Written by Ross Armstrong for HFMA

Becoming an accountable care organization (ACO) offers a hospital or health system a number of advantages. Saving money in the short term is obviously one incentive, but that might not be the main reason to start an ACO. Instead, ACOs might be more valuable for their structure, which helps healthcare organizations cross the chasm between volume and value.

The ACO structure engages providers to collaborate on coordinating and standardizing care delivery while simultaneously providing protection from a variety of legal issues (e.g., Stark and antitrust regulations, Anti-Kickback Statute) that threaten the creation of multi-provider integrated care delivery networks and the ability to incent providers for their performance. While there is potential for savings—32 Pioneer ACOs reduced their Medicare costs by about $118 million in their first year—the primary reasons for initial ACO development should be to solidify the system’s network of care through enhanced physician integration, incentivize quality, stem network leakage, and thwart the development of potentially competitive ACOs.

Enhance Physician Integration

Managing and coordinating the care of patient populations is not achievable without actively engaged physicians who have real authority to redesign care pathways and processes. The development of an ACO provides the impetus to standardize care and implement these evidence-based pathways. This is difficult to achieve, unless formal physician structures are developed within the ACO where physicians focus on limiting variation, coordinating care, monitoring performance, and ultimately holding each other accountable for their performance.

Getting independent physicians to work collaboratively in ACOs involves some trial and error, but typically physicians strive to develop and adhere to processes that create the best outcomes for their patients. Most physicians look to enhance their own performance—sometimes with the help of coaching from their colleagues—if they realize they are underperforming.

Incentivize Quality

Another advantage of ACO structures is that they can allow hospitals to financially reward physicians for enhanced quality and patient satisfaction. These performance measures will be critical to future financial stability, as the Department of Health and Human Services recently announced its goal of tying 50 percent of Medicare payments to quality or value by the end of 2018.

While increasing physician payments may seem counterintuitive to reducing the cost of care, these payments can help focus physicians on performance outcomes and help encourage them to keep patients within the network.

Stem Leakage

Investment in population health strategies requires accepting financial risk for defined populations to capture the value that is being created. When accepting risk, it is imperative that patients’ care is coordinated within the network; otherwise, an ACO loses the ability to ensure the provision of low-cost and high-quality care.

To understand which patients are leaving their care delivery network, systems need data that extends beyond what is captured in their electronic health records and financial systems. The Centers for Medicare & Medicaid Services (CMS) can provide ACOs with beneficiary claims data, which can help systems better understand how many patients are leaving their networks, which physicians are referring patients out, and where they are going instead for care.

This information reveals where networks have sprung holes, allowing ACOs to address underlying issues. Such issues may be as complex as one physician’s perceived concerns about another physician’s quality of care or as straightforward as roadblocks to scheduling follow-up appointments. For ACOs to be successful, they need mechanisms to help physicians address and rectify these concerns.

After determining the source of leakage, hospitals and health systems can take the following steps to stem leakage:

Understand and fix physician issues. Physicians should not be asked to refer their patients to specialists who have access, patient satisfaction, or quality issues. Administrators must determine whether these problems are real or merely perceived and then rectify the issues or dispel false perceptions.

Refocus marketing and communication resources. Some hospitals use significant marketing and communication resources on direct-to-patient media. Refocusing some of these resources on physicians can provide awareness of services offered, increase physician communication, and foster relationships, all of which can stem leakage.

Institute an online referral system. Investment in an online referral system can help streamline referral communication and provide additional patient information to ensure a better understanding of patients’ needs. And it can take the onus off of the patient to schedule the visit.

Use a Defensive Strategy

If the ultimate goal is to be part of a high-quality, cost-efficient, integrated care network, the ultimate fear is being left out of one. Hospitals aren’t the only ones getting in on the ACO game. Since the initial wave of formations, physician-only ACOs have become increasingly popular. While some physician have attempted to bring their local hospitals into their ACO network and are willing to share in the value that is created together, others are independently focused on generating shared savings, largely by reducing hospital volumes.

An ACO that is co-sponsored by a hospital may not have the ability to generate the same level of savings for physicians, but it is better equipped to support holistic population health efforts along the entire care continuum. With more than 400 Medicare ACOs now responsible for 7.92 million beneficiaries nationwide, according to CMS statistics, and the majority of the newer ACOs being specific to physician organizations, it behooves hospitals to be proactive in collaborating with physicians in setting up ACOs.

Stepping Up

Now that CMS has extended its one-sided risk ACO, known as Track 1, for another three years, hospitals that have not yet pursued an ACO may want to begin building their capabilities without the requirements of taking on financial risk.

But their initial focus should be on developing an integrated and highly aligned network of care, instituting controls to ensure patients remain in the network, and enhancing quality and satisfaction. Only then will the ACO be prepared to focus on reductions to unnecessary utilization and per capita costs, and only then should shared savings become a goal.

Click here to access the HFMA Summer 2015 Strategic Financial Planning Newsletter