Saving money while raising the quality of health care has beenthe central focus of the health care industry—from providers tohealth insurance carriers—since the arrival of the PatientProtection and Affordable Care Act (PPACA). One of the biggestdrivers of both cost savings and increased quality was theimplementation of accountable care organizations (ACOs).

PASS?: In August 2015, the Centers for Medicare & Medicaid Services (CMS) released its2014 financial and quality performance results for its MedicareACOs. According to CMS, ACOs in its Pioneer ACO Model and MedicareShared Savings Program (MSSP) generated more than $411 million intotal savings in 2014—which would seem to indicate that ACOs areworking, and working well.

FAIL? There's another piece to the puzzle,however. Of the 353 Pioneer and MSSP ACOs, 97 qualified for sharedsavings payments upwards of $422 million. So a little math seems toindicate the opposite: ACOs actually cost CMS $11 million in2014.

Are ACOs really the health care delivery sea change that theworld was promised by PPACA, or are they a flash in the pan? Howhas consolidation in the industry affected ACOs and their efficacy?And how sustainable are the savings returns?

Now that analysts and policy experts have more data from the CMSprograms, answers to some of these questions are finally coming tolight—but slowly.

Are ACOs saving money?

One important component is that Medicare ACOs are “not captive,”notes Jennifer Searfoss, founder and chief executive officer at SCGHealth. “A Medicare beneficiary who's in an ACO can choose to seekcare anywhere. If you're trying to bend the cost curve, it's reallyhard to do so when patients can seek care wherever they want.”

Private insurance carriers, on the other hand, can imposefinancial penalties on patients who choose to seek care outsidetheir ACOs, perhaps making the patient responsible for the entirecost of out-of-network care, a powerful incentive to stay withinthe boundaries of the ACO. And that, Searfoss says, can have a bigimpact on the bottom line. “The thing that everybody pays attentionto is dollars. The cost is what actually steers it.”

An L&MPolicy Research Report on the CMS ACOs released in March 2015estimated that the 32 Pioneer ACOs did significantly reduceMedicare expenditures compared to market trends; however, therecould be a law of diminishing returns in effect. The report saidthat total savings per beneficiary per month was $35.62 in 2012 and$11.18 in 2013 (data for 2014 was not yet available). Thisindicates that although ACOs could be a key to driving down healthcare costs, the savings won't last forever.

“Once the government or commercial payers have wrung the savingsfrom the system and picked the low-hanging fruit, what then?” asksMatthew P. Amodeo, a partner at Drinker Biddle & Reath whospecializes in accountable care arrangements. “They're just goingto squeeze provider reimbursement rates even lower. Providers seethe writing on the wall, which is why they're trying to becometheir own insurance companies.”

Providers, he added, will have to manage care to a fixed budgetas carefully as possible. And the 15 percent administrativeoverhead that's associated with the health insurance carrier mightseem like a relatively easy target as providers' abilities togenerate savings diminishes.

“I'm not bullish on ACOs,” said Sally Pipes, president and CEOat Pacific Research Institute. “I think they're the nextreincarnation of the HMO (health management organization), whichreally failed the American people in the early 1990s, because theincentive is wrong. It's not about patient care; it's aboutreducing cost.”

Pipes notes that 16 of the original 32 Pioneer ACOs dropped outof the program.

And providers within ACOs who have focused on “low-hangingfruit,” looking for places to cut costs instead of ways to bettermanage patient care, will not see long-term cost savings results.Robert Bonhag, founder and chairman at Deming Metrics Institute,notes that ACOs were founded upon the same principles by whichGeisinger Health System operates—not surprising, considering GlennSteele, Jr., the president and CEO at Geisinger, presented a modelfor ACO implementation in 2011 that heavily influenced the CMSapproach.

“ACOs were based upon how we can get a provider incentivized tomanage a patient,” says Bonhag. “So you've got to try to changeyour practice pattern, get your care managers in line with you toactually hand-hold your patients through and manage theirillness.”

Many see the current ACO models as the first steps of a longerjourney—a learning experience, in other words, and an opportunityto tweak and understand what works and what doesn't.

“I think ACOs have the potential to drive improvements inquality, patient experience and affordability, but the potentialhas not yet been realized,” says Bill Kramer, executive directorfor national health policy at the Pacific Business Group onHealth.

He notes that shared savings models have shown some success, butprimarily, “they provide the opportunity to test a variety ofmodels, and they have encouraged a range of provider systems toembark on the ACO path, ranging from those that are the mostwell-developed and able to take on greater accountability to thosethat are just getting started.”

Are consumers saving money?

According to the 2015 Kaiser Employer Health Benefits Survey, and many othersources, the answer is a resounding “no.” Kaiser found thatAmericans pay an average of $89 a month in health insurancepremiums and $1,318 out of pocket per year—10 years ago, the annualout-of-pocket cost was $584.

