Accountable Care Organization (ACO) Solutions

Accountable Care Is Here To Stay

Facing the most sweeping payment transformation in history, healthcare systems are facing an accelerating shift to different types of value-based and shared-risk models that will impact their operations and bottom line. HHS has set aggressive targets of tying at least 50 percent of its payments to alternative payment models, like accountable care organizations (ACOs), by 2018. In further support of this shift, the Health Care Transformation Task Force—a broad coalition of health care payers and providers—has committed to tying upwards of 75 percent of their revenue to value-based reimbursement by 2020.

While there are many definitions of accountable care, they all imply the shift in reimbursement from procedure-based, fee-for-service to fee-for-quality, disease or condition-based reimbursement with capitated payment to healthcare delivery organizations on a per-case and per-capita basis.

New Payment Models, Competing Incentives


A great deal remains unknown about the transition to value-based payment. Some markets are moving rapidly toward new payment models while others lag behind.


Accountable Care Organizations by Hospital Referral Region; Source: Leavitt Partners Center for Accountable Care Intelligence

The ultimate structure of these contracts is a point of continued evaluation and debate, and the government, payers, providers, and employers are experimenting with a wide variety of contract types in an effort to identify those that are most effective. Despite these unknowns, the market’s overarching direction is remarkably clear: the payment models that successfully reduce costs and improve quality will survive. Momentum is building to find the models that work and quickly.

The Common Denominator: Reduce Costs, Improve Quality


This does not change the fact that health care organizations are still firmly rooted in a fee-for-service payment environment that incentivizes volume over cost and quality improvements. Health care leaders must build the competencies to survive in this new world so that they are prepared for an industry tipping point, when fee-for-value contracts quickly surpass and become the predominant form of contracting.

Background on New Payment Models

Today’s fee-for-service contracts reward health care organizations that increase the volume of services that they provide. Broadly, value-based contracts attempt to use payment to incentivize other aims, such as cost reduction and quality improvement. Many of these payment models attempt to improve on the current fee-for-service system, while adjusting the model in a range of ways—small and large—in an attempt to more adequately compensate ‘value’ in health care. Other models, like capitation, represent a break altogether from the current fee-for-service system. Providers, payers, and employers across the country are experimenting with a wide variety of these payment models in an effort to find contract types that best improve care delivery.

A note about terminology: increasingly, accountable care, population health management, at-risk contracting, and value-based payment are used interchangeably. Of these terms, value-based payment is often used the most broadly to reflect even small iterations on the current fee-for-service model (like pay-for-performance initiatives). Health Catalyst® separates accountable care efforts—which we also refer to at-risk contract initiatives—from population health management. True population health management requires care delivery system transformation. The efforts that health care organizations are undertaking in new payment models like ACOs are just one step in a much longer journey.

Common examples of at-risk contract types follow:

  • Fee-for-service plus bonus: Also called pay-for-performance contracts, these are traditional fee-for-service contracts that include incentive payments for hitting pre-defined targets.
  • Bundled payments: Bundled payment initiatives attempt to reduce care fragmentation and improve overall quality of care by aligning the financial incentives between all providers (for example, hospitals, physicians, and post-acute care providers) that touch a single episode. While these payments increase coordination across the episode, they don’t provide any incentive to reduce episode volume.
  • Shared savings: Shared savings initiatives give providers the opportunity to benefit or ‘share’ the cost reductions that they drive through their improvement initiatives. Providers and payers negotiate a benchmark rate, typically representing what the expected payment would have been in the absence of an ACO. In an upside only arrangement (also called a one-sided model), the provider’s risk is limited. They benefit from any savings, but don’t incur losses if spending goes above the target. In a model with downside (also called a two-sided model), providers typically have a greater financial stake but also go at risk for losses should total payments surpass the benchmark.
  • Capitation: Under capitated payment models, providers receive a set per-member-per-month payment and are at full financial risk for the members in their population.

