Analysis: Where Do ACOs Fit in Light of Capitation?

By Heather Boerner
September 17, 2018

Health care is preparing for a move toward capitated care. But will the move include accountable care organizations? Some industry experts say whatever happens, it’s a risky business.

In the 1980s, Austin Regional Clinic, a network of Texas physician groups, was a fully capitated program serving 80,000 people.


Heather Boerner

When payers and employers moved to a fee-for-service compensation model, the organization abandoned capitation but, by 2010, it was edging back into the spotlight with the advent of accountable care organizations. Austin Regional was a member of Pioneer ACOs, funded by the Centers for Medicare & Medicaid Services as an alternative to fee-for-service payment models, but now it’s considering its options.

So far, it has moved from Pioneer to the first track of the Medicare Shared Savings Program, which funds ACOs. Eventually, it wants to assume full risk, says its chief medical information officer, Manish Naik, MD, a practicing internal medicine physician.

But how it gets there — and whether it’s as an ACO or some other value-based model — is up in the air. It will depend, Naik says, on regulations that come down from CMS. Will CMS give provider networks such as Austin Regional access to real-time panel and claims data, as well as engaged patients who want to be part of an integrated network? If not, Naik says the organization doesn’t see a lot of upside to taking on downside risk.

“We would actually like to get into a risk model,” Naik says. “But a risk model without the control we need is not a model for anyone.”

Back to the Future

Recently, Anas Daghestani, MD, an internal medicine doctor and Austin Regional’s CEO, sent mugs to the organization’s 300 physician members that read “Back to the Future.”

Indeed, ACO may be a relatively new term, but the concept isn’t. “What it is, is providing high-quality care at the right cost,” he says. “Call it value-based care, call it population health, call it an ACO.”

Or, call it what they called it in the 1980s: a health maintenance organization. Back then, health care was capitated, too — that is, providers received a set amount of money for the global care of their patients.

Some experts say today’s capitated model has the advantage of being paired with risk adjustment programs and quality measures. This shifts incentives by offering physicians more money for treating sicker patients and making them well.

The good part about that, of course, was that physicians had the power to try to drive down the cost of health care, which currently consumes about a fifth of the U.S. gross national product. The bad part is that early HMOs didn’t include any accountability for providing good care, so they developed a reputation for denying needed care or trying to move high-need patients out of their panels.

The advantage of today’s capitated model is that it’s paired with risk adjustment programs and quality measures, says Don Crane, president and CEO of America’s Physicians Group, which represents ACO physicians.

Those innovations shift incentives in two significant ways, Crane says. By offering physicians more money for sicker patients through risk adjustment, “rather than avoiding sick patients, you want them. And then you want to make them healthy,” he says.

With CMS providing bonuses to ACOs that hit cost-containment and improved-outcome measures, hitting the right measures ensures additional income. Conversely, if you don’t hit the numbers, “you’re going to go out of business,” Crane says.

Capitation and quality together, Crane says, could address the need to create better models to address the United States’ growing need for chronic care: an aging population, epidemics of obesity and opioids, and an increase in the number of other chronic conditions patients need physicians to address.

But it’s not the only model on the horizon. The integrated managed care model, exemplified by the Kaiser Permanente system, is expanding around the country. Hybrid insurer-provider networks are likely to grow, too, as are independent practice associations and medical groups working in a capitated model without using the ACO program specifically, Crane says.

So as CMS continues to change quality metrics and other policies, what this means for the future of ACOs is anyone’s guess.

Managing the Programs

When CMS Administrator Seema Verma said recently that ACOs that take on downside risk — those in the second and third track of the Medicare Shared Savings Program — are seeing improvements and cash savings, but that first-track, upside-only ACOs are not, it set off alarm bells for several ACO groups.

“The presence of these upside-only tracks may be encouraging consolidation in the marketplace, reducing competition for our beneficiaries,” Verma said in May, during an American Hospital Association conference in Washington, D.C. “While we understand that systems need time to adjust, our system cannot afford to continue with models that are not producing results.”

