The Progress and Promise of ACOs

Updated on May 3, 2015

By Mike Cassidy, Esq.

Since Accountable Care Organizations (“ACO”) are one of the featured topics for the May edition of Hospital News, I thought it would be appropriate to revisit the progress and evaluate the promise of ACOs to date.

I last wrote on this topic in the December 2011 Thought Leader column, and indicated there had been little progress, at least with the federal ACO model, which is the Medicare Shared Savings Program as of that time.  I also cited a study done by Leavitt Partners in November 2011 entitled the “Growth and Dispersion of Accountable Care Organizations.”

The key findings of the Leavitt study stated there were 164 ACOs being developed, 99 by hospitals, 38 by physician groups and 28 by insurers.  Most of these commercial products were concentrated in higher income/higher population areas with the majority of the ACOs being concentrated in just eight states, the leader of which was California.

Since that time, the Department of Health and Human Services (“HHS”) has announced the first participants in the Medicare Shared Savings Program.  On April 10, 2012 HHS announced just 27 organizations had been selected to participate in the Medicare Shared Savings Program for the performance period beginning April 1, 2012.  These 27 organizations would cover just 375,000 Medicare beneficiaries in 18 states.  If you include the 32 pioneer ACOs which were announced in December of 2011, and the 6 Physician Group Practice Transition Demonstration organizations which were approved in January 2011, this brings the total Medicare beneficiaries participating in these new payment projects to approximately 1.1 million Medicare beneficiaries.

According to Kaiser at, there are approximately 50 million Medicare beneficiaries in the United States, which means all of these ACO projects at this point cover approximately 2% of the total available Medicare beneficiaries.

It is fairly obvious 2% is not enough to bend the cost curve, but it could be enough to evaluate the promise of ACOs.  You would expect that this evaluation and testing period will still take several years, which would lead you to conclude the real work in the ACO area will probably be done by large health care organizations and commercial insurers who are already designing and testing new payment models independent of the Medicare Shared Savings Program.  A key indicator of that hypothesis is that the largest integrated delivery systems in the country have not elected to participate in the Medicare Shared Savings Program, at least at this time.

Any type of ACO testing and development, whether based upon federal programs or commercial programs, will require a substantial investment of time, money and other resources.  The American Hospital Association and McManis Consulting published a very informative report in April 2011 entitled “The Work Ahead:  Activities and Costs to Develop an Accountable Care Organization.”  The report focuses on two hypothetical prototype ACO models:

  • ACO Prototype A involves one 200 bed hospital, 80 primary care physicians and 150 specialists.  The report projects a startup cost of $5 million and an ongoing annual cost of $6 million for this smaller model.
  • ACO Prototype B involves five hospitals, 250 primary care physicians and 550 specialists.  The report projects a startup cost of $12 million and an ongoing annual cost of $14 million.

One of the most informative aspects of the report is the format of structural analysis.  The AHA/McManis report identifies 23 “categories of costs,” which crosswalk functionally into action steps for planning purposes.  It is fairly apparent from these models that ACO development will require significant health care savings on more than just a small percentage of the population base in order to survive and be effective.

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