Analysis: The pros and cons of large statewide ACOs

Healthcare Dive article this week highlighted efforts by Caravan Health, a population health management company, to establish statewide Accountable Care Organizations (ACO) in Mississippi, Florida, and other states. According to the article, “any of the 200-some Florida Hospital Association facilities that want to participate can join together to provide coordinated care.” The intent of creating a statewide “super-ACO” is to achieve the statistical stability in target prices that comes with “being on the right side of the law of large numbers.” 

However, as experts in the article pointed out, “The scale of large ACOs makes them much more difficult to manage. ACOs have a single set of policies that, in an organization involving more parties, needs to be adopted in one form or another that’s acceptable to all participating providers.”

Takeaway

All things being equal, it’s always better to have 80,000 lives in your health plan or shared risk contract than 8,000. What’s unclear is whether it’s better to be big or tightly integrated. And this effort will give us an opportunity to find out. My initial reaction is that I’d rather be tightly integrated.

Certainly, the data and care coordination tools provided will likely facilitate integration, it’s not clear to me how the current incentives create accountability at the physician level for results. First, it’s going to depend on the risk assumed by the ACO sponsor versus that assumed by the participant. So, if the sponsor insulates the participants from potential downside losses, which will increase participation, the sponsor also will take a bigger share of any upside and vice versa. And unless you push most of the risk to the participating facilities, which will decrease participation, the risk/reward equation presented to any one hospital is likely not strong enough to overcome fee-for-service’s gravitational pull. It’s a sort of “tragedy of the commons.” For example, will each health system be willing to reduce unnecessary referrals to their captive skilled nursing facilities in favor of home health? Or will they be willing to redirect referrals for outpatient imaging services to freestanding sites of service, even if they own them? 

Second, let’s say there are 50 different hospitals participating, there also are probably hundreds of different physician compensation plans. With so many compensation plans, it’s difficult to see how any of the potential savings will consistently trickle down to frontline providers who are going to engage with the data to redesign care and to care coordinators to manage complex patients.

Finally, ACOs tend to succeed when there’s strong physician leadership that sets a standard and holds colleagues accountable to that standard. That’s difficult to do when you don’t know your colleagues who practice in a group on the other side of the state.