Choosing an ACO: Inherent Risk and Leadership

When the final Medicare Shared Savings Program (MSSP) regulations were published in November 2011, a vast majority of mandates for the program remained unchanged from their proposed format. Despite this fact, the modifications that were made significantly altered the value proposition of the accountable care organization (ACO) model for potential ACO participants. In general, the final regulations stated: lowered structural and financial barriers; decreased financial risk; and increased the probability of realizing shared savings. As a result of the loosening of the program’s regulations, CMS almost doubled its original estimate of the maximum number of potential MSSP participants.

To date, CMS’s optimism in regards to provider adoption of the MSSP and its associated ACO model seems to be justified. On January 1, 2012, 32 health systems and physician groups began their first performance period as participants in the Pioneer ACO program. In addition to these trailblazing organizations, an increasing number of hospital- and physician-driven organizations across the country are in the process of evaluating or developing ACOs.

Given the momentum that appears to be building in regards to ACO adoption, physicians who are attracted to the model may find that they have more than one ACO to choose from. While choice is often valued by healthcare professionals, it can lead to anxiety and frustration when the decision is highly complex and the outcome is relatively ambiguous. For this reason this series is dedicated to presenting a number of key factors that physicians and their practices should consider when selecting an ACO:

• Inherent risk;
• Leadership structure;
• Network composition;
• Required investment;
• Ability to realize savings; and
• Incentive distribution methodology.

Inherent Risk

There are a number of factors that should be considered when physicians are assessing the comparative attractiveness of ACOs. Many physicians may find that gaining an understanding of the inherent financial risk associated with each ACO is a good starting point for their evaluation. While CMS’ proposed regulations placed all would-be ACOs at risk for higher than anticipated expenses, this is no longer the case. Under the final MSSP regulations, participating ACOs face a classic economic risk versus reward decision. ACOs that are willing to take on risk for “excess expenses” (Track 2) have the opportunity to share up to 60 percent of any realized savings while those choosing to forgo risk (Track 1) can only realize a maximum of 50 percent of any realized savings.

Physicians who are courted by more than one ACO should make sure to identify what each ACO’s stance is in regards to bearing financial risk. If they differ in their assumption of risk, physicians must determine whether they, personally, are more risk-loving or risk-averse. If a physician is risk-loving, he or she would tend to prefer to participate in a risk bearing (Track 2) ACO while those who are risk-averse would be expected to prefer to participate in a risk-free (Track 1) ACO.

In addition to understanding how each ACO is structured from a financial risk perspective (i.e. Track 1 participation versus Track 2 participation), physicians should also assess the level of risk that they personally will bear as a participant in each ACO. For example, will the physician be expected to repay the ACO for excess expenses attributed to the physician or their assigned beneficiaries? If the risk is born solely by the ACO, the distinction between Track 1 and Track 2 participation may become a moot point for potential physician participants. If the risk is born by the ACO and the participating physicians/physician practices, each ACO’s choice of “Track” should have a significant impact on its attractiveness to potential physician participants.

Leadership

Leadership and governance structure is a second characteristic that can help physicians differentiate ACOs from one another. At first glance, leadership and governance structures for ACOs may seem relatively uniform. This is due to the fact that the MSSP has placed several restrictions on how an ACO’s leadership and governance team may be structured. For example, physicians must represent at least 75 percent of any ACO’s governing body and each ACO must appoint at least one Medicare beneficiary to its governing body. Although the high level composition of all ACOs’ governing bodies and leadership teams has been mandated, ACOs can and will make themselves more or less attractive to potential physician participants based on how artfully they comply with these mandates.

Any physician who is considering participation in an ACO should feel confident that he or she will have a voice in the vision and direction of the organization. Board composition can be a good indicator of how aligned an ACO will be with the interests of a particular physician. Potential physician participants should pay close attention to whether their specialty is represented within the ACO’s leadership team and to what extent. If the ACO includes more than one organization (i.e. if it consists of multiple IPAs or hospital participants) physicians should also consider what percentage of the leadership team will come from their organization and how this compares to the other participating organizations.

In the next part of this series, Redding explores three more considerations in joining an ACO: network composition, required investment, and the likelihood of realizing savings.

John Redding, MD, MBA is a manager at Blue Consulting Services. In this role, he works with health systems, hospitals, and physician organizations to develop collaborative physician-hospital working relationships and business ventures. E-mail him here.