As the Affordable Care Act transforms the health care landscape, accountable care organizations are emerging as the next frontier in care delivery, promising better alignment of health provider incentives and patient outcomes and, for employers, lower health care costs and better management of employees with chronic conditions.

Large companies such as Intel and Boeing are taking advantage of ACOs and smaller companies are also getting on board with the idea that more coordinated care delivery with proper incentives will, over time, lead to lower employer costs and improved care for employees. But some warn ACOs are still in their infancy and there is no reliable way for employers to gauge their effectiveness.

Officially established under the ACA through regulations issued by the Department of Health and Human Services in 2011, ACOs are essentially partnerships between health care providers and payers and, in some cases, directly between providers and employers. Under ACO arrangements, providers are financially rewarded for delivering high-quality, efficient care and often have something to lose when they don’t.

“Essentially the idea is that provider organizations, integrated delivery systems, would increasingly be at risk for a more integrated experience for people who participate in their systems,” explains Michael Thompson, a principal with consulting firm PricewaterhouseCoopers. “They would be at risk financially, both for the value of the services or the costs of services they provide, as well as meeting certain quality metrics.”

On the public side, the most well-known ACO program is the Centers for Medicare & Medicaid Services’ Medicare Shared Savings Program, established to facilitate coordination and cooperation among providers to improve the quality of care for a specific population of Medicare fee-for-service beneficiaries and reduce unnecessary costs. Eligible providers, hospitals and suppliers can participate in the Shared Savings Program by creating or participating in an ACO and the program rewards ACOs that lower their growth in health care costs while meeting CMS-established performance standards on quality of care.

But the ACO concept is also gaining ground on the employer side, with some large employers such as Intel launching their own ACOs with integrated hospital systems, and smaller employers gaining access to the ACO model through private exchanges.

Also see: Employers still focused on health care costs, despite ‘distraction’ of ACA

Intel, the global computer hardware and software manufacturer, launched an employer-sponsored ACO last year in partnership with Presbyterian Healthcare Services. PHS is a not-for-profit system of eight hospitals across New Mexico, and includes a health plan, the 600-provider Presbyterian Medical Group, and other entities. The program, called Connected Care, is available to Intel employees – about 3,500 – at the company’s facility in Rio Rancho, New Mexico. Intel says Connected Care aims to give employees more personalized, evidence-based, coordinated and efficient care.

Intel and PHS share risks and rewards if results exceed or fall short of a designated target. To promote evidence-based prevention and treatment of chronic conditions, Connected Care plans provide 100% coverage of preventive care, along with 100% coverage on a set of medications for asthma, hypertension, cholesterol, diabetes and other conditions. The delivery system, meanwhile, is focused on patient-centered medical homes, supported by a “medical neighborhood” of specialists, so employees with complex needs have a team of health professionals providing coordinated care using electronic health records.

“Employers are in a great position to influence health care. Fee-for-service is broken,” said Tami L. Graham, director, global benefits design, Intel Corporation, in a recent white paper. “If you set things up so providers are doing the right thing and you hold the system accountable, you can trust the system. Employees get the best care at the best time for the best price, and employers win too.”

In Washington state, Boeing recently chose the Providence-Swedish Health Alliance – an ACO launched by Providence Health & Services and Swedish Health Services – for its Preferred Partnership option, which is available in the Puget Sound area for nonunion employees, as well as some union-represented employees and retirees. Eligible employees can stay in their current plan or they can choose the new option, which allows them to choose one of two networks for their care: either the Providence-Swedish Health Alliance or the UW Medicine Accountable Care Network. Employees will make the selection during annual open enrollment this November for coverage starting Jan. 1, 2015.

Private exchanges

MinMor Industries, LLC, a privately held, family-run business with about 150 benefits-eligible employees, recently added ACOs to its private exchange offerings through Bloom Health. “The limited provider network didn’t concern our employees because most people go to one provider network for their family anyway,” says Becky Johnson, director of human resources at MinMor, a printing, packaging and promotions company in Minneapolis.

By selecting an ACO on Bloom’s exchange, the employee and his/her family agrees to receive care through a specific network of coordinated providers. According to Bloom, the concentration of care means patients experience better care delivery, which is expected to improve cost and quality over time.

Bloom reports that 50% of its customers eligible for the ACO model are choosing it when given the option between ACO and a traditional open access network. MinMor’s Johnson expects the number of employees currently enrolled in their ACO to increase as more employees understand the model and elect to take advantage of the cost savings.

“Employers have a hard time, particularly national employers, managing locally. It is one of the reasons they buy into national networks -- somebody’s done that for them and they can put in play networks all over the country,” says Thompson. “I think as the private exchange movement evolves, we will see [private exchanges] being an avenue to actually introduce some of these newer and hopefully more progressive delivery solutions into the mix for employees to consider.”

