An accountable care organization (ACO) represents a consortium of doctors, hospitals, and other providers who contract to take financial responsibility for the quality of care. As such, it faces a complex incentive problem, needing to identify contracts that allow it to meet its quality and cost targets. An ACO also needs to establish contracts with providers that incentivize them to provide efficient, high-quality care. In addition, the ACO must do this as the providers are simultaneously being paid using traditional volume-based methods, bundled payments, and a variety of alternative payment models. Whitman (2017) quotes Micky Tripathi, founder and CEO of the Massachusetts eHealth Collaborative, as saying, “What makes a successful ACO? As an industry, we don’t know.”

A consortium that decides to form an ACO contracts with Medicare for three years. Medicare sets a benchmark that is a weighted average of spending by beneficiaries that are attributed to the ACO. One implication is that consortia with high levels of spending in the past find it easier to meet cost goals. In contrast, commercial ACO contracts are based on a negotiated rate and a negotiated degree of risk.

For example, UnityPoint Health, a $4 billion system with 43 hospitals across Iowa, Illinois, Wisconsin, and Missouri, has a physician-led ACO that in 2016 covered 70,672 Medicare beneficiaries in the Medicare Next Generation ACO model. Through its self-insured health plan and its ACO contracts with private payers, including UnitedHealthcare, Wellmark, and Blue Cross and Blue Shield of Illinois, it covered another 255,379 individuals, with 102,125 of those in full-risk contracts (UnityPoint Accountable Care 2017). UnityPoint did not reduce costs in its first attempts at a Medicare ACO but ultimately developed a system for reducing costs. The system tracks high-risk patients, standardizes care pathways, uses analytics to understand the population it serves (and the care being provided), and emphasizes incorporating behavioral health into primary care.

UnityPoint Clinic, which has 500 physicians across Iowa and Illinois, now bases 86 percent of compensation on productivity. By 2020 it plans to have 33 percent of physician compensation based on productivity, 33 percent based on salary, and 33 percent based on cost, quality, and satisfaction measures (Barkholz 2017). The logic is that provider payments need to be aligned with payments for care.

Discussion Questions

• Why is creating a successful ACO difficult?

• How many Medicare ACOs are there? How are they structured?

• How many commercial ACOs are there? How are they structured?

• How many Medicaid ACOs are there? How are they structured?

• Is the number of ACOs increasing or decreasing?

• What outcomes represent success for an ACO? What predicts success?

• Do ACOs that accept more risk get more shared savings? Why?

• Do some ACOs improve clinical quality? How do they do it?

• Do some ACOs improve patient satisfaction? How do they do it?

• How does being paid in varied ways complicate ACO design?

• How does being paid in varied ways affect provider incentives?

• What sort of incentives does pure volume-based payment create for providers?

• What sort of incentives does a mixed payment model create for providers?

• What sort of incentives does pure salary create for providers?

• How does MACRA affect incentives to create a Medicare HMO?

• What incentives does the Medicare benchmark create?