In an attempt to competency build but limit financial risk, many health care organizations are experimenting with lower-stake forms of shared-risk contracts, such as upside-only shared savings agreements. In future years, health care organizations are likely to encounter contracts with higher risk and greater rewards. This shift is underway already, as evidenced by CMS’s third iteration of its ACO programs—Next-Generation ACOs—which no longer includes an upside-only option.

Notably, in all of the above arrangements, quality measures commonly accompany cost targets to ensure that as provider organizations work to drive down costs, they don’t do so at the expense of quality.

Preparing for a Shift from Fee-for-Service to Fee-for-Value

Remaining financially viable—and excelling—under fee-for-value contracts requires a fundamentally different set of competencies. To succeed under fee-for-service contracts, health care leaders need to be skilled at driving growth of high margin—and, typically, acute care—services. To succeed under value-based payments, health care leaders must do the exact opposite. To reduce costs, preventative services are emphasized far more than high-cost, acute care services, which are used as sparingly as possible. To improve quality, leaders need to identify and minimize unnecessary variation from evidence-based practice.

Today’s health care leaders face the great challenge of developing the competency for this new world in a market that, paradoxically, rewards a different set of values. Despite the challenge, building these new competencies is absolutely critical. Straddling two fundamentally competing payment models is sustainable only while value-based payment contracts represent a small subset of overall agreements. As providers and payers identify effective value-based contracts, it’s likely that the market will hit a tipping point where there’s a rapid acceleration toward value-based payments. Organizations that are unprepared for this shift put themselves at serious risk.

Separating Near and Long-Term Priorities

While our destination is clear, the first step in a health care organization’s journey toward value-based payment is often not. Fundamentally transforming a health care delivery system requires a wide array of new competencies. For many organizations, the first step in this journey is signing on the dotted line to put one or two contracts and a small set of their population at risk. Lacking a map to the next town in a long journey, health care leaders are left to transform their business with little direction. In our experience, health care organizations are best served by separating near-term and long-term priorities. Near-term priorities are owned by a small group of leaders, typically the ACO team, which sets the guiding path for prioritizing the development of competencies that are central to managing at-risk contracts successfully. Concurrently, this team works closely with leaders across the care delivery system to prepare the organization for true care delivery system transformation, a journey that will take place across the next decade. By investing in near-term imperatives and prioritizing long-term transformation efforts, ACOs can make meaningful steps toward value-based payment without overwhelming their organization’s resources and capabilities.

Balancing Short Imperatives with Long-Term Transformation


Based on our experience working with health care organizations in at-risk contracting arrangements, we’ve identified five key near-term priorities that should serve as the foundation of accountable care efforts.

Short-Term Accountable Care Imperatives


Near Term Priority #1: At-Risk Contract Management

Many health care organizations enter at-risk contracts with little insight into their performance. This limits their ability to negotiate mutually advantageous contract terms and, later, monitor their performance. It is critical for ACO leaders to be able to answer key questions such as: What is my organization’s current PMPM performance? How is it trending? What are the main drivers of this trend? As the organization takes on more risk, leadership needs to come prepared for contract negotiations with a deep understanding of the drivers of its performance to ensure they are effectively negotiating future contracts.

Relevant Tools:

  • ACO Explorer is an executive dashboard designed to provide a high-level overview of ACO health, giving summary measures and trending information on PMPM, utilization, and measure performance.
  • PMPM Analyzer supports sophisticated analyses of the drivers of PMPM trends, helping ACOs to identify and prioritize opportunities to improve performance.
  • Bundled Payments guides health care organizations through an evaluation of the 48 CMS Episodes of Care, helping the ACO to identify the best episodes for contracting and manage performance.

Near Term Priority #2: Network Management

Developing the ability to effectively identify high sources of cost in your network and prioritize improvement efforts is key to reducing costs in a principled way. The first priority for ACOs as it relates to network management is gaining a deep understanding of utilization patterns. What services are you providing out of network? Where are referral patterns deviating from best practice? Gaining insight into these questions will help the ACO to lead targeted campaigns to more effectively manage the physician network. A second key tenet of network management is network optimization. Given your patient population, geographic service area, and overall population health management strategy, do you have the right types of physicians in your network?

