John Redding, MD

 parts of this series, Redding examined the inherent risk, leadership structure, network composition, required investment, and likelihood of generating savings as key considerations for a physician / practice selecting an ACO partner. Here, he discusses the importance of savings distributions and provides six key questions in evaluating whether or not an ACO is right for you.

As the name of the MSSP implies, ACOs are mandated to share their savings. While CMS states that ACOs must document their plan for distributing shared savings amongst the ACO’s participants in their application to the MSSP, they provide little guidance as to how ACOs should structure these distributions. For potential physician participants to make an accurate estimate of the opportunity provided by various ACOs, they should scrutinize how each of its potential ACO partners intends to distribute any realized shared savings amongst their participants.

Physicians must remember that the number and composition of the ACO’s network will determine how many shared dollars are available for distribution to the physician participants. If the ACO is comprised solely of physicians, for example within an IPA or a collection of IPAs, all of the shared savings are available to the physician members. If the ACO is a collaborative venture between physicians and a hospital or health system, a portion of the shared savings will have to be distributed to the hospital and health system partners. As physicians attempt to select between multiple ACO options, they should determine who will be in the ACO network and how any shared savings will accrue to each stakeholder class (i.e. physicians, hospitals, etc.).

In general, physicians should expect ACO’s policies regarding the distribution of shared savings to be:

• Meaningful (there must be a desirable return-on-investment to keep all participants, including physicians, engaged);
• Fair (no one stakeholder class is likely to get as much as they want but each must get as much as they deserve);
• Manageable (whatever policy is adopted should be as simple as possible focusing on the key drivers of ACO performance – an ACO may measure everything but it should incent the bare minimum); and
•Transparent (aside from being mandated in the final regulations, participants will need to be able to track their performance and anticipate their returns in near real time to stay motivated and engaged).

In addition, physicians should evaluate each potential ACO partner on its answer to the following key questions:

• How much of the ACO’s shared savings will be plowed back into the capital and operating budget of the ACO?
• What percentage of the remaining shared savings will accrue to each stakeholder class in the ACO (i.e. hospital participants, physician participants, other provider/supplier participants)?
• How will the pool of shared savings accruing to each shareholder class be partitioned among the participants within that shareholder class?
• How to will the magnitude of an individual provider’s incentive pool be determined (i.e. charges, RVUs, visits, patient panel size, etc.);
• How will different specialties be treated (i.e. should primary care have access to additional incentive dollars due to their critical role in an ACO?); and
• How will incentive dollars accrue to physicians (based on organization-level, specialty-level, practice-level, or individual performance)?



Although ACOs are unlikely to become the predominant healthcare delivery system in the United States in the near future, many healthcare markets will be impacted by the model’s adoption over the next few years. Many physicians will be forced to determine whether the ACO model is attractive for their practice, and physicians in more mature or more progressive markets may be courted by a number of ACOs. Due to the complexity of the decision that must be made when selecting an ACO, potential physician participants should employ a structured comparative analysis of critical organizational characteristics that includes an ACO’s:

•	Inherent risk;
•	Leadership structure;
•	Network composition;
•	Required investment;
•	Ability to realize savings; and
•	Incentive distribution methodology.

While no clear formula exists for ranking ACO attractiveness, physicians who perform their due diligence and make a fully informed decision are more likely to select an appropriate ACO partner.



 is a manager at Blue Consulting Services. In this role, he works with health systems, hospitals, and physician organizations to develop collaborative physician-hospital working relationships and business ventures. E-mail him 

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Physicians who perform their due diligence and make a fully informed decision are more likely to select an appropriate ACO partner.

Choosing an ACO: Shared Savings Distribution and Key Questions

, Redding discussed the importance of evaluating inherent risk and leadership structure when considering an ACO partnership. Here, he continues his discussion of key considerations for physicians and practices in selecting the right ACO.

A third important ACO characteristic for physicians to consider is the proposed composition of each ACO’s provider network. To date, most of the discussion about ACOs’ provider networks has been in regards to the mandate that ACOs must include enough primary-care providers to serve at least 5,000 Medicare beneficiaries. While any ACO that cannot clear this hurdle should immediately be eliminated from a potential physician participant’s list of viable ACO partners, there is much more for physicians to consider in regards to each ACO’s provider network.

