Featured Content: A Prognosis for Medicare and Commercial ACOs Over the Next Several Years
After additional Pioneer ACOs announced their withdrawal from the program, a number of pundits are citing the systemic failure of ACOs. So where do we go from here?

Notwithstanding the outlook of some pundits, and less-than-stellar results for a number of participants in the Pioneer ACO program, the prognosis for the Accountable Care Organization (ACO) is good.

The healthcare industry’s shift from a fee-for-service model to a fee-for-value payment model has been in motion for years. The Affordable Care Act has simply hastened the shift. According to Catalyst for Payment Reform, currently 10.9% of commercial payments are value-oriented (designed to cut waste or improve performance). In 2010, that number was only 1%-3%. This is a marked increase that will only accelerate.

It is important to point out that there is a difference between Accountable Care Organizations and accountable care. While accountable care works when there is alignment among all healthcare stakeholders, the success of Accountable Care Organizations depends on the contractual arrangement between payers and providers. When well-formed, ACOs (commercial or Medicare) let providers and payers collaborate to improve the health of the populations they serve. The issue with some of the original ACOs (Medicare specifically) is that the baseline is reset every year, which effectively means that costs have to be driven out year after year. When given the right conditions, gains can be seen in the first few years, though eventually a plateau is hit as people will always require healthcare.

Still the ACO model brings providers and payers closer to the classic economic principal-agent scenario. As agents, each organization is aligned to serve the best interest of the principal (the patient). By pooling their knowledge and sharing the risk, the outlook for better health and wellness for the principal is improved and the agents are duly rewarded for their success; thus reinforcing the value proposition of the ACO.

The ACO model works best when organizations have some experience with coordinated, patient-centered care, an understanding of the market conditions in which the ACO operates and a clear understanding of the total population to be served. The key to achieving accountable care via the ACO is to create a governance structure that will sustain the alliance through ups and downs and align incentives of all the stakeholders. In addition, organizations will need to clearly understand the drivers to create high quality, cost-efficient care and focus resources in those areas. Lastly, monitor the effectiveness of programs to determine if the efforts are having an impact or not. The remaining Pioneer ACOs provide evidence that this risk-sharing model can bring success when those required foundational elements are in place.

Megan North is President, Value-Based Care of Conifer Health Solutions.

This content was originally published in the October/November 2014 issue of
ThoughtLeaders for MCOL Members
Download the PDF here.

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