Blog : ACO

Value-Based Contracting Strategies From All The Large Payers

Value-Based Contracting Strategies From All The Large Payers

Kevin Riley will be moderating a panel of accountable care experts this week at the 2016 FLAACOs Conference. Our session, Value-Based Contracting Strategies From All The Large Payers, asks the big questions from big thinkers at UnitedHealthcare, CIGNA, Florida Blue, and Aetna.

We see this topic as one of the four pillars of innovation, that is driving modern healthcare in the United States.

  1. Remove the inefficiencies in the system that create waste and allow for fraud.
  2. Continue to drive the onus for an individual’s health to the consumer.
  3. Change risk-sharing models to better incentivize providers.
  4. Move care from high-cost to low-cost venues.

The intent of ACOs is to move away from the traditional pay-for-service model to one that better aligns care with the holistic needs of the patient all within a more affordable cost structure. If you want to quickly learn about what an ACO is and how an organisation can benefit from becoming one – check out the Game of ACO from the National Council for Behavioral Health.

The Game of ACO

The session is Friday, October 14, 10:30 am – 11:30 am, right after the Key Note. The event is held at the Omni Orlando Resort Champions Gate. We hope to see you there.


Kevin Riley, imagine.GO,

Andy Marino, Florida Blue,

Michelle Copenhaver, Aetna,

Ruth Fricke, United Healthcare, 

Mike Howell, CIGNA,


imagine.GO provides rapid product innovation for healthcare companies using our proprietary delivery methodology modelH. We speak and write quite a bit about value-based healthcare models.  You can read more here:

to your health,

The Team at imagine.GO

Speaking on Technology and Networks that Support Consumerism

Speaking on Technology and Networks that Support Consumerism

PANEL DISCUSSION: Power to the Patient: Technology and Networks that Support Consumerism

Tuesday, February 26, 2013 at 1:30 – 2:45 in Arlington, VA 22201; 6th Annual Consumer-Directed Healthcare Forum

Consumer-directed healthcare at its best empowers consumers-providing information about price, quality and treatment options; offering network options and incentives, including access to low cost self-care and retail healthcare; and providing tools, technology and interventions that help consumers make the best choices possible. Finally, you’ll learn the value of providing members access to critical pricing and quality information. Key takeaways include:

  • Learn about demand management programs that educate members on proper utilization of services.
  • Explore trends and development in the availability of price and quality data.
  • Gain insights on the evolution of retail healthcare and learn what’s coming next.


To your health,

The Team at imagine.GO


What Makes an ACO Work – part 2

What Makes an ACO Work – part 2

This post is part 2 in a series of 5 that looks at Accountable Care Organizations and what will make them work as intended this time around, unlike managed care in the 90s.  For this post, I wanted to focus on why we even need payment innovation in healthcare. Innovation for its sake, when so much of the fundamentals in the healthcare system are in need of repair, would be superfluous. But changing the way we pay for care, which changes the incentives for practicing necessary medicine in a fixed capacity market, is vital to the survival of the system as a whole.

Unnecessary Medical Services The Atlantic
Source: The Atlantic

Innovative Payment Ideas May Save Healthcare

In a post healthcare reform world, there will be a primary care provider shortage.  Regardless of the number of primary care providers existing pre-healthcare reform, this shortfall was bound to be inevitable when you add millions of new patients into limited bandwidth. There is only so much “care” to go around, and while technology can automate some of it, not all medicine practiced today is needed. The Institute of Medicine estimated that in 2009 approximately $210 billion was spent on unnecessary medical services.  This cost becomes a great place to start – by removing what we do not need.

The other deeply relevant factor in this equation, probably even more so than care availability and cost, is that the overall health of Americans is in steady decline. This likely bodes for a sick, and expense, future.  As you can see from the graphic below, the trends in diabetes diagnosis alone have become alarming. Keep in mind that an average diabetic cost their insurance plan approximately $6,000 to 10,000 per year. Also, based on a recent survey conducted by Consumer Reports Health, diabetes patients spend an average of $6,000 annually on costs for treating their disease.

Source: CDC – The Growth in Cases of Diabetes from 1990 to 2010
Source: CDC – The Growth in Cases of Diabetes from 1990 to 2010

So, let’s jump in a little deeper and discuss how healthcare is paid for today and into the near future. To get a background on what we will cover in this discussion, please refer to my previous post here.

