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A look at physician-led ACOs: What's driving them, and where they're headed


Hospital systems primarily led the initial movement to form ACOs, but physician groups now have surpassed them as the most common sponsoring entity among all ACOs.

The payer system is changing and physicians face a fundamental choice when it comes to joining an accountable care organization (ACO)-get involved now and influence the outcome, or simply abdicate the role and let hospitals and payers determine the future.

That’s the message from Randall Curnow, MD, MBA, chief medical officer of Summit Medical Group based in Tennessee. Summit Medical Group has an ACO, Summit Health Solutions, with more than 35,000 Medicare beneficiaries.

Still, although even nationally recognized Harvard Business School professor Clayton Christensen and others predict the model will ultimately fail, the ACO trend is changing healthcare delivery. And the number of ACOs keeps climbing. 

In March 2012, hospital-led ACOs outnumbered those headed by doctors nearly two to one (91 to 45), explains Neil Kirschner, PhD, senior associate of regulatory and insurer affairs for the American College of Physicians (ACP). But with the latest round of ACO approvals from the Centers for Medicare and Medicaid Services (CMS) earlier this year, physician-led organizations pulled ahead of hospitals (202 to 189).

However, while physician-led ACOs are currently the most numerous, they are generally smaller than those run by hospitals. According to CMS, roughly half of all ACOs are physician-led organizations that serve fewer than 10,000 beneficiaries. About 20% of ACOs include community health centers, rural health clinics, and critical access hospitals that serve low-income and rural communities.

Why Physician-Led ACOs Continue to Grow

“If physicians want to play a role in delivery reform, ACO participation will be a necessity,” Curnow says. “A passive ACO philosophy will allow hospitals and payers to dictate the future to physicians.”

Another force pushing physicians to form ACOs comes from Medicare, which offers ways to participate that have all the upsides of being in an ACO with no financial risk if they don’t achieve savings, says Thomas Merrill, a senior analyst at Leavitt Partners. This lack of risk appeals to physicians wanting to enter the market cautiously, he says.

However, he calls the resulting growth of physician-led ACOs a tricky proposition. “Their numbers seem to be equal to hospital-led groups but Medicare is distorting this. The groups are not equal on a commercial-contract basis,” Merrill says.

Many are slowly adding commercial contracts, having used Medicare as a “safe way to get started,” he says.

Kirschner agrees that Medicare is providing a “roadmap for the development of ACOs” that eases groups into getting involved without losing money or violating anti-trust laws.

Another factor driving physicians to form ACOs, he says, is that physician-led groups achieve savings differently than ones owned by hospitals. Physician groups work to save money by keeping patients out of the hospital by taking better care of them upfront. Hospital-led ACOs focus on better managing patients once they are admitted. 

“Physician groups may have more freedom to work out how to succeed in a shared savings plan than a hospital,” Kirschner says.

As some physician groups have experienced success in a Patient-Centered Medical Home model, they have learned the skills that are necessary to succeed as an ACO, he adds. 

In fact, the National Committee for Quality Assurance (NCQA) recently launched a program to acknowledge specialty practices that work well with primary care physicians (PCPs). The Patient-Centered Specialty Practice Recognition recognizes specialty practices that successfully coordinate care with PCPs and each other and that meet the goals of providing timely access to care and continuous quality improvement, according to the NCQA website.

The site says the program also addresses reducing the duplication of tests, measuring performance, and improving communication with patients.

Impact on Healthcare Costs

Merrill says the question of whether ACOs, particularly physician-led ones, will lower health care costs overall is one that is often debated at Leavitt Partners.

 “We don’t know if the ACO model represents a silver bullet, but they are leading to substantive changes,” he says. “We have our doubts that they will lower costs overall but they may slow the growth rates.”

One of the greatest changes ACOs represent is a paradigm shift, as providers realize  they must provide population-based care, he says.

“They can’t just work in silos anymore,” Merrill says. “They need to collaborate with other parts of the healthcare system and physician-led ACOs may have an advantage as doctors listen best to other doctors. They don’t like hospitals telling them what to do.”   

Kirschner believes that physician-led ACOs may lead to lower costs over time as value-oriented care increases.

