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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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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.
The mean length of a private payer contract was 3.2 years, with a range of 1 year to 9 years. Contract size varied across Medicare, Medicaid, and private payers (not shown in table). Medicare Shared Savings Program participants are required to have a minimum of 5000 attributed beneficiaries, while Pioneer Program participants must have 15,000 in most cases. However, a number of private payer ACO contracts (21%) cover fewer than 5000 beneficiaries. We compared contract features and size across specific private payers for ACO contracts. We found across the board that there was common variation on contract characteristics among payers. For example, there were similar proportions of risk-bearing contracts, upfront payments, and services included in the total cost of care across the private payers shown in Table 2.

We conducted some additional analyses on private payer contracts not presented in our tables. First, we examined common structures of private payer ACO contracts. The most common structure involved a shared savings model with no downside risk, under which receipt of shared savings was contingent on meeting prespecified quality metrics (n = 20). These structures mirror the financial model of the Medicare Shared Savings Program.

Additionally, respondent organizations were asked whether they believed the amount of risk they would be assuming in their largest commercial ACO contract would be sufficient to influence their behavior to try to achieve targeted cost and quality goals. More than 60% indicated they “agreed” or “strongly agreed” that the risk they assumed in their first performance year would be sufficient. Interestingly, the proportion agreeing or strongly agreeing did not differ significantly between those without downside risk (64%) and those whose contracts included downside risk (62%).

Finally, we examined characteristics of organizations with private payer ACO contracts compared to those with only a public payer contract (Medicare or Medicaid) to understand systematically what kinds of provider organizations were taking on private payer ACO contracts (Table 4). Organizations with private ACO contracts were more advanced than those with only public ACO contracts: they were significantly more likely to be an integrated delivery system (69% vs 36%) or include a hospital (72% vs 53%). ACOs with private contracts also had somewhat higher care management capabilities (38% vs 28%) and levels of meaningful use among primary care physicians (43% vs 37%), although neither of these differences were statistically significant. In addition, organizations with private ACO contracts had greater numbers of participating providers: ACOs with private contracts had significantly more full-time-equivalent primary care physicians (219 vs 138) and specialists (342 vs 137). Notably, organizations with private ACO contracts were more likely to have experience with pay-for-performance initiatives than organizations with only public ACO contracts, although they had similar levels of experience with other health reform efforts, including patient-centered medical homes, public reporting, and risk-based contracts.

Similar results were observed when comparing the capabilities of ACOs that indicated they bear financial risk as part of their ACO contracts compared with those that do not. Along with more experience with pay-for-performance initiatives (97% vs 85%), risk-bearing ACOs also had significantly more experience with various other healthcare reform efforts, including public reporting (92% vs 80%) and risk-based contracts (83% vs 55%).


This work provides some of the first empirical evidence on the nature of private payer ACO contracts, the characteristics of ACOs with private payer contracts, and how those organizations compare with other ACOs. ACO contracts are relatively new, with Medicare initiating pilots in 2005 and broad programs in 2012, and private payers piloting contracts beginning in 2009.

Among private contracts, only the Alternative Quality Contract (a Blue Cross Blue Shield program in Massachusetts) has been described in detail publicly. Our results show that private payer ACO contracts are varied in nature with different types of incentive programs in place. The single most common type of commercial contract is upside shared savings only (41%) with no risk for overspending; although when one combines all types of risk bearing (shared savings with downside risk, global budget, and capitation), the majority of commercial-payer ACOs are under contracts that include downside risk. Most contracts reward quality by basing financial rewards (ie, shared savings) on quality. Additionally, unlike Medicare ACO contracts, most commercial-payer ACO contracts include upfront payments, typically in the form of care coordination or care management payments.

In addition to shedding light on the nature of private payer ACO contracts, this work examines the types of ACOs that currently have private payer contracts and how they compare with ACOs with only public payer contracts. Public ACO programs, in particular Medicare, are the largest force in the ACO movement, with 80% holding an ACO contract with Medicare or Medicaid, compared with only 50% holding an ACO contract with a private payer. Medicare contracts may be most common for a variety of reasons: our results show ACOs with commercial contracts may have more care management and information technology capabilities than ACOs with only Medicare and/or Medicaid ACO contracts, suggesting that less advanced organizations may first pursue public ACO contracts. Medicare contracts may also be perceived as more straightforward. Rather than involving a negotiation with a commercial payer, joining the Medicare Shared Savings Program involves submitting an application. The program’s prespecified quality measures and financial benchmarking may be more manageable for provider organizations to understand and do not require them to negotiate on complex or unfamiliar terms. In addition, anecdotal evidence suggests that provider organizations may view the anti-trust protections under Medicare ACOs as an important benefit. Finally, it is possible that organizations more tentative in their approach to payment reform are using the Medicare Shared Savings Program to gain experience without being responsible for downside risk.

