ACOs and Their Impact on Physician Income

October 22, 2015

Physicians looking to ACOs to solve their revenue challenges need to study the numbers carefully.

For larger groups and vertically integrated systems, accountable care organizations (ACOs) are a way to generate some additional income in the form of risk money. The medical groups and systems receive a piece of the savings generated in relation to the budget and the rules of sharing. This summer, the Centers for Medicare and Medicaid Services (CMS) reported their 2014 results. We analyzed the data to determine if physicians actually benefited from their involvement with ACOs, and to what extent.

A top line look at the numbers shows that, according to CMS, 20 of the pioneer ACO groups generated a savings of $120 million on a population of 622,265 Medicare patients. If all of the savings were shared, that adds up to about $192 total per person, for one year. For physicians, who only account for a small portion of the delivery system, the share they'd receive would be a rather small amount of money.

Digging deeper

But digging a little deeper, how much was actually shared? What percentage of the total?

Medicare has a total budget of $505 billion for 55 million beneficiaries. Therefore, the estimated cost for each Medicare beneficiary is just over $9,000 a year. Using these numbers, the total cost of Medicare services for the 622,265 patients who were part of the pioneer ACO group is about $5.7 billion dollars. So, the pioneer ACO group saved $120 million on a $5.7 billion dollar budget, or about 2.1 percent. But according to CMS, it only "shared" $82 million with the ACOs, or about 1.4 percent. Some ACOs got a reasonable share of the savings. But three ACOs in the pioneer group actually owed CMS $9 million dollars.

I could not calculate the numbers for ACOs outside of the pioneer group, but we know from CMS that the pioneers outperformed the general ACOs. Therefore, the percentage of share the general ACOs received was even less than 1.4 percent.

What can we conclude about ACOs from this data?

1. The share is a way to reward ACOs for meeting quality measure targets.

2. ACOs may be one way to slow the growth of the cost of care or contain it to some degree.

3. CMS will have to continue to sweeten the pot with larger percentage shares and less risk to the ACOs.

How does this impact the income of physicians?

Of course, for physicians, this is the bottom line. Will their relationship with an ACO improve their revenue?

As the data shows, while the numbers seem large, the benefit to any individual part of a delivery system is rather small as a percentage. The potential benefit to physicians - one of the smaller portions of the delivery system - is going to be extremely limited, if any.

But that is not a surprise. ACOs were never designed to increase physician income. They were designed to control costs overall by creating a competitive environment where each ACO competes for bonuses based on economic and quality goals.

There may be important reasons or advantages that would make a physician affiliate with an ACO. But physicians who are looking to their ACO for a solution to their revenue problems should look elsewhere. The ACO may only be able to stop the bleeding. There are other, much more effective ways for a physician to realize more value from their practice without having to hope and pray for a leftover piece of the pie.

While generating a legitimate reward system for performance is very important, physicians should consider alternative practice models that are not disruptive, like hybrid concierge, which can improve revenue by 5 percent to 25 percent, without interfering with the work of ACOs.