Accountable Care Organizations (ACOs) are expected to be one of the key vehicles of transformation of the healthcare system from volume-based to value-based reimbursement. But how many ACOs are out there and how fast is this trend advancing? In a nice industry summary, Leavitt Partners identified the number of publically known or recognized ACOs from news releases, media reports, trade groups, collaborations and interviews through the beginning of September 2011. This is definitely a growth industry and the financing model and primary sponsor varies significantly. Of the 164 identified ACOs, the sponsoring entities included hospital systems, physician groups and insurers with a market presence in 41 states but less than half of all HRRs. Of these entities, 99 were primarily sponsored by hospital systems, 38 by physician groups and 27 by insurers.
Fig. 1: ACO Distribution by State
Summary of Results
- Dispersion of accountable care organizations varies significantly by market with certain regions devoid of ACOs: The states with the highest numbers of ACOs were California (17), Michigan (12) and Texas (12). Poorer and rural regions, in particular, that you would expect to benefit from ACOs, had little ACO growth. Alabama, Mississippi and West Virginia each had 0 identified ACOs. Pioneer ACOs, which take on greater risk, are concentrated in 5 states, with California leading the pack with 6 Pioneers, followed by Maine (5), Michigan (3), Minnesota (3) and Texas (2).
- Hospitals and hospital systems are the primary backers of ACOs: Nearly two-thirds of ACOs identified were started by hospitals or hospital systems. This can be seen as a defensive strategy if driven by the need to compete for physician alignment or an offensive strategy if driven by the goal to prepare for value-based reimbursement and sustain margins by integrating outpatient care. Becker’s has described the five key considerations for hospitals thinking about forming an ACO. This movement sounds similar to the 1990’s strategy of hospitals buying up physician practices, which was a dismal failure. However, there are several differences today. We are all (hopefully) smarter, especially around the physician productivity and management issues, we have more focus on quality, Information Technology (IT) is much more mature for the needed analytic power and the incentive model is clearly moving toward a compatible focus on value-based reimbursement.
- Significant investment in the accountable care model exists independent of the Medicare Shared Savings Program: ACO growth is growing independent of Medicare reimbursement as at least 27 insurers have partnered with providers to operate under ACO-like payment contracts. Norton and Humana have established an ACO that is showing positive early results.
- The success of different accountable care models is yet unproven: Although many organizations such as Kaiser Permanente and Geisinger could be considered long-standing ACOs, the variety of models in play and recently developed in this nascent market are yet to be proven. We will have to wait 2-3 years to begin to really understand what works and what doesn’t, especially for the newer models.
It does seem, based on the interest and growth of ACOs, that this can be a vehicle for transformation of the industry. For providers to begin to manage risk, it will mean significant cultural change and retooling of their Information Technology (IT) infrastructure. A few have a history of success and are already there while many others are jumping in. It will be interesting to see who succeeds and who fails.