Why Pioneer ACOs Are Disappearing and 3 Trends to Expect from the Exodus

Why Pioneer ACOs Are Disappearing and 3
Trends to Expect from the Exodus

© 2016 Health Catalyst
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The ACA and Accountable Care
In March of 2010, the Patient
Protection and Affordable Care Act
(ACA) was signed into law, marking
the largest expansion of healthcare
in the United States since the 1960s.
The ACA contained provisions that
authorized CMS to create
accountable care organizations
(ACOs), groups of primary care
doctors, specialists, hospitals, and
other caregivers that provide
healthcare services to a defined
population of people.

CMS initiated the Pioneer ACO
program along with other shared
savings programs.
The Pioneer program was developed
for healthcare organizations that
already had deep expertise in
coordinating care for patients across
care settings, utilization management,
and clinical process improvement.

Pioneer ACOs were seen as leaders
in the movement from fee-for-service
payment models toward value-based
reimbursement. Over the first three
performance years (2012 to 2014),
these Pioneer ACOs generated $304
million in savings, with significant
increases each year.
With this apparent level of success,
why did the number of Pioneer ACOs
drop from 32 in January 2012 to just
9 in January of 2016?

The intent of an ACO is to improve
the quality and coordination of
healthcare delivered to a defined
population of patients.
After the ACA was signed into law,
CMS initiated several programs to
give organizations a few options for
creating their ACOs.
Many organizations and groups
voluntarily entered into similar
arrangements with commercial
payers because of market pressure.
Accountable Care Organizations in Review

Groups that entered into these types
of arrangements have also been
commonly referred to as ACOs, even
though they are not defined by the
ACA or administered by Medicare.
All ACOs typically operate under
payment models that are moving
away from a fee-for-service and
toward value-based reimbursement
(essentially paying the ACO to keep
people healthy instead of reimbursing
for services).

Even though Pioneer ACOs
produced more than $120 million in
savings during 2014, six received
no shared savings payment, and
three owed Medicare a total of
$9 million in losses.
Let’s examine the exodus from the
Pioneer program and what
alternatives await these organiza-
tions that want to lead the way in
value-based care.

Solving the Problem of Overutilization
In order for an ACO contract to be
financially beneficial, the organization
must reduce the cost to provide care
for its defined population of patients.
Operating during the first few years
as an ACO was about limiting
unnecessary utilization.
However, some health systems in the
Pioneer ACO Program were already
doing a good job of reducing excess
utilization, which obviated this
potentially low-hanging fruit.

A good example of this, Dartmouth-
Hitchcock Medical Center, is
described in an October 22, 2015
article from Becker’s Hospital Review.
Dartmouth has been working on
coordinating care and reducing
unnecessary utilization for years, so
many improvement opportunities had
already been realized.
Dartmouth was unable to achieve
savings compared with its benchmark
in 2013 and ended up paying back
$1.4 million to CMS.

Again in 2014, when Dartmouth-
Hitchcock did save almost 4 percent
over the previous year, and beat the
comparison group (other non-ACO
patients in its region) by 1.2 percent.
They still paid CMS another $3.7
million for coming up 0.5 percent
short of the savings target.
Dartmouth-Hitchcock was penalized
for not attaining enough success
when compared with themselves.

It’s like a runner who runs a 12-
minute mile [with a goal of running a
four-minute mile]. If they want to train
and exercise, they can probably get
that down to a 10-minute mile… it is
much harder for organizations that
are running a five-minute mile to work
up to running a four-minute mile.”
Robert A. Greene, MD, MHCDS, FACP
Executive Vice President
Chief Population Health Management Officer
Dartmouth-Hitchcock

Pioneers agreed to accept the risk of
losses as a tradeoff for potential
upside shared savings they would
receive if they could control Medicare
spending and deliver quality care.
If ACOs kept their expenditures for
patients below the benchmarks, they
received shared savings dollars.
If ACOs exceeded the targets, they
were subject to financial penalties if
they had taken on downside risk.
Performance Benchmarking Issues

In the first performance year (2012),
Pioneer ACOs could avoid losses by
agreeing to accept smaller shared
savings payments, but in subsequent
years they were required to take on
risk of loss.
For Pioneer ACOs without a ton of
waste to eliminate, the risk for losses
is substantial without a lot of
potential for gain.

One of the primary complaints of all
Medicare ACOs has been about
benchmarking and this definitely
affected Pioneer ACOs.
The calculations used in the both the
Medicare Shared Savings Program
and the Pioneer ACO Program were
not very transparent.
Part of this was because of data
sharing limitations put in place by the
programs and part was because of
the design of the benchmarks.

Some ACOs have struggled with performance
targets because variations in their attributed
populations and benchmarks during the
course of the year made it difficult to
accurately predict financial outcomes.
Benchmarks have not previously
included regional adjustments
but instead compare ACOs to
themselves in prior years with
adjustments for the risk profiles
of the attributed populations in
each given year.