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The vast majority of ACOs — about four out of five — are on the first, upside-only track.

What Verma proposes, however, through a CMS rule reportedly in the works, is not a change to current policy, but a confirmation of the agency’s intention to stay the course. Under current policies, ACOs may stay on the all-upside track of CMS’ Shared Savings Program for only two terms, or six years.

Physician groups, including the National Association of ACOs, have been lobbying CMS to extend that time to three terms, to allow practices to build the infrastructure necessary to take on risk.

A recent survey by the association found that more than 70 percent of its members currently in the first track would rather exit the program than assume risk. A letter to CMS from the association, the American College of Physicians, the American Medical Association, the Association of American Medical Colleges and the Medical Group Management Association might help explain why.

“The financial position and backing of a particular ACO as well as the ability to assume risk depends on a variety of factors,” the letter says, “such as local market dynamics, culture, leadership, financial status, and the resources required to address social determinants of health that influence care and outcomes for patients with complex needs.”

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In 2014, CMS expanded the upside-only first track of the Shared Savings Program from one term to two. But now, Crane says, CMS is unlikely to go for a third.

Working out these differences and moving toward risk isn’t optional, Crane says. If practices don’t move fast enough, he says, voters might make the decision for them. Crane points to a California bill that would establish a new state medical board to set health care prices based on Medicare reimbursement rates.

“If we are not able to bend the trend and get a reasonable rate of growth in health care that mimics other sectors — if we continue to bankrupt families and state and federal governments — we will face draconian wage and price containment.”

Addressing Barriers Through Policy

But there are alternatives to upside-only ACOs or no ACOs at all. The hybrid models, independent practice associations and other capitated alternatives are one option. But there are others.

The “Track 1-Plus” model, piloted this year within CMS’ Innovation Center, would make penalties for not reaching quality goals proportional to a small practice’s revenue. The model also includes potential changes to how CMS measures quality and spending to account for local variations in healthcare costs.

Crane’s organization proposes another option — what it calls a “third option” — that would allow physician groups led by a primary care physician and midlevel providers operating at the top of their licenses to contract directly with CMS as so-called “clinically integrated organizations.”

Patients specifically would elect to join such an organization and be treated under the model for one trial year, and the organizations would be eligible for bonuses for meeting quality goals. It would also allow for real-time claims data for specialists and for prospective assignment of panels.

Bending the Arc

Daghestani and Naik of Austin Regional Clinic, which is a member of the Council of Accountable Physician Practices as well as Crane’s organization, like this option. The challenges they see in moving to a shared-risk ACO track aren’t entirely the same as those that concern the National Association of ACOs — funding and social determinants of health — although they say those do matter.


Is your organization moving swiftly toward the accountable care model? Are you waiting to see what happens? Why? How can your experiences with risk help your fellow physician leaders?

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Daghestani and Naik are more concerned about the mechanisms of ensuring success for practices that have taken on risk.

If CMS could provide prospective rather than retrospective data on patients in their practice; if they could provide real-time claims data from specialists; if patients had to pay higher copayments when they leave the ACO network; and if patients knew they were in an ACO and bought into its goals — all this would signal to Austin Regional that it had the tools to really manage quality and cost at the same time.

“The issue for us is the way ACOs are set up right now, we don’t have the controls to be successful,” Naik says. “We don’t control who is attributed to us. The patients don’t select us, so they’re not engaged. And then it’s an open network. So we don’t have control over the total cost of care.”

Whatever the approach going forward — whether it’s under the ACO label or some other name — Naik says leaving ACOs probably won’t stop the move to capitation.

“There’s every reason to believe the current business model of medicine is going to need to change,” Naik says. “It is not sustainable based on the cost of care. So something will change. And the logical transition is back to a risk model.”

Heather Boerner is a freelance health care writer based in Pennsylvania. She covers health law and policy for the Physician Leadership Journal 

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