Accountable Care Organizations Explained - eMDs

On July 16, 2013, CMS announced the first year outcomes from the Pioneer ACO Demonstration Project. While CMS presented the results as generally positive, financial details were not disclosed on all of the participating organizations, and CMS’ initial press release included the results of just 15 of the 32 Pioneer ACOs. By combing through various analyst reports from organizations like Triple Tree Advisors and reviewing media reports, we have been able to pull together a little more detail. First Some Background Accountable Care Organizations can be explained as healthcare organizations that combine providers (primary care doctors, specialists, hospitals, labs and other healthcare service providers) into one unit that is “accountable” for improving quality metrics and reducing the growth in the total cost of care for an assigned population of patients. The group will provide coordinated care under one umbrella and focuses on prevention and carefully managing patients with chronic diseases. They are evaluated and compensated through their ability to meet specific quality and spending benchmarks. An ACO can operate out of a single corporate structure or an organized network of independent but associated healthcare professionals. The ACO project has roots back to 2000 when Congress passed a law directing the Centers for Medicare & Medicaid Services (CMS) to test a model whereby participating physician groups (PGPs) were eligible to keep a portion of the savings they generated for Medicare, relative to a projected spending target, and could increase their share of savings depending on how well they improved performance on a set of quality measures. This was the “PGP pilot” as was one of several precursors to the ACO model we see today. Established by the Affordable Care Act, CMS published final rules for the Shared Savings Program on November 2, 2011. To participate in the Shared Savings Program, ACOs must meet all eligibility and program requirements, must serve at least 5,000 Medicare Fee-For-Service patients and agree to participate in the program for at least 3 years. In January 2013, Medicare announced the formation of 106 new Shared Savings Program ACOs.

Medicare providers who participate in an ACO in the Shared Savings Program will continue to receive payment under Medicare Fee-For-Service rules. That is, Medicare will continue to pay individual providers and suppliers for specific items and services as it currently does under the Medicare Fee-For-Service payment systems. However, CMS will also develop a benchmark for each ACO against which ACO performance is measured to assess whether it qualifies to receive shared savings, or for ACO’s that have elected to accept responsibility for losses, potentially be held accountable for losses. The benchmark is an estimate of what the total Medicare Fee-For-Service Parts A and B expenditures for ACO beneficiaries would otherwise have been in the absence of the ACO, even if all of those services were not provided by providers in the ACO. In order to be eligible for the Shared Savings, an organization must first demonstrate that it has met the quality performance standard for that year. CMS will measure quality of care using nationally recognized measures in four key domains:

  • Patient/caregiver experience (7 measures)
  • Care coordination/patient safety (6 measures)
  • Preventive health (8 measures)
  • At-risk population:
    • Diabetes (1 measure and 1 composite consisting of five measures)
    • Hypertension (1 measure)
    • Ischemic Vascular Disease (2 measures)
    • Heart Failure (1 measure)
    • Coronary Artery Disease (1 composite consisting of 2 measures)

There are 33 measures in all across these four categories. ACOs that do not perform at the 30th percentile on at least 70% of the measures aren’t eligible to share in any savings they generate and have one year to improve performance before being terminated from the program. ACOs members are eligible for higher shares of savings if they perform at higher percentiles on these measures. In addition to the Shared Savings Program, CMS instituted the ACO Pioneer Model. The Pioneer model has a shared savings and shared losses payment arrangement with higer levels of reward and risk than in the Shared Savings Program. On January 1, 2012, there were 32 organizations enrolled in the 2-year Pioneer ACO program. The Pioneer ACO Model was designed specifically for organizations with experience offering coordinated, patient-centered care, and operating in ACO-like arrangements. The selected organizations were chosen for their significant experience offering this type of quality care to their patients.