Our analysis faces some limitations. First, our survey population includes only those ACOs with private contracts for which some information was publicly available, as described in the methods. Organizations that have private payer ACO contracts that are confidential or have no public information (and the ACO has no public payer ACO contracts) were not included in our survey population. Therefore, we had no way to determine the true population of commercial ACOs. Second, the private contracts described in this analysis represent the largest commercial ACO contract per organization and our analysis of contract characteristics was limited to 1 commercial contract per organization. If larger ACO contracts are systematically different from smaller contracts, then our results on the nature of commercial payer ACO contracts may be biased (eg, if smaller contracts tend to less often include downside risk). Finally, our analysis is limited to ACOs that were established as of August 2012. The field of ACOs is rapidly developing, and continuing research on ACO contracts is necessary to understand how contracts are developing and changing.

Medicare has offered 2 programs that have attracted a large number of ACOs in the first 2 years. With 32 organizations starting in the Pioneer Program and 220 entering in the Medicare Shared Savings Program in 2012 and 2013, Medicare is leading the field in the move away from traditional fee-for-service payment. In fact, the Pioneer program requires that greater than 50% of the ACO’s patients must be covered by risk-based contracts in the first few years, necessitating changes in commercial contracts. While more organizations are testing the water with a Medicare Shared Savings Program contract with upside shared savings only, commercial contracts are more likely to include downside risk, which some have hypothesized will produce larger reductions in cost growth. However, we do not know, for example, if risk bearing will be more important than the proportion of patients an organization has under ACO contracts.

Medicare has been relatively flexible in terms of the types of providers it accepts into the Shared Savings Program, and has allowed organizations to join that have only upside potential. These program characteristics may influence participating providers. It may be that commercial ACO contracts will gain momentum in the next few years as payers and providers gain experience with these contracts. Researchers should continue to track the evolution of ACO contracts and eventually measure the relationship between contract characteristics and performance.

As performance information becomes available, it will be important to understand nuances in contract design and association with differences in cost and quality. Learning across Medicare, Medicaid, and commercial contracts can allow each to learn from one another and iteratively work toward the best possible contracts. This information will enable public and private payers to learn which types of contracts and incentives work best in different contexts and how to improve ACO contracts.

Author Affiliations: From The Dartmouth Institute for Health Policy & Clinical Practice (VAL, CHC, WLS, ESF), Department of Community and Family Medicine (ESF), Department of Medicine (ESF), Geisel School of Medicine at Dartmouth, Hanover, NH; Division of Health Policy and Management, School of Public Health and Haas School of Business (SMS), Berkeley, CA; Department of Health Policy and Management, Yale School of Public Health, New Haven, CT (WLS).

Source of Funding: This work was supported by a grant from The Commonwealth Fund (#20130084).

Author Disclosures: Dr Lewis received 2 grants on accountable care organization (ACO) evaluation and spoke at the New England Society for Vascular Surgery and Michigan Hospital Association on ACOs. Drs Colla, Shortell, and Fisher and Mr Schpero do not report any relationship or financial interest with any entity that would pose a conflict of interest with the subject matter of this article.

Authorship Information: Concept and design (VAL, CHC, SMS, ESF); acquisition of data (VAL, CHC, ESF); analysis and interpretation of data (VAL, CHC, WLS, SMS); drafting of the manuscript (VAL, CHC, WLS, ESF); critical revision of the manuscript for important intellectual content (CHC, WLS, SMS, ESF); statistical analysis (VAL, CHC, WLS); provision of study materials or patients; obtaining funding (VAL, CHC, SMS, ESF); administrative, technical, or logistic support (CHC, WLS); and supervision (CHC).

Address correspondence to: Valerie A. Lewis, PhD, 35 Centerra Parkway, Lebanon, NH, 03766. E-mail:
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