“This is a very different type of care delivery,” he says. “It requires a transformation of both primary care and the specialty arena. Until those changes occur, savings won’t come.”

Does Ownership Matter?

While physician-led groups have some attributes on their side, at least one expert says that ownership of an ACO is not the key that will decide if efficiency goals are realized.

“Physician leadership is not necessarily good or bad. Leadership alone does not dictate the success of an ACO,” says Bruce Bagley, MD, interim president and chief executive officer of TransforMED, a subsidiary of the American Academy of Family Physicians (AAFP).

“If an ACO takes a global payment and does not change how resources are distributed internally, it doesn’t matter,” he says. “There must be internal incentives to achieve cost effectiveness, quality, and service.”

Bagley says that the ideal structure may be community-led ACOs. Having representation from the community, hospitals, physicians, and business leaders may lead to the most transparent solutions.

“We need resources to be used wisely overall, not just in one group’s interest,” he says. 

Physicians also need to get away from thinking that health plans and providers must have an adversarial relationship, Bagley adds. 

“Some day they will be partners for cost-effective and efficient care that gets the best results for patients. The basic method of payment must change so that there is a shared sense of responsibility for cost, quality, and service,” he says. ACOs must be set up for the right reasons, Bagley adds. They must have strong organizational integrity, optimize outcomes, and be patient-centered.

Challenges Unique to Physician-Led ACOs

Starting any ACO requires a large base of PCPs, solid information technology, and the administrative infrastructure to manage patients more robustly than ever, says Curnow.

Physician-led ACOs may have the access to PCPs, but the other two can be problematic, he says. These groups may lack the financial means and the historical experience with managing patients in a population-based manner that are required to succeed.

The start-up costs will vary greatly for each group, Merrill says, but it can be millions of dollars for larger ones. Less will be spent, and it will be spent differently, for smaller ones, he says.  

Other obstacles faced by physicians looking to form an ACO include having to create higher levels of collaboration, with both PCPs and specialists, than they are used to. 

“Physicians have seldom demonstrated the ability to effectively organize themselves into groups, agree on clinical guidelines, and devise ways to equitably distribute money,” Curnow says.

Having professional administration in place to support such necessary functions is a key first step, Curnow says, as is becoming a patient-centered medical home.

A Question of Autonomy?

No doubt at least some physicians are seeking to form ACOs out of a desire to have greater autonomy in their work. However, Bagley believes that many of them will find that autonomy is an impediment to success. 

“Physicians should have clear decision-making authority over diagnostic and therapeutic matters (but) that does not mean that everyone just does what they want. Physicians have to agree on best practices, using systems like the electronic health record registries, e-prescribing, and generic drug use. They must standardize treatment to the degree that it is possible,” he says.

“Autonomy may be the ultimate cultural issue that will make this transition difficult.”

Kirschner also sees physician autonomy as a difficult concept.

“Depending on the contractual relationship with the payer, the physician may be freed from various prior authorization and similar administrative hassles. On the other hand, the ACO environment encourages the development of shared treatment protocols that generally must be followed by the participating providers,” he says. “These protocols are typically developed by the participating providers and aim to improve efficiency and increase quality and patient safety.” It is unclear if physician-led ACOs have more or less leverage in negotiating with third-party payers and hospitals. Variables such as existing competition will matter more than ACO ownership, experts say.

However, Kirschner says physicians in a physician-led ACO will likely have a greater say in issues such as how care is delivered and revenue shared, and the nature of the contract with the payer, than in an ACO dominated by a hospital.

How This Differs from Capitation

Some physicians are wary of forming or joining ACOs because they remember the failed efforts at capitation that occurred 2 decades ago. Curnow stresses, however, that ACOs are diffent beasts.

“We have so much more technology and resources available to us today to pursue population management,” he says. “Also, ACOs emphasize the importance of quality standards. Access to shared savings only comes through the creation of quality metrics, and patient satisfaction is part of that. This is not just about trimming costs.”

With capitation, patients were often stuck in a plan. With ACOs, if they are not happy with the care they are receiving, they can go elsewhere. This makes ACOs more sustainable and valuable, he says.

