ACOs Flourishing in 2014, Study Reports

With Time, Family Physicians Can Benefit From New Payment Model

July 22, 2014 07:09 pm Michael Laff

Just as newly insured patients were entering the U.S. health care system at the start of 2014, physician practices were moving at an accelerated pace to join accountable care organizations (ACOs). Family medicine and other primary care practices, in particular, appear to be one of several factors behind the rapid growth of ACOs in the past six months, says a recent report from the health care intelligence company Leavitt Partners.

Penetration of Accountable Care Organizations by State

An estimated 20.5 million people are now covered by ACOs, according to Growth and Dispersion of Accountable Care Organizations: June 2014 Update( That's a dramatic increase from the beginning of the year, when the figure was an estimated 15 million.

Compared with the 491 ACOs in business as of September 2013, there are now 626 ACOs in the United States. A total of 329 ACOs reported having government contracts, 210 said they have commercial contracts, and 74 said they have both government and commercial contracts. Thirteen ACOs had not released final information about their payment contracts when the Leavitt report was published.

Growth of ACOs is occurring most rapidly in areas with higher population densities, such as California, Texas and the Northeast, and more slowly in the South and Midwest, according to the report.

Story Highlights
  • The number of accountable care organizations (ACOs) operating in the United States has increased rapidly since 2014 began, says a newly released report.
  • Family physician practices are forming or joining smaller, independent ACOs.
  • The transition from a strictly fee-for-service payment model to a quality-based payment model such as an ACO could take several years, experts caution.

ACO Characteristics

Of the six major types of ACOs identified in a separate taxonomy report( Leavitt previously published, so-called independent physician group ACOs are typically made up of primary care practices. Such groups include a single ownership unit that does not contract with other specialists and is most often paid solely through the Medicare Shared Savings Program. In some cases, said David Muhlestein, research director for Leavitt and a co-author of the report, primary care physician groups -- most of them numbering between 30 and 200 physicians -- join together to meet the Medicare minimum of 5,000 patient lives covered.

The larger, private insurance agencies are showing a preference for working with larger, multispecialty ACOs that typically have a hospital affiliation. Leavitt has not yet published a breakdown of the numbers in each ACO group.

A recent report( from the National Association of ACOs estimated the average cost outlay for an ACO at $2 million during the first 12 months, although the report noted that it can take an additional 12 months for shared savings to replenish cash flow. "We estimate that in total, ACOs on average will need $4 million of startup capital until there is a chance for any recoupment from savings," said the association's report.

However, Muhlestein pointed out, "A lot of the infrastructure requirements are independent of becoming an ACO." The cost of an electronic health record (EHR) system, for example, may well be considered a necessary expenditure regardless of whether a given practice joined an ACO.

In many instances, smaller practices have opportunities to reduce costs without selling the practice to a large institution or surrendering decision-making authority. A nonownership affiliation with a partner may afford ways to share resources and costs. A practice might, for example, share the costs of an EHR system with a hospital, or a care coordinator might split time between two or more practices, with that individual's salary shared by the practices involved.

Overall, expectations are high that ACOs will realize the goals of improved care at lower cost, but Muhlestein is among those who caution that the transition will take time. "It is a multiyear investment and not something you can turn around in just a year," he said.

Gaining Staff Buy-in

Although the focus is often on the direct costs associated with becoming an ACO, such as technology purchases or the need to hire new staff, changing the delivery of care and modifying staff responsibilities can also pose hurdles for practices. Still, rather than purchase new technology or hire additional staff, some physician practices may choose to reassign staff to new or expanded roles, such as care coordinator or care manager, which can open up some creative possibilities for tracking and enhancing patient care.

When a practice is attempting to reduce hospital visits among its patient population, for example, a care coordinator could develop a list of the 100 highest-risk patients not by reviewing claims data but by speaking with physicians. Instead of purchasing expensive software to monitor patients, a care coordinator could track the cost of patients' care on a spreadsheet. After identifying the costliest patients, the care coordinator would be responsible for weekly calls to ensure they are refilling their medications and making appointments.

And despite the fact that neither Medicare nor private insurers will pay for such activities at the present time, physicians may still want to consider pursuing these options. "You're not paid for it now, but if you use it well, you will win back the investment," said Muhlestein.

However practices wish to proceed, he added, "The No. 1 challenge in making the transition to an ACO is getting buy-in from the entire organization and the physicians."

Early returns on the first ACOs will be crucial to their continued growth. Practices that are considering joining or forming an ACO will look to determine if the pioneer initiatives met financial expectations and whether their models can be replicated.

The upside is that some of those early returns are starting to trickle in: ACOs that already had experience with coordinated care and technology infrastructure are achieving savings through reduced outpatient visits, and ACOs that are part of the Medicare Shared Savings Program are realizing savings through reduced hospital visits.