Payment reform

Many believe that true health care reform cannot happen without simultaneous reforms to the health care delivery and payment systems and ACOs present the next chance to do that.

“One way to frame this is to think about the evolution of health care the way we think about the evolution of species. … species are evolving and changing, new species are being discovered and others are dying out. That’s an appropriate metaphor for thinking about the actors in the health care delivery system and health care payment system because they are under Darwinian pressures that are changing the environment in which they live,” says Andrew Croshaw, a partner and managing director with consulting firm Leavitt Partners. “Those that are adapting will survive if they adapt in ways compatible with the new environment.”

Croshaw estimates there are about 600 ACOs in the U.S. covering about 20 million lives. “It’s frankly not much relative to the size of the market but it’s an important indicator of the pressures providers and payers are facing and the way they are responding to those,” he says, adding that private payers make up less than half of the total number of ACO sponsors. Among private payers, Leavitt has counted a little over 300 unique payment arrangements.

And for employers, ACOs can be an employee assistance program of sorts because “they’re very motivated to see that there’s a focus on wellness, that there’s a focus on staying out of the hospital because that’s how they make money, that’s how they succeed and thrive,” says Croshaw.

Kaiser Permanente and Intermountain in Utah are “good examples of systems that already perform in a comprehensive and accountable manner around delivery,” says PwC’s Thompson. “What I think is new here is this trend is expanding into the mainstream.”

Potential pitfalls

And as for criticisms that ACOs are essentially health maintenance organizations all over again, Carolyn Pare, CEO of the Minnesota Health Action Group, an employer coalition, believes increased access to data means employers, business coalitions, providers, payers and even patients, are better able to assess the quality of care than they were 20 years ago when HMOs became prevalent. Criticisms of HMOs, she says, centered around limiting care, while “ACOs aren't about limiting care. They're about limiting unnecessary treatment that could cause harm and they're focused on delivering high quality, efficient care. And they now have the data and the performance measures to ensure that and that's how they manage cost.”

PwC’s Thompson agrees that advancements in data analytics are what make today’s ACOs different from HMOs and managed care organizations of the past. “The technology infrastructure is much stronger than it has ever been in health care delivery,” he says. “The investments in health care technology will not pay dividends unless they are aligned with a revamping of delivery and payment reform. I think that is why all of this is part of that broader vision of how to transform the system.”

Indeed, claims data and electronic medical records data are critical for ACOs to be successful. “You can’t understand what things are costing and what types of services are being utilized by a population across the board without the claims data, because that really is the record of what was provided to whom, and at what cost,” says Matt Siegel, senior vice president of population health with Verisk Health, a data analytics firm.

Brian Marcotte, CEO of the National Business Group on Health, says large employers are definitely asking more questions about ACOs, but agrees with Pare that ACOs do run the risk of being viewed as simply another way for employers and health plans to cut costs at the expense of employees.

“The risk here is that ACOs get stereotyped the way it managed care organizations did 20 years ago, as just networks cobbled together in order to save money,” he says. “That's not the intent here. The intent here is to really improve how health care is delivered and to improve the health of the population in a way that is patient-centered, and doing it in a way where providers share risk in a different payment model.”

NBGH has created a toolkit to help employers understand what ACOs are, “but in terms of understanding the value proposition and what they will deliver, there's a lot of work that needs to be done there, and I think we need to work with health plans and providers to understand that,” says Marcotte.

Because ACOs run the gamut in terms of how much downside risk they’re willing to assume, the question for employers becomes how they measure an ACO’s ability to deliver more personalized, fact-based care that is patient-centered and, more importantly, how they can assess whether an ACO is better than what they’re getting for their benefits dollars today.

“ACOs will take years to mature, to build the proper infrastructure and create the environment and mindset for where providers feel they have the proper tools and resources to perform population health,” believes NBGH’s Marcotte. “The concern about ACOs popping up quickly is that we don't know how to measure where an ACO is in that time line. I think over the next several years there will be a lot of energy and work put into understanding that, and understanding the perspective of the providers, as well as the health plan, and in getting them to understand the perspective of employers as we come together to increase that share of the [health care] dollar that is risk-based as supposed to service-based.”

Also see: The role of employers in health care consumerism

Moreover, employers must be wary of ACOs that become so large they turn into monopolies. “To the extent that you have huge ACOs trying to negotiate or using their huge leverage with payers, that presents a major challenge as to whether or not we're going to be able to get them to provide the care at an affordable price,” cautions Minnesota Action Group on Health’s Carolyn Pare.

Nevertheless, the consensus seems to be that ACOs are here to stay. “This is not yet a consumer movement,” says Leavitt’s Croshaw. “But once we get the governance structures down and the payment systems that align interests, we are going to start to see much more consumer engagement both in choosing to participate in an ACO, and the engagement you have with your provider partner once you’re inside that ACO. We’re not there yet.”

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