Financial Models

Many models of funding are being tried for physician-led ACOs, Curnow says. Some are physician-owned, some are joint ventures with capital partners, and others are integrated systems with primary care as well as specialist ownership.

The typical economic model will be that patients are assigned to an ACO based on their PCP. A benchmark budget will be established, most likely based on recent years’ expenditures, and the ACO will need to provide the resources to generate value. 

“Fee-for-service is not going anywhere anytime soon. There will always be room for it,” he says. “But more and more money will begin to be tied to performance.”   

Kirschner says financial arrangements will vary, depending on the model that is being used by the ACO. For example, are most participants employees of the larger entity or are they independent providers participating under the ACO umbrella?

“One relatively common sharing arrangement consists of a combination of a portion of the shared revenue shared equally, a second portion based on the productivity of the provider (for example, relative value units produced), and a third portion based on quality measures,” he says.

Bagley agrees that there are no fixed rules yet, but says that generally the global payment received by the ACO will be distributed in proportion to the value contributed by each component. 

“Each component (such as primary care, specialty care, hospital, imaging, lab etc.) would have to demonstrate its contribution to the effectiveness and efficiency of the overall enterprise. If they are distributed in the same way they are now, then nothing will happen regarding the cost escalation,” he says.

With commercial payers, ACO contracts generally still resemble fee-for-service arrangements but offer incentives for achieving savings, Merrill adds.

“Most ACOs are built on a fee-for-service chassis,” he says. “At the end of the year, they reconcile how much has been saved and bonuses are paid accordingly.”

If done right, this can be a significant amount of money, according to Kirschner. Adding longer office hours and a 24-hour triage phone service with access to patient records alone can avoid many costly hospitalizations.  

Will Physician-led ACOs Last?

As for the question of whether physician-led ACOs are sustainable, Curnow says they show immense promise.

“They let physicians advocate for the needs of patients, especially if the reimbursement model changes to diminish volume-based payments,” he says. “Physician-led groups can be strong, effective advocates for their patients in a way that creates satisfaction, quality, and access. They can yield higher satisfaction for physicians and patients while lowering costs.”

Merrill says, however, that the system of no-risk ACOs is probably not sustainable in the long term. “It is more of a transition and will likely lead to a more shared model of risk in the future,” he says. 

 “The path may not be easy,” Curnow says. “A lot of the things we need, such as better EHR technology, are hard to come by,” he says. “It will take time and patience.”

 But he encourages physicians not to be dissuaded. “We all need to come to terms with the fact that things are changing and remember why we are doing it,” he says.  “Develop a concrete, transparent plan to get there. It may be a messy transition getting off the hamster wheel of fee for service, but it is worth it, for doctors, for patients, and for society.”



Changing patient behaviors

The success of any accountable care organization (ACO) requires actively engaging patients in their own care. By working together, physicians and patients can achieve more transparency, coordination of care, and accountability, says Randall Curnow, MD, MBA, chief medical officer of Summit Medical Group in Knoxville, Tennessee.

Patients want to be educated about their health and about the most efficient ways to access quality care, he says. They do not want to end up in the emergency department any more than you want them there.

“Teach them how to make their lives better,” he says. “They want a more efficient system, too.”

Bruce Bagley, MD, interim president and chief executive officer of TransforMED, a subsidiary of the American Academy of Family Physicians, stresses that physician need to not only engage patients; they also need to engage patients’ families and caregivers. He suggests that primary care physicians:

  • use techniques such as motivational interviewing to learn what is important to them all and

  • set shared goals while offering alternative ways to meet them, such as participating in a support group or using home monitoring equipment.

“We cannot just give them a prescription and tell them to come back in 6 months,” Bagley says. “If we put more effort into lowering [body mass index] instead of just managing medications, it would really pay off.”

Neil Kirschner, PhD, senior associate of regulatory and insurer affairs for the American College of Physicians, says that ACOs may need to hire care coordinators to follow up with patients about how they are doing with initiatives related to health, such as eating better, exercising more, or stopping smoking, but they need to tread gently.

“You don’t ever want to become punitive with patients,” he says. “They may not be able to make all of the changes you are asking of them, and pushing too hard can be a lose-lose.”



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