Relevant Tools:

  • Attribution Modeler supports ACO leadership in appropriately assigning physician accountability for people served by the ACO using data about their recent encounters.

Near Term Priority #3: Care Management

In addition to engaging your provider network, it’s key to engage patients. In the early stages of accountable care arrangements, these efforts are best focused on identifying high-risk, high-cost individuals for care management as this small group typically drives a high percent of overall costs. As health care organizations move toward true population health management, developing broader patient engagement capabilities is critical to ensure that all patients, not only those at highest risk, are engaged meaningfully. This requires the involvement of the entire care team, not just a dedicated group of care managers.

Relevant Tools:

  • Patient Risk Stratification is a tool to guide the care team in identifying high-risk, high-cost patients to effectively focus care management and other interventions.
  • Cohort Builder is available with more than 400 out-of-the-box patient registries to support broader care transformation efforts that involve the full delivery team.

Near Term Priority #4: Performance Monitoring

A key tenet of all value-based contracts is quality measure reporting. As payers push providers to drive down costs, these measures serve as a sort of stop-gap to ensure that quality doesn’t suffer. At the most basic level, to succeed in at-risk contracts, providers need to show that they are meeting or exceeding quality standards (for example, the ACO 33 in the CMS MSSP program). As leadership gains more comfort with quality measure reporting, your long-term goal is to identify the measures that meaningfully reflect your performance and to drive conversations with each respective payer to align your efforts around this core group of measures.

Relevant Tools:

  • ACO Measures supports the monitoring and analysis of performance on the CMS Medicare Shared Savings Program performance measures, as well as the tracking of custom measures

Near Term Priority #5: Improvement Prioritization

While developing the competencies needed to manage at-risk contracts successfully, health care leaders must keep their eye on the long-term goal of such efforts: transforming care delivery by systematically reducing costs and improving quality. Research from the Institute of Medicine indicates that more than 30% of health care dollars are waste, almost $750B annually. Furthermore, it’s well established that higher spending is not a proxy for better quality. In fact, variation is typically an indicator of lower quality care. By systematically addressing waste and identifying variation, health care organizations can both reduce cost and improve quality of care. This long-term transformation effort is the intent of population health management initiatives.

Staying in the Sweet Spot – Balancing Population Health and Financial Risk


We have identified three primary categories of waste: ordering, operational, and defect waste, and our broader product suite supports care transformation in each of these areas. The critical imperative for ACOs is to strategically prioritize this work not only based on opportunity, but by contract type. For example, workflow waste reduction is rewarded financially under all contract types including fee-for-service initiatives. However, efforts to reduce ordering waste—for example, by driving down utilization of unnecessary care—are rewarded under shared savings agreements and capitation, and penalized in the current fee-for-service model. This does not mean that accountable care leaders should not embark on improvement initiatives for which they are not paid: these efforts to reduce waste and improve care represent the right thing to do. However, it is critical to leverage data on early pilots of such efforts to lead a broader conversation with payers around these opportunity areas to align payment with value.

Relevant Tools:

  • Population Explorer enables a sophisticated evaluation of your covered population, looking at case counts, readmission rates, charges, LOS stratified by demographics, geography, payer, clinical filters.
  • Key Process Analysis, based on the Pareto Principle or the 80/20 rule, guides you in your evaluation of the greatest areas of cost and variation in your care delivery system.

Creating the Building Blocks for True Population Management

In the long-term, accountable care and care delivery transformation efforts come together to form the foundation for true population health management. We feel strongly that investing in all of these competencies will reap rewards for health care organizations, regardless of the speed at which an organization transitions to accountable care or which contract types survive. Fundamentally, such efforts give health care organizations greater insights into their cost structure and orient them toward the massive opportunities in health care to reduce waste and improve overall quality.

For a deeper dive on accountable care transformation, read or download our whitepaper.



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