The payment model spectrum

payment model spectrumThe adjacent image shows a spectrum of how healthcare is managed and paid for in the United States. The area in lighter blue represents the monies paid into the “system” for care, while the darker blue shows the amount “at-risk” by the care providers.  The intent is to move away from a fragmented fee-for-service model that only responds to volume, has limited integration across care providers, and treats health in a reactive model. Many label this as “sick-care.”

The goal then would be to move toward an integrated model that aligns incentives around what is really valuable and aims to provide a great patient experience, quality care, and controlled costs. Let’s refer to this as true “health-care.”

To understand why this spectrum must move from the traditional model to a shared-risk model, I want to explain the misalignment of the current model through an allegory.  Think of your health and your doctor through the lens of your automobile and your car mechanic. You want your mechanic only to fix what is broken, quickly, and at a good price. You also expect him to spot trouble before it arrives and be honest with you in how much things cost.ACO Explanation - mechanics working on a car


This model is essentially a la carte, pay as you go. So for every service given, a fee is added to the bill. Many would look at that statement at face value and claim that it is just market economics, and people will only “buy” what they can afford. I have a few retorts to that thinking.

First, buying health is not like purchasing consumer electronics – when it comes to their health or life, consumers want only the best and often – more is considered better. Statistics are frequently cast aside because everyone wants to be the recipient of the expensive and potentially unproven care regimen regardless of its efficacy. In behavioral economics, this is known as the “bandwagon” effect.

Second, consumers are not paying for the service – their insurance company is.  Or in the event they are uninsured and receive care at a hospital emergency room, the government or another entity is likely paying for it. I make no issue with government sponsored or government reimbursed care. I simply point out that in either case, the purchase decision consumers make (the patient) are not the same thing as the buyer – so there is a discounting that is applied in consumer’s minds. The result is more services, more fees, and a spending trend that will bankrupt the country.ACO Explanation - mechanic diagnotic test

So using our car mechanic model, the consumer wants to get every diagnostic test run on her car, regardless of their proven effectiveness and sends the bill to her auto insurance company. And if the tests were not useful, or unnecessary or did not yield results, it would still have to be paid.

By the way, in real life, this scenario would be a fallacy as auto insurance only covers accidents, not routine maintenance or “wear and tear.”  There is a clear reason for this – it is financially untenable.  Why then should healthcare be forced into this payment model when it has proven to be unsustainable?

Pay-for-Performance / Quality-Based Incentive Programs

This model is a step in the right direction.  Here health care providers are being paid more for services when they achieve desired outcomes in efficiency, quality and patient safety measures.  This approach is a smart modification to the open market model of fee-for-service in that it creates the right incentives. But the misaligned incentive of more services for more money, unfortunately, still exists.ACO Explanation - mechanic working on a car with customer

In our car mechanic example, the consumer would still get every diagnostic test run on her car, but the mechanic would be paid more when the tests were proven to yield results. Consumers would only go to the best mechanics that have proven their quality.

In a world where only those who can afford insurance get it and the rest pay cash, this model would work very well. Insurance plans would negotiate with the providers that offer the best performance and highest quality. But healthcare is about our entire population. And under healthcare reform, many more patients will be entering into the system. Therefore, any form of care financing that encourages more cannot be sustainable across a population. It is the classic tragedy of the commons.

Bundled Payments for Episodes of Care

The bundled payment model creates a set of high-efficacy, evidence-based services for a given episode of care. A single payment is then given to the care providers for all clinically related services.  The actual providers assume the clinical risk for items such as complications and readmissions. This coordination creates a sharing of the risk between insurer and provider and establishes a baseline of “accountable care” for a given health episode. “Bundles” are created for many of the most common episodic health needs.

ACO Explanation - mechanics lots of mechanics on a carGoing back to our mechanic example, this is equivalent to going into a well-established chain that has fixed prices for known services, like changing out brake pads on your type of car. How is this done profitably in the auto world? Simple, the mechanics are experts at certain types of services on specific types of cars and have honed their skills to the point of being highly accurate in their estimate of time and materials. In as much, they can offer a known cost to the consumer, which is much more attractive than an open-ended “we will get back to you.”  Healthcare should be no different. Whether it is the insurer, government or individual who is paying, we all need to know how much it is going to cost up-front to make a smart decision with fixed resources.

But like mechanics, not all providers are equal. Some are quite good at certain services and have developed “centers of excellence.” One example is the great orthopedic surgeons that have 10,000 “scoped knees” under their belt. They have mastered this procedure and are confident in their ability to deliver it at a fixed price. So just because a hospital wants to provide a service, does not mean they should or that they should be paid as much as the center of excellence. If hospitals would focus more on developing these strong disciplines, the market would very likely respond by generating more business in the areas they are the best at serving.

