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Accountable care organizations: The shift from volume to value

October 29, 2015


Ron Wirtz Editor, fedgazette
Accountable care organizations: The shift from volume to value

Accountable care organizations (ACOs) are an example of new reimbursement models that replace the fee-for-service model with a so-called patient-centric model that emphasizes service value rather than service volume.

ACOs were first introduced with the Affordable Care Act as a means to improve care quality and reduce the costs of Medicare. A voluntary ACO program began in early 2012 that allowed providers and suppliers to coordinate care for their Medicare population. ACOs received upfront lump sums and modest monthly payments from the federal government for each Medicare beneficiary. ACOs that managed to lower growth in Medicare costs, while meeting certain standards of care and patient outcomes, then shared in the accrued Medicare cost savings. Minnesota-based providers Essentia, HealthPartners, Fairview and Allina Health Systems all have ACOs.

According to the Centers for Medicare and Medicaid Services (CMS), 103 ACOs held Medicare spending $926 million below their targets in 2014, earning performance payments of more than $423 million; the balance represents net savings to the Medicare trust fund.

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Call it a good start, with a long way to go. Only 30 percent of all participating ACOs earned any cash bonus, according to CMS. While net savings to Medicare were $500 million, total Medicare spending in 2014 was more than $500 billion.

Within the health care industry, there is considerable disagreement over the staying power of ACOs and other similar value-based care models. A 2014 survey by the Physicians Foundation found “dubious acceptance” among physicians of the shift from volume to value. A Deloitte survey last year found that physicians anticipate value-based payment models equaling about half of their total compensation a decade from now, but “they are reluctant to participate, preferring the status quo, and are concerned about the consequences of financial risk.”

Jerry Jurena, president of the North Dakota Hospital Association, has seen previous initiatives promising to finally get a handle on rising costs, like health maintenance organizations of the 1990s. “Is this another fad or process in how we pay for health care? I don’t know,” he said. “I’m for trying things, but I’m skeptical it will work.”

Mike Foley, administrator and chief operating officer of the Apple Valley (Minn.) Medical Center, said the jury was still out on ACOs. “I don’t think anyone has figured out how to work that yet” on a sustainable basis, he said. Many providers are involved in ACOs, “but I haven’t heard anyone saying, ‘Eureka, we’ve figured it out.’”

Others said that Medicare’s involve-ment was a game changer. “There’s no question that’s what all systems are preparing for,” said Terry Hill, senior adviser for the National Rural Health Resource Center, located in Duluth, Minn. “It’s a done deal; everybody knows it.”

Mary Brainerd, president and CEO of HealthPartners, said a lot of vertical integration is occurring under the belief that “Medicare is looking for something different … and that powerful message is driving behavior.”

Kelby Krabbenhoft, president and CEO of Sanford Health, agreed. “When Medicare will give X number of dollars to take care of a population and the risk is yours … when that happens, the debate [about ACOs] is over. It’s such a big payer.”

Ron Wirtz
Editor, fedgazette

Ron Wirtz is a Minneapolis Fed regional outreach director. Ron tracks current business conditions, with a focus on employment and wages, construction, real estate, consumer spending, and tourism. In this role, he networks with businesses in the Bank’s six-state region and gives frequent speeches on economic conditions. Follow him on Twitter @RonWirtz.