Choosing an ACO: Network, Investment, and Realizing Savings

June 10, 2012

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

In the first part of this series, 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.


Network Composition

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.

Required Investment

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.

Likelihood of Realizing Savings

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.

John Redding, MD, MBA 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 here.