Accountable Care Organizations (ACOs) have been a hot topic in the industry since the first ACO appeared on the scene in 2010, expanding from their roots in Medicare to the commercial space, and now frequently serving as a vehicle to align employers, health plans, and providers. According to an Oliver Wyman survey, ACOs in 2015 served between 15 to 17 percent of the United States, with 585 ACOs in existence at that time, including 426 Medicare ACOs. Our 2017 research saw an increase in ACOs two years later, with the creation of over 650 total formal ACOs and hundreds more tested pilots under development.
Those ACOs supported by commercial, for-profit operators – created because of new opportunities stemming from the Affordable Care Act – generally lack hospital involvement and are led by physician practices. According to Oliver Wyman’s 2017 research, nearly half of ACOs were reportedly led by hospitals or multi-hospital systems, with the majority of ACOs participating in both Medicare Shared Savings Program (MSSPs) and commercial ACO arrangements. Out of 39 identified commercial MSSPs, 11 saved over $5 million, according to their 2015 performance. Only 8 percent of ACOs generating savings in 2016 were commercially supported. And only 7 percent of ACOs that generated over $5 million in earnings were commercially supported.
Why hasn’t the commercial ACO model accelerated more quickly?
Even as the market has matured, evolution of the commercial ACO model has been slow. All parties agree on the long-term vision to lower costs of care, yet the reality is that at the heart of it, the parties all have mis-aligned short-term incentives, which are often still in tension despite shared ACO objectives.
Commercial ACO parties' near-term objectives:
Employers are looking to:
- Reduce overall healthcare spending for the employer and out-of-pocket spending for employees. Part of our messaging for the past three years has been that many employers are looking to the delivery system (such as the supply side of healthcare) to save on costs for the employer and employees because they’ve gone to full replacement high deductible health plans and have mostly exhausted their ability to shift costs to employees without it hurting too much (for example, the demand side of healthcare.)
- Increasing access to high quality medical treatment is a driving force behind many of the leading employers (most will admit that cost savings will take a long time and/or won’t be huge.)
- Empower consumer choice
- Win talent wars through attraction and retention
- Improve productivity
Health plans are looking to:
- Grow commercial membership to increase profit and scale administration efforts
- Create innovative and attractive products for employers
- Secure high-value network relationships with providers
- Differentiate themselves in the increasingly commoditized insurance world
Providers are looking to:
- Grow their share of commercial care
- Increase share of wallet with existing members
- Protect against impending hits to financials as the general population ages in to (less-profitable) Medicare
- Build their population health management capabilities
- Respond to pressure from their boards to innovate in business design
Yet these parties – while looking for seemingly different things (perhaps different things more in the short-term compared to long-term) – continue to pursue ACO arrangements. There is a spectrum of interest and commitment among players: some ACO participants are using the opportunity to experiment with value-based care on a small scale; some are using it as a population heath engine to inject innovation into the rest of their business; and some are truly passionate this is the right direction for the industry to go to create quality, access, and affordability for consumers.
From the latter group, the National Business Group on Health (NBGH) – whose work includes helping employers make informed ACO strategy decisions, and intelligently implement these strategies – has brought together representatives – including Oliver Wyman – from health plans, providers, employers, enablement companies, and other industry players for quarterly meetings to discuss our shared goal of moving value-based care forward and open a dialogue on what we need from each other to make it happen. We kicked off a recent meeting by live-polling a series of questions, where participants were required to put themselves in the shoes of other parties and answer what they needed from each other. Results showed alignment on what would be impactful to helping the shift to value not happening today:
- Help telling the story to potential members, leadership, the general public, and other stakeholders
- Time to demonstrate and reap the long-term benefits of these arrangements, and commitments from all parties for the duration of time needed
- Specific data to empower parties involved to drive change, at the individual physician and member level
These concepts aren't new – so why do they continue to be sticking points?
Here are three reasons.
1. Difficulty understanding the complex interdependencies of these arrangements:
ACOs are complicated arrangements, with a lack of standardization exacerbating the challenge in communicating about them broadly. Because these arrangements are hard to understand – even from the inside – there is a need to help educate and "sell" the benefits of these arrangements externally:
- Benefits buyers within employers need help educating their leadership; plan design and contracting changes to support the ACO requires investment which needs to be justifiable to the C-suite
- Employers need help educating their employees on the value of staying in the ACO network
- Payers and providers need help educating potential customers
Furthermore, payers, providers, and employers – each running a different set of detailed operations – continue to struggle with streamlining their processes and procedures. There tends to be an intensive period of negotiation and set-up when arrangements are first implemented, then a sharp drop in interaction between parties during steady-state operations, making it difficult to collaborate and help each other improve.
2. Employers' conflicted purchasing behaviors:
Employers are looking for products from payers that make accessing high-quality, ACO-like networks easier for their employees. But when health plans offer them to employers, employee commitment to this change lags. Health plans need employer commitment to sell these arrangements to providers. But employers report needing better articulation of the improved experience their employees will get from the ACO before investing in an ACO product and relationship. Both employers and health plans are also used to an annual benefits purchasing cycle, but longer term commitments are required to recognize the benefit of longer term healthcare investments, such as chronic care management and prevention.
More importantly, employers resist limiting employees' choice, often offering narrow networks at a lower price point alongside open access Preferred Provider Organizations (PPOs). But price differences aren't enough to incentivize members to choose the more limited option – and as a result, low volumes of members are ultimately driven to these arrangements. Employers need to drive more volume to the narrower networks for providers to gain the membership required to make their ACO economics beneficial, and incentivize their further investment.
3. Insufficient availability and use of actionable physician-level data:
All parties agreed that continued investment in analytics would be both impactful and easy to implement – a "no regrets" move, unsurprising in this increasingly data-oriented world. In particular, providers need more granular physician-level data. The success of ACOs depends in large part in the behavior of individual physicians, and changing physician behavior is hard. Understanding and aligning individual physicians' incentives to broader ACO objectives is critical to creating the change needed for ACOs to be successful. With over $200 billion spent annually in the US on unnecessary care, access to physician-level data is necessary to help monitor day-to-day care activity, and provide the basis for evaluating – and either correcting or reinforcing – physicians' performance.
So where do we go from here?
Pursue transparent dialogue and data sharing: Continue to work together through coalition groups like NBGH – the more we learn from each other, the stronger these programs will be. Thoughtfully review providers' analytics needs and build systems to share the data – and then set checkpoints to make sure they are using that data effectively.
Scrap the broad access PPO: Offer ACOs and narrow networks to employees at deeper discounts versus open access PPOs – and consider removing open-access PPO options altogether, in favor of the value arrangement, in cases where the employer and payer are confident the ACO can deliver better quality and outcomes.
Make long-term bets: Establish longer-term contracts between employers, health plans, and providers to provide the assurance and foundation needed to support continued investment. Make real commitments to the outcomes – like through trend guarantees.
Moving the needle on value-based care will require bigger commitments from employers, providers, and health plans than we see today. The next wave of value generation in commercial ACOs will be unlocked once all parties are willing to make the (sometimes uncomfortable) investments and commitments required to overcome each other’s near-term misaligned incentives. This, alongside the “productization” of ACOs (The number of payer-provider partnerships continues to grow. For example, in 2016, a reported 39 percent of all new partnered products were launched in the Medicare Advantage market.) and employers’ continued pursuit of other innovative offerings, will continue to drive change in commercial value-based care.