Patient-Centered Medical Homes (PCMH)

Bundled payments work very well for episodic care. But not all care is episodic. How do we treat the every day acute illness and ongoing wellness with the same financial consideration? This situation is where Patient-Centered Medical Homes come into the picture.ACO Explanation - mechanic chain

In a PCMH, a “primary” person, usually the patient’s primary care physician (PCP) coordinates a team of care providers who share responsibility for a patient’s care. Moreover, when required, the PCMH can arrange for the patient to receive care from other qualified physicians. This situation includes caring for the patient at all stages of their life including end-of-life care. A PCMH also assumes responsibility across the spectrum of care needs: acute, episodic, chronic, and preventive.

In our ongoing example, the primary technician at your local automobile garage would take responsibility for your car, and coordinate getting it fixed and keeping it running, as needed, with other auto technicians as necessary. You, of course, would be willing to pay an on-going fee to the mechanic to ensure it happens. If your car goes bust, the risk is on the mechanic who was being paid to ensure it was running smoothly.

To me, this model makes tremendous sense as a consumer. I want to have one guiding voice across all of my needs and all of my life stages. It would result in a deep, trusting relationship with my primary care provider. However, it does have its drawbacks. Coordination is expensive and time-consuming and requires the infrastructure to pull it off. This fact means PCMHs are out of the realm of possibility for small practices. It would take a vertically integrated hospital network, an independent physicians network, or a large practice to afford the necessary capabilities and be able to handle the financial risk.  Does this mean the end of the solo doctor? Perhaps. It may be one of the consequences of providing healthcare to everyone.

Accountable Care Organizations (ACOs)

So now we come to ACOs. These entities, which include both PCMHs and other providers, deliver coordinated care across a set population, which can be geographic, disease, or condition specific. The ACO is evaluated against, and subsequently paid upon, a benchmark for the total cost of care across the population, which incents them on their efficiency. Moreover, they are provided quality bonuses for superlative care. From a risk-sharing perspective, ACOs range from partial risk to full-risk.  With the higher risk comes much higher potential for profit.

So how are the benchmarks set? They are calculated using historical and trend data across a patient population.  Within the ACO, the lead provider is paid and is then responsible for distribution to all downstream providers. Like the PCMH, this requires another level of infrastructure that solo practitioners can likely not afford. But the point of population management is to aggregate the patients and their care in the most effective manner. The independent physician just does not make sense in this for care financing.

In our final car mechanic example, the ACO would be equivalent to your local garage being responsible for the maintenance of all the cars in your neighborhood. Each neighbor would pool their funds to pay the mechanic, who would take responsibility for all of the cars. Of course, you would all need to agree on the set fee, which is the hard part. It would be easier for the mechanic to take on risk if all of the cars were of the same model, or the same maker, or of a similar year.

Likewise, ACOs are most easily established around a disease state or chronic condition, due to the homogeneity of the patient population for which the ACO is assuming a risk. A fundamental success point for an ACO is that a population’s “risk” increases as it becomes more heterogeneous.

As you can see in the adjacent image, ACOs requires coordination across the ecosystem of stakeholders. The country has seen ACOs created around oncology, cardiology, and diabetes care. This case is because most of the care is provided through a set group of specialists, thus reducing the need for more coordination. ACOs will prove their worth when they are capable of being formed around a standard population of patients based on geography. This fact is where tremendous coordination will be required.

ACO Operating Model
Source: Risk Managers Blog


What will make Risk-Sharing Work?

So whether it is bundled payments, PCMHs, or ACOS, or a combination of all three, an infrastructure needs to be in place to enable them to be operationally sound and financially successful.  The healthcare system needs to invest capabilities that align incentive models around the Triple Aim (cost, quality, patient experience).

To your health,

The Team at imagine.GO


What Makes an ACO Work – Part 1

What Makes an ACO Work – Part 1

I decided to tackle the subject of innovation in healthcare financing, or how Innovative health plans are looking to disrupt their payment models. One reason I am focused on this subject is that healthcare reform while providing access to more consumers, does not address the underlying problem of year-after-year of escalating costs. Take Massachusetts for example, where all citizens can receive healthcare coverage – yet medical spend has continued to increase more than 7% year over year.


Rising Health CostsInnovative health plans are looking to disrupt their payment models.