Successful ACOs face a more
difficult task each year to get better
than they were the previous years.
On top of that, they must do this in
an environment where CFOs feel
like they’re flying blind, not knowing
how they measure up against the
targets until long after the year ends.

Prospective vs. Retrospective Attribution
Under the Pioneer program, patients
have been assigned to ACOs using
prospective attribution, which is
based on the patient’s use of
services in the prior year.
This method assigns responsibility
for a future period based on past
usage. Quality and cost metrics are
reported throughout the year.
Though patients are allowed to seek
care from any provider, they are
assigned to providers they have
visited most in the past.

While the merits of prospective
attribution are widely understood, and
criticism of retrospective attribution is
abundant, Pioneer ACOs have felt
disadvantaged compared to their
peers in other ACO programs.
For example, the Medicare Shared
Savings Program (MSSP) uses
retrospective attribution, in which
patients are assigned at the end of the
year based on their use of services
during the actual performance year.

Retrospective attribution assigns
responsibility for the past period
based on usage and claims data.
Quality and cost metrics are reported
at the end of the year.
While retrospective attribution means
you don’t know what your population
is until after the year is over, it also
ensures that your population is most
closely aligned with the actual patients
being cared for by the ACO.

The arguments from Pioneer ACOs
against prospective attribution have
been that 55 percent of the patients
they treated weren’t attributed to
them, and those patients weren’t
counted in their performance review.
At the same time, 17 percent of the
patients under prospective attribution
did not receive care from providers at
their assigned ACO.
While the responsibility was there, the
impact from care initiatives was limited
for the assigned population.

The arguments for and against pros-
pective attribution have a lot of merit.
Invariably, ACOs have agreed that
CMS needs to improve the way
attribution is handled in all of its ACO
programs.
This is one reason why some ACOs
have reason to move from the
Pioneer program into other programs
such as the Next Generation model
or Track 3 of the MSSP.

Despite the movement away from
the Pioneer program, it has
generated more savings and
improved quality each year.
Total model savings per Pioneer
ACO increased from $2.7 million
to $4.2 million to $6.0 million over
the first three performance years.
The ACO Outlook is Still Bright

According to an August 2015 fact sheet
from CMS, Pioneer ACOs increased
their average quality scores from 71.8
percent to 85.2 percent to 87.2 percent
over the first three performance years.
The organizations improved in 28 of 33
quality measures between performance
years two and three.

The biggest improvements were in
medication reconciliation (70-84%),
screening for clinical depression and
follow-up plan (50-60%), and qualification
for an electronic health record incentive
payment (77-86%).
Additionally, average patient and caregiver
experience scores improved in five out of
seven measures between performance
years two and three, a strong indicator
that utilization and financial streamlining
can be done without negatively impacting
the patient experience.

ACO Success Requires Learning New Skills
The skills health systems learned
and mastered over the years, while
still important, are not sufficient to
guarantee success as an ACO.
Some of the skills have typically
included payer contract negotiation,
supply chain management, and
network management.
For healthcare entities, profitability
was measured by revenue (payment
received for rendered services)
minus costs (of which labor and
supplies are the most substantial).

In the new paradigm of value-based
care, things that used to count
toward revenue now actually hit
bottom-line costs, since providers
are no longer paid incrementally for
every service they deliver.
Under the old system, when patients
didn’t come into the hospital,
revenue dried up.
However, under value-based care,
hospital utilization is a cost, not a
revenue driver.

Health systems must learn new skills
to be successful in this new financial
paradigm.
They must begin to learn and
execute skills and competencies that
have been typical of insurance
companies, such as understanding
which patients are most likely going
to incur high costs and providing care
managers to help these patients
navigate the healthcare system and
manage their disease(s).

One of the confounding problems for
ACOs trying to learn these new skills
is that some of the return will come
after the timeframe of the risk
contracts.
ACOs must start practicing these
skills, but not invest too heavily
upfront on long-term improvements.

For example, the return on invest-
ment from a successful care
management program can be
measured in one to three years—or
more—potentially adding cost during
an ACO contract term, but not
increasing the potential for revenue
from shared savings on that contract.
Getting this balancing act wrong can
literally put organizations out of
business.

In order to understand what oppor-
tunities exist for reducing utilization,
health systems need to access the
clinical data stored in their electronic
health record system.
This is typically accomplished by
pulling this data into an enterprise
data warehouse (EDW).
From there, it can be visualized in
business intelligence applications
allowing clinicians and administrators
to make decisions on where the best
opportunities lie.
Overutilization and the Role of the Enterprise
Data Warehouse

Health Catalyst provide a tool to help
our ACO health systems see how
patient expenditures and utilization
(ER visits, inpatient admissions, high-
cost services, readmissions, etc.) are
trending across the different clinical
groups and service lines.
If ER visits or inpatient admissions
are increasing, the health system
can see what diseases and what
service lines are contributing to the
increased utilization and adapt
accordingly.
Data Warehouse

