Choosing an ACO: Shared Savings Distribution and Key Questions

June 17, 2012

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

In the first and second 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.Distribution of Shared Savings

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)?

Conclusion

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.

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.