To help control costs, payers and providers are increasingly agreeing to share risks by entering into innovative payment contract arrangements called Accountable Care Organizations, or ACOs. This concept is an important first step, and will produce a “first cut” of reduced healthcare costs as the incentives to practice only necessary medicine will be much stronger for all parties involved. However, to sustain the cost savings and produce a profitable and efficient healthcare system, payers and providers must invest in the enabling capabilities and experience framework that is necessary for parties to take a risk position and produce a “wins” for all stakeholders. The intent of ACOs is to move away from the traditional pay-for-service model to one that better aligns care with the holistic needs of the patient all within a more affordable cost structure.

WIKI defines ACOs as

“a healthcare organization characterized by a payment and care delivery model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. A group of coordinated health care providers forms an ACO, which then provides care to a group of patients. The ACO may use a range of payment models (capitation, fee-for-service with asymmetric or symmetric shared savings, etc.). The ACO is accountable to the patients and the third-party payer for the quality, appropriateness, and efficiency of the health care provided. “

The Centers for Medicare and Medicaid Services, or CMS defines an ACO as

“an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it.”

By either definition, it boils down to Insurers and Providers agreeing on how to share risk and the cost that is associated with that risk. Make no mistake; this has to be as much about cost savings as it is about care. The math insists on it, and I am fine with that. Continuing the trend in the current healthcare cost model, which shows no signs of stopping, coupled with many requirements mandated by the Affordable Care Act, in all likelihood would bankrupt the system.

What Drives Our DebtFor example, based on the Affordable Care Act, an ACO must agree to manage all of the healthcare needs for a minimum of 5,000 Medicare beneficiaries for at least three years. If we apply the current model to this new payment structure, I advocate that participants cannot break-even, let alone produce a profit. To ensure that ACOs work, the entire healthcare system needs to commit to a new model.

This approach includes helping Providers create a better model of care that is defined by more than just cost, yet allows them to be in agreement with how they are compensated and how they practice medicine. It also must result in more patient access to care inside and outside of the actual doctor’s office. And finally, Plans and Providers must work together to create meaningful patient experiences that result in behavior change or all of this is for naught. All parties involved in an ACO must be aligned and coordinated in their incentives and transparent in their distribution of risk.

A framework for sustainable ACO enablement

But risk-sharing contracts in and of themselves are not enough. After that begins the hard part. For ACOs to last, unlike managed care in the 90’s, they will need a sustainable framework to achieve cost, quality, and patient experience. ACOs will only succeed if participating healthcare providers have the people, process, and technology they require to collaborate on care amongst themselves, and with patients.

My position can be summed up as follows:

  1. ACOs are necessary for a sustainable healthcare system
  2. ACOs start with good risk-sharing
  3. ACOs require investment in enabling capabilities for:
    1. Data collection and analysis (data analytics)
    2. Practice workflow management (care delivery)
    3. Patient engagement (consumption)

What is the role of informatics in ACOs?

At the heart of effective risk, control is an intense investment in informatics. Imagine a hedge fund with the same level of risk tools and insight as what payers and providers have now. ACOs need enhanced information systems to track patients, coupled with economists and physicians that can make sense of the data and use it to determine how to deliver more effective care. I will cover this in more detail in a future BLOG.

What does improved care delivery mean?

Improved care delivery is not just the view of the Health Plan in regards to “necessary medicine”. It also means the provider believes they are practicing better medicine, and most importantly the patient confirms it. This approach requires a patient-centered approach to care management that focuses on quality, cost & the patient experience. Plans might consider helping finance provider practices in regards to providing improved capabilities for delivery of care. I will cover this in more detail in a future BLOG.

Can you create a winning care consumption experience?

Think of this as patient relationship management. This statement means creating engagement models that use carrots and sticks to get members to comply with evidence-based protocols, and enrich ties with their provider. It means creating an experience that ensures the patient is ready to receive care and leaves the provider committed to a plan of action that is manageable and traceable. I will cover this in more detail in a future BLOG.

Who is Leading the ACO Effort?

Hospitals and ACOs

ACOs are primarily about care, so most of the efforts are being driven from the hospital side. But Insurance Plans realize they must also get into the game or be left to live with its outcomes – whether they are advantageous to the Plan or not.

Here is a well produced 5-minute video on the Arizona Connected Care, an ACO based in Tucson, Arizona that is comprised of for-profit and non-profit practices, a hospital system, and a government qualified health care facility. The video, while somewhat of a commercial for Optum, highlights how several disparate provider practices have come together to create a better care model that incorporates informatics, experience, and risk sharing.