A health system with an accountable
care contract will get claims data for
the services provided to their
contracted population.
Health Catalyst loads that data into
the data warehouse, along with
other data sources, such as the
electronic health record system,
financial system, and cost
accounting system.
Data Warehouse

Once the data is loaded into the
EDW, we use the Health Catalyst
suite of ACO applications to
understand where overutilization and
unnecessary utilization is occurring,
including the specific diseases and
service lines responsible.
This drilldown capability is essential
for organizations that, in the first
couple of years, need to get a handle
on utilization while making popula-
tion health investments over the
longer term.
Data Warehouse

Adjusting the ACO Model and the Next Generation
As mentioned earlier, some of the
Pioneer ACO organizations are
moving over to the MSSP or other
ACO-like contracts.
Some are moving into the Next
Generation model for ACOs.
The next gen model retains many of
the MSSP and Pioneer program
elements, but adds four significant
new features:

1
Greater financial risk and reward with options for upside and
downside risk
2
Flexible payment options:
- normal fee-for-service
- fee-for-service with ACO support payment
- population-based payments
- capitation
3 Beneficiary engagement
4 Better benchmarks

In addition, the next gen model
allows for patients to voluntarily
align themselves with an ACO by
opting in to the program.
CMS is attempting to keep some of
the benefits of retrospective
attribution, but is also adding some
of the benefits of prospective
attribution by allowing patients to
opt-in to the ACO before the
contract year begins.

1. Consolidation in the healthcare ecosystem.
Our Big 5 insurers are now the Big 3. Along with this, we’re already
seeing a consolidation of healthcare systems trying to create
entities to take on this risk and have a bigger seat at the table
when they’re negotiating with insurers.
Three Tends to Expect
With accountable care down the road, we
expect to see three trends emerging.

2. More employer-led innovation in the accountable care space.
Employers have exhausted a lot of value out of value-based
insurance design in terms of high deductible plans, so they are
going to try and change the way care is provided for their
employees by partnering directly with health system entities,
paying them a fixed amount, and receiving coverage for every
employee. We’re already starting to see this with some companies.

3. Continued innovation in the digital health space.
We’re going to see more companies trying to provide innovative
solutions for employers and health systems, including tools for
health systems to manage the care of their populations.

Everyone is rising with the tide
generated by the ACA and the
implementation of accountable care
contracts by Medicare.
Even as organizations push back on
specific problems with individual
programs, the overall effect of all the
programs has been to push the
market toward value-based care.
By one metric or another, it has
definitely encouraged and brought
needed change to the market.
The Long-term Future of Accountable Care

Over the next 3 to 5 years, we will
see a tipping point occur in value-
based payment.
Once this tipping point is reached,
providers and health systems will
more fully bear the financial risk of
the populations they are account-
able for, and by that time they will
hopefully have the skills and
analytical tools in place to
successfully manage their ACO.
The Long-term Future of Accountable Care

For more information:
“This book is a fantastic piece of work”
– Robert Lindeman MD, FAAP, Chief Physician Quality Officer

More about this topic
What is an Accountable Care Organization (ACO)?
Dr. John Haughom, Senior Advisor and Dr. David Burton, Former Executive Chairman
The Key to ACO and Value-based Purchasing Success: Lowering Cost Structure
Dan Burton, Chief Executive Officer
Accountable Care Organizations Drive Demand for Data Warehouse (Executive Report)
Dr. David Burton, Former Executive Chairman
5 Ways to Mitigate ACO Risk Using Analytics
Russ Staheli, Analytics, VP and Marie Dunn
Accountable Care Organization Software: 5 Critical Information Systems
Dale Sanders, Strategy, SVP
Link to original article for a more in-depth discussion.
Why Pioneer ACOs Are Disappearing and 3 Trends to Expect from the Exodus

Aaron Neiderhiser joined Health Catalyst in April 2014 as a Data Architect. Prior
to joining Health Catalyst, Aaron worked for Colorado Medicaid, managing ACO
health analytics projects. Aaron is a graduate of Coe College and holds a master’s
degree in economics from the University of Colorado.
Other Clinical Quality Improvement Resources
Click to read additional information at www.healthcatalyst.com
Ben Castleton joined Health Catalyst in December 2013. Prior to Health Catalyst,
he worked at Mass General Hospital in Boston as a Sr. Data Analyst and
Programmer. He started his career as an accountant with PWC in Boston and
graduated with an accounting degree from BYU.
Bobbi Brown is the Vice President of Financial Engagement for Health Catalyst.
Ms. Brown started her healthcare career at Intermountain Healthcare supporting
clinical integration efforts before moving to Sutter Health and, later, Kaiser
Permanente, where she served as Vice President of Financial Planning and
Performance. Ms. Brown holds an MBA from the Thunderbird School of Global
Management as well as a BA in Spanish and Education from Misericordia
University. She regularly writes and teaches on finance-related healthcare topics.

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