 Now for the Results from the Pioneer Program
  • 56% (18) of the Pioneer ACOs delivered savings. Thirteen (13) of those reportedly had enough savings (>1% of the CMS benchmark) to make them eligible for shared savings.
  • 44% (14) of the Pioneer ACO did not deliver savings, and one (1) ACO sustained losses exceeding the <1% benchmark thereby requiring them to return dollars to CMS.
  • Eight (8) of the 14 Pioneer ACOs (57%) that did not achieve savings are transitioning out of the Pioneer ACO program
    • Six (6) of them are transitioning to the Medicare Shared Savings program (MSSP) designed above. Two (2) are completely exiting from all CMS ACO arrangements. While the University of Michigan ACO did achieve savings, they have elected to transition to MSSP citing a need to have simpler administrative requirements and IT interoperability in order to sustain the financial risk required by the Pioneer program.
  • Among the 18 ACOs with savings:
    • 56% (10) function as Integrated Delivery Networks (IDN).
    • 17% (3) are organized as Hospital System/Physician Group Partnerships.
    • 28% (5) are Physician Groups.
  • Among the 14 ACOs without savings
    • 21% (3) function as Integrated Delivery Networks.
    • 29% (4) are organized as Hospital System/Physician Group Partnerships. (This includes Texas-based Plus ACO, the single entity reporting a shared loss)
    • 50% (7) are Physician Groups.
ACOsbyState600x296 Click here to view full listing by ACOs by state
Source: Medical Economics Article: Medicare Shared Savings - A Practical Path to Accountable Care


The organizational structure of IDNs and Physician Groups may be an inherently easier model around which to align incentives. Whereas Hospital System/Physician Group partnerships can function cohesively, it takes more effort to design the incentives around sometimes competing priorities. Shared Savings Program The Shared Savings Program facilitates coordination and cooperation among providers to improve the quality of care for Medicare fee-for-service beneficiaries as well as reduce unnecessary costs. Savings/loss determinations are based upon the difference between FFS expenditures (Parts A and B) for the defined population for the year and a risk-adjusted benchmark that is an estimate of the Part A and B Medicare expenditures that would have occurred in the defined population in the absence of the ACO. The expenditure benchmark is based on the previous three-year expenditures history. ACOs can choose one of two shared savings risk models: One-Sided Risk - The ACO will operate on a shared savings model only (no loss potential) for the three years of the initial contract provided that a minimum shared savings rate threshold of 2% is reached. This is likely to be more suitable for smaller ACOs and those with minimal experience with this type of accountable care activity. These groups would be limited to a maximum of 50% of obtained savings each year. This one-sided risk option is only available during the first three-year contract. Two-sided Risk - Participants would be at risk of a portion of losses for each year of the 3-year period. These groups could earn up to a maximum of 60% of obtained savings. Losses must be over 2% of benchmark to be considered. Once this threshold has been hit, these ACOs would be responsible for paying losses on a “first dollar” basis. Maximum loss sharing limits are 5%, 7.5% and 10% of the benchmark over the first three years of the contract. Advanced Payment Model For providers concern about a lack of access to capital to invest in infrastructure and staff to support additional care coordination, they may opt for the Advance Payment Model. Providers selected for this program receive upfront and monthly payments, which they can use to make investments in their care coordination infrastructure. The Advance Payment ACO Model was designed for two types of organizations: 1. Organizations that do not include any inpatient facilities and have less than $50M in total annual revenue. 2. ACOs in which the only inpatient facilities are critical access hospitals and/or Medicare low-volume rural hospitals and have less than $80M in total annual revenue. The application scoring criteria favor ACOs with the least access to capital, ACOs that serve rural populations, and ACOs that serve a significant number of Medicaid beneficiaries. Pioneer Model A more advanced ACO, the Pioneer Mode is designed for healthcare organizations and providers that are already experienced in coordinating care for patients across care settings. It enables ACOs to earn higher shared savings bonus payments than under the Shared Savings Program but also puts them at risk of paying back higher amounts to CMS if they increase spending above projections.    

A Medical Economics article - Medicare Shared Savings - A Practical Path to Accountable Care
A paper by Leavitt Partners - Growth and Dispersion of Accountable Care Organizations: June 2012 Update by David Muhlestein, Andrew Crashaw, Tom Merrill and Christian Pena
An article by the Urban Institute-Accountable-Care-Organizations-in-Medicare-and-the-Private-Sector published Nov 2011
Medicare Payment Advisory Commission. (Public meeting transcript, Washington, November 8, 2006.)
The Patient Protection and Affordable Care Act of 2010, Pub. L. No. 111-148, §3022 124 (2010).
A research report by Triple Tree Advisors published 9/16/13: Pioneer ACO Program - A Closer Look at the Numbers


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