The composition of an ACO’s provider network can become a key distinguishing factor if the ACO intends to function in commercial markets. Although cost containment has become the number one priority for most commercial payers, they continue to view access, or the expansiveness of their associated provider network, to be a key distinguishing factor in the eyes of their customers. As such, payers are looking for, and beginning to pay a premium for, coordinated physician networks that can serve all of their beneficiaries’ needs. In most cases joining an ACO with a more inclusive network, in terms of clinical capabilities and services and not the necessarily number of providers, will be a preferable option for physicians who are looking to alter their value proposition in the eyes of commercial payers.



A forth ACO characteristic that potential physician participants should consider is the level of investment that they will have to make to participate in the ACO. Network composition tends to play a key role in determining the magnitude of required physician investment. If the ACO is structured as a physician-only organization, it is likely that the physicians will be expected to contribute both seed money for the ACO’s development as well as plow back a portion of their shared savings into the ongoing operational budget of the ACO. If a hospital or health system partner is involved, a good deal of the initial and ongoing financing of the ACO’s operations may be assumed by the hospital or health system partner.

Potential participating physicians should remember that their investment in the ACO is not merely a monetary investment but also an investment of time and effort. Physicians should not have the expectation that they will be able to maintain the status quo in regards to the way that they practice medicine within a successful ACO. Although physicians will inevitably be required to modify their practice patterns in order to succeed under any form of accountable care, the burden placed on them should be incremental and not detrimental.

The investment of physicians’ time and effort should primarily be attributed to redesigning their practices’ work flows, incorporating new clinical information technologies into their practices, tracking and monitoring their practices’ performance, and training their staff. The level of time and effort required to complete these task will vary by ACO and will be determined by each ACO’s operating plans. Physicians should gain an understanding of not only their expected monetary contribution to each ACO but also the anticipated level of sweat equity that they will have to contribute to each organization prior to selecting an ACO partner.



Medicine is a mission for most healthcare providers. Despite this fact, physicians who are considering participation in an ACO are, at least partially, attracted to the model due to its associated financial opportunity. Although CMS publically promotes the ACO model for its potential to increase the value of healthcare services provided to patients across providers, specialties, and sites-of-care, there should be no illusion among patients or providers that quality improvement is the key driver of an ACO’s financial success. If an ACO does not reduce anticipated healthcare expenditures for a given population by at least 2 percent, then the ACO will not realize any financial benefit for its efforts; no matter how high the quality of care provided to the ACO’s patients. Given this reality, a fifth ACO differentiator should be an ACO’s ability to curb healthcare costs for their defined population.

Once again, network composition is related to an ACO’s ability to control costs. ACOs are accountable for all healthcare expenses incurred by a retrospectively attributed population of Medicare beneficiaries whether or not the expenses were incurred for services provided by ACO participants. This means that one of the greatest risks for ACOs is that a patient will see a high-cost, low-quality provider outside of the ACO. If the ACO has a network that can serve all, or almost all, of a given population’s healthcare needs, this risk is reduced. If a large proportion of the assigned beneficiaries’ healthcare services are referred out of an ACO’s provider network this risk increases significantly. Given the fact that physicians influence when and where healthcare expenses are incurred, physician only ACOs may be attractive if referral patterns and associated costs of care can be measured, tracked, and reported for non-participating organizations. If this is not possible or practical, a more inclusive model that includes hospitals and ancillary providers may be required for physicians to have true control over the utilization and cost of care provided within the ACO.

It is also important for physicians to be aware of the fact that of the 33 quality measures mandated by CMS, only seven (i.e. readmission rates, ambulatory sensitive care, medicine reconciliation, and preventative medicine) should be expected to generate short-term cost savings for an ACO. In aggregate, the quality measures are significantly skewed toward the management of chronic disease which would be expected to generate savings in an ACO’s second or third contractual period. For an ACO to deliver a short-term return to its physician participants, the organization will need to immediately start measuring, tracking, and reporting upon an exponentially larger set of measures than is mandated by the MSSP regulations. This measurement set must include a comprehensive catalog of the key drivers of ACO costs in and across the inpatient, outpatient, and ambulatory settings. Although the word carries negative connotations for most physicians, ACOs that adopt a capitated mindset when addressing costs and utilization (i.e. per member per month) while accepting fee-for-service payments, may be more likely to achieve cost savings and deliver a short- and long-term return on investment to their physician participants.

In the final part of this series, Redding will look at 

distributing shared savings achieved through an ACO

 as well as six key questions in evaluating a potential ACO partner.

