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The American Journal of Managed Care December 2014
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ACO Contracting With Private and Public Payers: A Baseline Comparative Analysis
Valerie A. Lewis, PhD; Carrie H. Colla, PhD; William L. Schpero, MPH; Stephen M. Shortell, PhD, MPH, MBA; and Elliott S. Fisher, MD, MPH
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Julie Schmittdiel, PhD; Marsha Raebel, PharmD; Wendy Dyer, MS; John Steiner, MD, MPH; Glenn Goodrich, MS; Andy Karter, PhD; and Gregory Nichols, PhD
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Manasi A. Tirodkar, PhD, MS; Suzanne Morton, MPH, MBA; Thomas Whiting, MPA; Patrick Monahan, MD; Elexis McBee, DO; Robert Saunders, PhD; and Sarah Hudson Scholle, DrPH, MPH
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Arun Mohan, MD, MBA; M. Brian Riley, MA; Brian Schmotzer, MS; Dane R. Boyington, PhD; and Sunil Kripalani, MD, MSc
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Melissa A. Greiner, MS; Laura G. Qualls, MS; Isao Iwata, MD, PhD, EdM; Heidi K. White, MD; Sheila L. Molony, PhD, APRN, GNP-BC; M. Terry Sullivan, RN, MSW, MSN; Bonnie Burke, MS; Kevin A. Schulman, MD

ACO Contracting With Private and Public Payers: A Baseline Comparative Analysis

Valerie A. Lewis, PhD; Carrie H. Colla, PhD; William L. Schpero, MPH; Stephen M. Shortell, PhD, MPH, MBA; and Elliott S. Fisher, MD, MPH
The authors find 51% of accountable care organizations have private payer contracts, which are more likely than public contracts to include downside risk and upfront payments.
Objectives
The accountable care organization (ACO) model is currently being pursued by private insurers, as well as federal and state governments. Little is known, however, about the prevalence of private payer ACO contracts and the characteristics of contract structures or how these compare with public ACO contracts.

Study Design and Methods
Cross-sectional analysis of the National Survey of Accountable Care Organizations (n = 173) on ACO contracts with public and private payers and private payer contract characteristics.

Results
Most ACOs had only 1 ACO contract (57%). About half of ACOs had a contract with a private payer. The single most common private payer ACO contract was an upside-only shared savings model (41%), although the majority of private contracts included some form of downside risk (56%). A large majority of contracts made shared savings contingent upon quality performance (79%), and some included bonus payments for quality performance (39%). Most private payer contracts included upfront payments, such as care management payments (56%) or capital investment (17%). Organizations with private ACO contracts were larger and more advanced than ACOs with only public payer contracts.

Conclusions
While there are fewer ACOs with commercial contracts than public contracts, commercial contracts are more likely to include both downside risk and upfront payments.

Am J Manag Care. 2014;20(12):1008-1014
This study drew from a national survey of accountable care organizations (ACOs) to examine the prevalence of private payer ACO contracts and the characteristics of contract structures, as well as to determine how these compare with public ACO contracts.
  • The majority of ACOs had only 1 ACO contract, and about half of ACOs had a contract with a private payer.
  • Private payer ACO contracts were most often shared-savings models, and the majority of private contracts included downside risk.
  • Organizations with private ACO contracts were larger and more advanced than ACOs with only public payer contracts.
Private and public insurers continue to pursue implementation of the accountable care organization (ACO) model, a value-based payment and delivery model in which a group of providers is held accountable for the cost and quality of care for an assigned patient population. ACOs are present in 55% of local healthcare markets,1 and recent estimates suggest that more than 14% of patients receive their care from a provider that is part of an ACO.2-4 State Medicaid agencies have also developed ACO models,5 as have a number of private insurers, including Aetna, Blue Cross Blue Shield associations, Cigna, and United HealthCare.6,7 Despite the number of provider organizations implementing the ACO model and the growing understanding of Medicare ACO programs, little is known about what types of ACO contracts are being pursued with commercial payers and what types of provider organizations hold these contracts or the details of these contracts.

Understanding the nature of ACO contracts is critical to even beginning to understand the potential effect of the ACO model on healthcare costs and quality. Critics of the ACO model have suggested that most ACOs will have difficulty implementing the infrastructure they need to effectively manage downside risk.8 This raises questions about the characteristics of provider organizations that choose to sign an ACO contract involving financial risk. In addition, some have argued that ACO contracts, despite their ostensible emphasis on incentivizing quality, will in reality mirror managed care of the 1990s and potentially encourage physicians to skimp on necessary care to produce cost savings.9 Done correctly, ACO contract incentive structures could lead to desired outcomes of reduced costs and increased quality. But done poorly, incentive structures may lead to unanticipated consequences, such as inciting “upcoding,” to game risk adjustment schemes10 or encouraging physicians to attract low-risk patients, as some argue has happened in Medicare managed care.11-13 Before researchers and policy makers can assess these issues, a clear understanding of ACO contracts and their incentive structures is key.

Past attempts to characterize ACO contracts have focused on the arrangements of a singular insurer,14 a single compound of care (such as behavioral health),15 or the experiences of small convenience samples.2,16-18 In this study, we use new data from the National Survey of ACOs18,20 to systematically examine the prevalence of various types of ACO contracts (eg, Medicare, Medicaid, and commercial), the components of commercial payer contracts, and the capabilities of the organizations that are pursuing commercial payer contracts. Our data provide the first comprehensive, systematic picture of the commercial ACO contract landscape. Our results illuminate how commercial ACO contracts compare with public ACO contracts, as well as what types of provider organizations are pursuing each type of contract.

