celebrate it.

Our conversation showed that we are not short of ideas when it comes to ACOs; we are, however, short of a really supportive environment. This is no longer about health care reform, this is about health care progress. The answer will not come nicely packaged from the federal government. It will need state support and the best brains working throughout every local system to make this work. For providers, policymakers, and health insurance contract designers alike, the question remains: are we willing to do what it takes to get ACOs to the tipping point?

West Coast Policy Forum members:

  • Stephen Shortell PhD MPH MBA, Professor, School of Public Health, UC Berkeley
  • Arnold Milstein MD MPH, Professor, School of Medicine, Stanford
  • Rita Redberg MD MS, Professor, UCSF School of Medicine
  • Scott Young MD, Associate Executive Director, Clinical Care and Innovation, Senior Medical Director, and Co-Executive Director, Care Management Institute, Kaiser Permanente
  • Julie A. Schmittdiel PhD, Research Scientist, Kaiser Permanente Northern California Division of Research
  • Jeff Convissar MD, Medical Director, Care Management Institute, Kaiser Permanente
  • Madeleine Phipps-Taylor MEng, UK Harkness Fellow 2014-2015, UC Berkeley
  • Fiona Clement PhD, Canadian Harkness Fellow 2014-2015, UCSF
  • Ted Adams MRCOG MSc, UK Harkness Fellow 2014-2015, Kaiser Permanente
  • Scott Robertson RN BN MEcon, Canadian Harkness Fellow 2014-2015, Stanford University
  • Paul Burgess MBBS MPH PhD, Australian Harkness Fellow 2014-2015, MacColl Center for Health Care Innovation

Author’s note: The content of this blog post is supported by The Commonwealth Fund, a private independent foundation based in New York City. The views presented here are those of the author and not necessarily those of The Commonwealth Fund, its directors, officers, or staff.