There are opportunities for some patients with chronicconditions to better manage their own care and thus savethemselves—and their care providers and insurance carrier—somecash.

Searfoss mentions private insurance carrier programs wherediabetic patients who reach certain markers, such as attending allof their medical appointments and maintaining an appropriate A1Clevel, could “earn” their diabetes management supplies for the yearinstead of having to pay for them out-of-pocket. “We know how tomotivate patients,” she says, “but what if you can motivatepatients for the right thing, and motivate them for compliance in away that providers can't?”

The consolidation effect

Part of the original opposition to PPACA involved objections topotential consolidation in the industry on both the healthinsurance carrier and the health care provider side. To beeffective, an ACO requires high-touch communication betweensometimes disparate health care providers. That's much easier whenthose providers are part of a single network. And the Cigna-Anthemand Aetna-Humana deals only exacerbate consolidation concerns.

Amodeo says another concern was that by allowing health careproviders to coordinate for patient care, those providers could begiven leverage to negotiate lower rates with carriers, resulting incost increases for both health insurance coverage and health careservices.

“Then came the exchanges, which I think have acted as acounterbalance to that,” he says. “Now that there are morepotential insureds out there purchasing insurance, the insurancecarriers—depending on how successful their products have been andthe risk distribution of the population—have been able tocounterbalance that leverage primarily by paying lowerreimbursement rates for providers in exchange for access to greaternumbers of patients.”

Marketplace options are one pathway to affordability, notesPipes, who says that consolidation is “going to lead to lesscompetition and higher prices.

“Our health care system definitely needs some changes to becomemore affordable,” she adds, “but that's not done by controlling howhealth care is provided; it's done by giving people options in themarketplace.”

What's ahead?

There's another type of ACO on the horizon; CMS is currently inthe midst of a two-year application round for its Next Generation ACO program, which CMS says will “allow theseprovider groups to assume higher levels of financial risk andreward” than are currently available. Amodeo says that he believes“this new NGACO is a culmination of the refinements” that CMS hasmade to its Pioneer and MSSP experiments.

And the NGACO includes elements that focus less on historicalperformance and more on current performance, he adds. “They willreward providers who are more efficient at managing care, asopposed to those who are able to pick the low-hanging fruit.”

Kramer describes the NGACOs as a “step forward,” but adds thatin general, the CMS ACOs are constrained in ways that payers arenot.

“The Medicare ACOs are still limited by the underlying Medicarelegislation, which limits the ability for patients to choose toexclusively use an ACO and also limits what can be done with regardto benefit redesign,” he says. “We need to get to a place wherethere's a global payment model, not a shared savings model, and weneed flexibility in benefit design to encourage improved health anduse of health care services.”

What should brokers do?

Bonhag thinks there's room for benefits brokers andadministrators as advocates of sorts, ensuring that health benefitscarriers are working to manage patients and not simply cut costs.“They could push back against the carriers and say, 'I want to makesure this person gets calls every day or every three days,' be theintermediary to really push the insurer to do what's right,” hesays. “The insurer is going to try to minimize costs.”

Searfoss predicts that brokers can expect to see large employersasking to contract directly with providers instead of workingthrough a health plan. “That's where you're beginning to see morecreativity and experimentation,” she says, and 2016 is the year toexperiment.

And specialists could be an appropriate “hub” around which carecan be coordinated and managed. For example, she says, “one areawhere podiatrists have a lot of chronic problems, especially withworker's compensation, is in the postal service.” Could the U.S.Postal Service, or possibly FedEx or UPS, contract directly withpodiatrists to implement injury prevention and chronic diseasemanagement for workers? And who would help facilitate thosediscussions?

There are opportunities, too, for self-funded employers who wantto align with ACOs in order to drive down their plan costs. “Anintegrated delivery system can contract directly with a self-fundedemployer,” explains Amodeo. “Sometimes, ACOs will introducelimited-network products where, if an employee chooses an ACO orhealth system provider, the out-of-pocket costs are less for theemployee, and the ACO is able to share in savings with theself-funded employer.”

This is beyond a bundled payment, which typically encompasses asingle episode of care, he notes. “It's taking that bundle from onediscrete service and expanding it to the entire range of healthcare services available,” he said.

Those who understand how accountable care works—as well as whichprograms and providers yield high-quality results (and which onesdon't)—can provide a new sort of connection between health caredelivery and employers or individuals.

“I would encourage brokers to look more deeply into the deliverysystem and the provider networks that are being developed,” advisesKramer, “and help their clients identify and choose high-performingprovider networks.

“Some of the ACOs being developed by the insurance companies arenot delivering significantly greater values,” he adds. “The'centers of excellence' that some insurers have developed are notparticularly excellent. I would encourage brokers to become notjust product sellers, but product makers.”