ACO CONTRACT FEATURES

We define an ACO contract as a contract that holds a group of providers collectively responsible for both the total cost of care and the quality of care for a defined patient population. Notably, this definition excludes several types of contracts that some may classify under the broad umbrella of “accountable care”: pay-for-performance that does not include responsibility for total cost of care, and capitation without a major quality component. Additionally, this definition excludes organizations that are selfidentified ACOs without a corresponding ACO contract.

ACO contracts may vary significantly in their design, including the level of financial risk assumed by the provider organization (ie, are providers eligible only for gains or are they responsible for any losses incurred?) and how the cost and quality of care are measured and rewarded. Table 1 provides illustrative examples of some major public and commercial payer ACO contracts. ACO contracts are generally based on one of 3 payment arrangements: shared savings, global budgets, and capitated payments. Under shared savings models, providers are reimbursed via fee-for-service, and at the end of the year split with the payer any savings generated (as measured against prespecified benchmarks). Providers are often eligible to keep a larger proportion of these savings if they also agree to share in any losses or costs above prespecified benchmarks. The Medicare Shared Savings Program is a version of this type of contract. Under a global budget model, providers have a predetermined global budget for their assigned patient population that is reconciled at the end of the year. If costs are below the global budget, the ACO retains these savings; if costs are above the global budget, the ACO is responsible to pay back some or all of these losses. Under a capitated model, providers are paid in advance a set amount per assigned ACO patient and often bear full financial risk; they are responsible for any costs they incur above their capitated payment but retain any savings if their costs are below the capitated payment.

ACO contracts may reward quality through 3 major mechanisms. First, shared savings contracts can make all or a portion of shared savings contingent upon quality performance. In the Medicare Shared Savings Program, for example, providers can only share in savings if they meet quality benchmarks. Second, contracts may provide bonuses for quality performance. For example, the Alternative Quality Contract model paid providers bonuses above their global budget for achieving quality benchmarks. Finally, contracts may withhold a portion of payment and return it—contingent upon quality performance For example, under the Hennepin Health ACO arrangement, a portion of the capitated payment is withheld and returned to the providers only if the providers meet quality benchmarks.

METHODS

Survey Design


We used data from the National Survey of Accountable Care Organizations (NSACO) for this study. We designed the survey to capture key characteristics and capabilities of ACOs, along with the perspectives and outlook of their leaders. The Web and telephone survey included questions on ACO contracts, leadership, structure, organizational capabilities, and local context, as well as questions designed to understand respondents’ views on the potential of the ACO model (eAppendix, available at www.ajmc.com). These questions were designed based on frameworks for evaluating ACOs,21 other surveys, and interviews with ACOs. The survey was completed by executive- or director-level individuals at identified ACOs.

Survey Population

For inclusion in our study sample, we attempted to identify all ACOs that had been established by August 2012. Medicare and state Medicaid ACO program participant lists were publicly available. ACOs involving private insurers were identified from multiple sources, including Web searches, press releases, membership lists of ACO collaboratives, and previous surveys that had identified ACOs. In total, we identified 292 organizations potentially eligible for our survey. A set of screening questions at the beginning of the survey determined if a respondent had an ACO contract and was therefore eligible for the survey. Our survey was completed by 173 eligible ACOs between October 2012 and May 2013, with a response rate of 70%. The eAppendix includes more details on the survey design, population, and response rate.

Measures

The NSACO included a number of questions specific to ACO contracts and contract structures. Respondents were asked to indicate whether they were participating in Medicare and Medicaid ACO programs and to list up to 4 ACO contracts with private insurers. We only included contracts with private insurers if the provider organization had a signed letter of agreement in place or a signed contract.

Respondents were asked several questions on the structure of their largest contract with a private insurer (defined by the number of attributed patients), including payment and risk arrangements and total cost-of-care calculations. In our analysis, we describe the distribution of contract types and the structure of those contracts. We also compare the characteristics and capabilities of organizations with differing contract types (public vs private only, risk-bearing vs not risk-bearing).

RESULTS

Just over half of the respondents (51%) had an ACO contract with a private insurer (Figure), two-thirds had an ACO contract with Medicare either through the Pioneer Program or the Medicare Shared Savings Program, and a quarter had a Medicaid ACO contract. Most organizations had only one ACO contract (57%). Blue Shield Blue Cross associations represented the most common private payer (Table 2).

Respondents were asked to describe attributes of their largest ACO contract with a private insurer (Table 3). Private payer ACO contracts were most often shared savings models (69%). Most private payer contracts included downside risk (56%), either through capitation, global budgets, or shared savings models that included shared losses. In comparison, only 7% of Medicare Shared Savings Program contracts included downside risk. All Pioneer ACO contracts, by design, include some level of downside risk during the contract period.

Respondents reported that under private payer ACO contracts, the ACO received a mean of 56% of shared savings generated. In comparison, providers with upside risk only in the MSSP receive 50% of savings generated, those under MSSP with downside risk receive 60% of savings, and Pioneer ACOs receive 80% of savings. A large majority of private contracts made shared savings contingent upon quality performance (79%), a finding similar to the Medicare programs. Some ACO contracts included bonus payments for quality performance (39%), either in addition to contingent shared savings or as quality payments for those under capitation or global budgets. Most private payer contracts included upfront payments, such as care management payments (56%) or capital investment (17%).

We next examined what services are included in the total cost of care for which providers are held responsible under private payer ACO contracts. Nearly all contracts held ACOs responsible for costs associated with emergency department care, outpatient care, inpatient care, labs and x-rays, advanced imaging, and professional services (98% to 100%). Fewer included pharmacy (78%); durable medical equipment (78%); mental health or substance abuse services (60%); and vision, hearing, and speech services (50%). Medicare ACO contracts, by comparison, do not include pharmacy, vision, or hearing in the total cost of care calculation, but do include mental health and durable medical equipment.

 
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