The Arizona Connected Care program was awarded participation in the Medicare Shared Savings Program by CMS, which rewards ACOs that lower the rate of growth in health care costs for Medicare beneficiaries while meeting performance standards on quality of care.

Insurers, Hospitals, and ACOs

Hospital systems are not the only ones putting together ACOs. According to The Commonwealth Fund, the majority (56.3%) of hospitals participating or planning to participate in an ACO said they were actively pursuing ACO contracts with commercial payers, including self-insured employers.

In the opinion piece “The End of Health Insurance Companies”, Ezekial Emanuel argues that Insurers will be disintermediated from the healthcare system. Some people believe that he is on the right track. The smarter insurers see this possible outcome as well and are doing something about it – mainly in trying to partner with regional care providers and create ACOs of their own.

Here are some examples of Plans and their ACOs.

  • WellPoint acquired clinic operator CareMore for $800 million last summer to make the transition into the ACO business.
  • HMSA, the largest blue plan in Hawaii, launched a new PCP pay for performance program that is supported by a member engagement portal known as Cozeva.
  • UnitedHealthcare, part of UnitedHealth Group, owns Optum who has invested heavily in developing the informatics services needed to enable ACOs.
  • Aetna announced a partnership with Banner Health Network to provide technology that will support a health information exchange within an ACO.
  • Another source at Geisinger Health System relayed that this well-respected health system is exploring their ACO enablement model, which is focused on data analytics and interpretation and clinical redesign, to sell as a co-branded product or consultative practice.
  • GuideWell launched 4 ACOs in 2012, starting with an oncology partnership in Miami between its parent company, Baptist Health South Florida, and Advanced Medical Specialties (AMS).
  • In California, a plan under the blue umbrella is experimenting with a new health plan, called Blue Groove that offers members a personalized, coordinated and collaborative approach to healthcare coverage.

Blue-GrooveDo ACOs Mean Less Money for Providers?

It is still early in the “reform era”, and like all innovations, ACOs are receiving some mixed press. According to J. Thomas Rosch, the Federal Trade Commissioner, Accountable Care Organizations will likely lead to “higher costs and lower quality health care”. Avik Roy reports that Rosch notes that the Centers for Medicare and Medicaid Services (CMS) have been running an ACO pilot (Physician Group Practice Demonstration) for several years and that the “even after five years of the project, a majority of the participating practice groups did not achieve any cost savings.”

Statements like this have generated concern for many doctors and hospitals that are looking at ACOs as a way for insurers to reduce their risk at the expense, and subsequent revenue loss, of the providers. Does this mean that ACOs will lower the profits for providers? Not necessarily.

According to the Health Research and Educational Trust, Hospitals will certainly see a change in revenue mix. Looking at the potential for a 10.7% drop in fee-for-service revenue looks disconcerting at first glance. But keep in mind, this is not a matching drop in profit. It costs money to apply fee-for-services, which are also reduced from the equation as those unnecessary services are removed. But take a look at the plus shared savings – this is where ACOs can conceptually shine. By practicing better medicine, and less of it, hospitals can reduce their operating expenses and actually improve their bottom line at the same time.

Final Words

ACOs do not have to be HMO 2.0. Capitation has already been tried before – but without the informatics, care delivery changes, and experience improvements that I advocate are necessary to make an ACO work. This time around can be very different, and we are only at the beginning of this journey.

Our next blog will look at understanding the payment model spectrum.


To your health,

The Team at imagine.GO

Speaking on ACO Enablement

Speaking on ACO Enablement

January 15-16, 2013 in Austin, TX

I will be giving a talk at the ACOs Summit in Austin, TX on January 16, 2013 starting at 8:55 am.  The program is “A framework for sustainable ACO enablement”. You can find more about it here.

ACOs Summit: A framework for sustainable ACO enablement

Insurers and Providers must first agree on how to share risk. After that collaboration begins the hard part. For ACOs to last, unlike managed care in the 90’s, they will need a sustainable framework to sustainable achieve of cost, quality, and patient experience.

In this session, you will learn about the essential ingredients in a value-based ACO framework that supports risk-sharing contracts long-term.

Key takeaways include:

  • Starting with a foundation of data and analytics
  • Ensuring care efficacy and evidence-based medicine
  • Improving care delivery and payment coordination
  • Creating a care consumption experience for patients/members

To your health,

The Team at imagine.GO