New Analysis: The ACO Landscape Today


Oliver Wyman analysis details the performance of ACOs by type (physician-led, hospital-led, commercial) and offers insight into what it will take for each to be successful.

Bruce Hamory, MD and Josh Michelson

10 min read

In January, just two days before President Trump took office and began the process of rolling back the ACA, the Centers for Medicare & Medicaid Services (CMS) announced that the ACA-launched Next Generation ACO initiative was more than doubling in size for 2017. 

CMS welcomed 28 new entrants to the Next Generation ACO Model, bringing the total up to 45. The Next Generation Model expands upon the Pioneer ACO Model and Medicare Shared Savings (MSSP) ACO Models and provides participants the opportunity to take on greater risk, up to 100 percent. 

Although the Trump administration has vowed to undo many aspects of the ACA, it has been largely silent on the future of ACOs. And with MACRA linking Medicare payments to quality and efficiency, more providers are looking to participate in qualifying value-based models like ACOs. Understanding who is succeeding in the alternative payment model landscape – and why – will help groups chart their path forward. 

To be sure, all of today’s “winners” are still works in progress, and many have not yet achieved the kind of scale needed for sustainability over time. But they are delivering results, and they appear poised for growth and expansion. 

Here, we dissect the current ACO market and share insights on what it will take to succeed going forward.  

Breaking down the market

ACOs fall into one of three broad categories: physician-led, hospital system-led, and commercially supported.

Physician-led ACOs

Hospital-led ACOs predominate today, but the number of physician-led ACOs continues to increase. Currently, 40 percent of all ACOs are physician-led without hospital involvement. And physician-led ACOs make up 27 percent of the 2017 Next Generation ACOs. That’s up from 17 percent a year ago.

What’s more, physician-led ACOs are demonstrating success. Of the 106 Medicare (excluding the 45 Next Generation participants) and commercial ACOs saving (though not necessarily collecting) money in their first performance year, 54 were physician-led. And when we examined the group practice/physician-led ACOs that did generate savings (based on 2015 performance), we found that over one-third of them earned $5 million or more.

There is a clear association between the length of time an ACO has been participating in the program and the likelihood of successfully sharing savings. In fact, the proportion of participants earning money increases each year between the first and third years (the period for which we have data). There also is a suggestion that prior participation in another risk arrangement may increase the chance of success in the first year of MSSP participation. All of this points to a risk learning curve, and so groups that wish to participate in the MIPS track of MACRA should enter into an MSSP ACO now so they maximize their chances of success two to three years down the road.

A clear advantage physician-led ACOs have is the participation of physician champions leading the change and rallying their physician peers to the cause. And unlike their hospital-led counterparts, physician-led ACOs don’t have to worry about the financial repercussions of shifting care to outpatient settings or preventing a hospital visit altogether.

However, physician-led ACOs are often constrained by a lack of capital and investment in the analytics and support systems needed for population management. In addition, changing the organizational culture from one of physician-domination to one marked by collaboration, patient-centeredness, and alignment of goals among all specialities requires stronger-than-ordinary leadership and a set of management skills that are relatively rare at traditional physician-led organizations.

Hospital-led ACOs

Nearly half of all ACOs are led by hospitals or multi-hospital systems. These provider organizations tend to have robust physician networks (comprised of affiliated or aligned physicians). Many now participate in both MSSPs and commercial ACO arrangements. Examples include Indiana University Health, Memorial Hermann (Houston), and OSF Healthcare (Illinois).

Some systems have entered into the insurance market with their own health plan (Banner, University of Pittsburgh Health System), while others have partnered with a health plan to offer a more integrated product (Mount Sinai).

Of all ACOs generating savings (based on 2015 performance), 42 percent were hospital-supported. And of those, 40 percent earned $5 million or more. This is most likely due to the fact that the hospital-led ACOs tend to have many more physician participants and much larger populations of Medicare beneficiaries at risk than the physician-led ACOs.

Successful hospital-supported ACOs are those that are formed around a well-organized primary care network and supported by functional information technology, and also have strong physician leadership and an appropriate reward system reinforcing value-based care.

The most successful are those that approach their physician network with an analytical and critical eye – meaning not all affiliated physicians are invited to participate; only those who provide rapid access and high-quality care with efficient use of resources. (Criteria, by the way, that will also be needed to achieve success under MACRA.)

Challenges for hospital-led organizations include siloed acute and ambulatory medical group operations, fear of pressing the physician community to change, weaker commitment to preventive care, and uncertainty around the enterprise-level financial ramifications during a transition period.

Commercially supported ACOs

ACOs organized or heavily supported by commercial, for-profit operators were formed in response to the opportunities presented by the ACA. These organizations can access outside capital to build the capabilities required for a population-based approach. In addition, they often can leverage shared back-office functions for analytics and case management, with the potential for spreading these costs over a larger population. 

Commercial MSSPs tend to be more common in the Southern United States and in the West. Of the 39 that we identified, 11 generated some savings and two saved more than $5 million (based on 2015 performance). Those commercially supported ACOs are comprised of physician practices, usually without hospital involvement. Top earners in this category include Accountable Care Coalition of Southeast Wisconsin; ProHEALTH Accountable Care Medical Group; Accountable Care Coalition of Texas; and Maryland Collaborative Care. 

Regional factors

Across all three types, ACOs operating in states where the annual Medicare per-beneficiary spend was greater than the national average tended to perform better than those in states where the per-beneficiary spend was below the national average. Whether this will change with new methods of calculating expected spend is unknown. However, it does make the appropriate documentation of complicating illnesses and conditions very important. 

Going forward

Even with the new administration in Washington, we think that the push toward population-based value-based health care will continue. ACOs save Medicare money and have been shown to maintain quality. With the financial pressures facing the federal government and acceleration of the move toward value-based physician payments laid out by the MACRA law, we think that healthcare organizations should continue to move rapidly to develop the capability to manage population health on an at-risk basis. The evidence is that it takes time to achieve the needed proficiency for success and so an immediate start down this path is required.

  • Bruce Hamory, MD and
  • Josh Michelson