A network’s composition, the investment required, and its likelihood of savings are key considerations when selecting an ACO.

Choosing an ACO: Network, Investment, and Realizing Savings

When the final Medicare Shared Savings Program (MSSP) regulations were published in November 2011, a vast majority of mandates for the program remained unchanged from their proposed format. Despite this fact, the modifications that were made significantly altered the value proposition of the accountable care organization (ACO) model for potential ACO participants. In general, the final regulations stated: lowered structural and financial barriers; decreased financial risk; and increased the probability of realizing shared savings. As a result of the loosening of the program’s regulations, CMS almost doubled 

maximum number of potential MSSP participants

To date, CMS’s optimism in regards to provider adoption of the MSSP and its associated ACO model seems to be justified. On January 1, 2012, 32 health systems and physician groups began their first performance period as participants in the Pioneer ACO program. In addition to these trailblazing organizations, an increasing number of hospital- and physician-driven organizations across the country are in the process of evaluating or developing ACOs.

Given the momentum that appears to be building in regards to ACO adoption, physicians who are attracted to the model may find that they have more than one ACO to choose from. While choice is often valued by healthcare professionals, it can lead to anxiety and frustration when the decision is highly complex and the outcome is relatively ambiguous. For this reason this series is dedicated to presenting a number of key factors that physicians and their practices should consider when selecting an ACO:

•	Inherent risk;
 •	Leadership structure;
 •	Network composition;
 •	Required investment;
 •	Ability to realize savings; and
 •	Incentive distribution methodology.

There are a number of factors that should be considered when physicians are assessing the comparative attractiveness of ACOs. Many physicians may find that gaining an understanding of the inherent financial risk associated with each ACO is a good starting point for their evaluation. While CMS’ proposed regulations placed all would-be ACOs at risk for higher than anticipated expenses, this is no longer the case. Under the final MSSP regulations, participating ACOs face a classic economic risk versus reward decision. ACOs that are willing to take on risk for “excess expenses” (Track 2) have the opportunity to share up to 60 percent of any realized savings while those choosing to forgo risk (Track 1) can only realize a maximum of 50 percent of any realized savings.

Physicians who are courted by more than one ACO should make sure to identify what each ACO’s stance is in regards to bearing financial risk. If they differ in their assumption of risk, physicians must determine whether they, personally, are more risk-loving or risk-averse. If a physician is risk-loving, he or she would tend to prefer to participate in a risk bearing (Track 2) ACO while those who are risk-averse would be expected to prefer to participate in a risk-free (Track 1) ACO.

In addition to understanding how each ACO is structured from a financial risk perspective (i.e. Track 1 participation versus Track 2 participation), physicians should also assess the level of risk that they personally will bear as a participant in each ACO. For example, will the physician be expected to repay the ACO for excess expenses attributed to the physician or their assigned beneficiaries? If the risk is born solely by the ACO, the distinction between Track 1 and Track 2 participation may become a moot point for potential physician participants. If the risk is born by the ACO and the participating physicians/physician practices, each ACO’s choice of “Track” should have a significant impact on its attractiveness to potential physician participants.



Leadership and governance structure is a second characteristic that can help physicians differentiate ACOs from one another. At first glance, leadership and governance structures for ACOs may seem relatively uniform. This is due to the fact that the MSSP has placed several restrictions on how an ACO’s leadership and governance team may be structured. For example, physicians must represent at least 75 percent of any ACO’s governing body and each ACO must appoint at least one Medicare beneficiary to its governing body. Although the high level composition of all ACOs’ governing bodies and leadership teams has been mandated, ACOs can and will make themselves more or less attractive to potential physician participants based on how artfully they comply with these mandates.

Any physician who is considering participation in an ACO should feel confident that he or she will have a voice in the vision and direction of the organization. Board composition can be a good indicator of how aligned an ACO will be with the interests of a particular physician. Potential physician participants should pay close attention to whether their specialty is represented within the ACO’s leadership team and to what extent. If the ACO includes more than one organization (i.e. if it consists of multiple IPAs or hospital participants) physicians should also consider what percentage of the leadership team will come from their organization and how this compares to the other participating organizations.

In the next part of this series, Redding explores 

three more considerations in joining an ACO

: network composition, required investment, and the likelihood of realizing savings.

Selecting the right ACO for your practice is not an easy task. Two key considerations are gauging your level of risk and your comfort with the organization’s leadership.