Are ACOs the answer for Medicaid?

Supporters of accountable care-type organizations for states say they're a win-win for doctors and patients, but implementation may prove particularly challenging in Medicaid.

By — Posted July 2, 2012

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For those in charge of the federal and state dollars that go toward care for the low-income and disabled through Medicaid, there is a growing realization that their world soon must change, said Oregon Gov. John Kitzhaber, MD.

“We can’t avoid defaulting on our national debt in the coming years without some significant reductions in the federal expenditures from Medicare and Medicaid,” said Dr. Kitzhaber, an emergency physician. “To get ahead of that, we’re going to have to change our delivery model.”

Medicare already is exploring such an alternative model in the form of accountable care organizations, groups of physicians and hospitals vying to share in any savings they can produce by better coordinating patient care. But the ACO model also is starting to gain momentum with policymakers in states such as Oregon, who think a similar model of global payments and incentives can achieve the coveted trifecta of improved physician payments, better coordination of care and lower overall costs.

Oregon is one of the front-runners. With nearly $2 billion in federal funds, the state is on track this fall to launch a five-year, ACO-type demonstration project that will seek to reduce its Medicaid spending rate by two percentage points by the conclusion of its second year, and save $11 billion by the end of the decade.

By counting on “coordinated care organizations,” risk-bearing entities made up of hospitals, physicians, counties and community organizations, “we’re creating something that doesn’t currently exist” in Oregon’s Medicaid program, Dr. Kitzhaber said.

The new organizations will operate under a risk-adjusted global budget that pays set rates for each patient’s care rather than per service and that grows at a fixed rate. Physicians and other health professionals not only will need to keep total costs under that amount but also will be assessed based on measures of access, clinical outcomes and population health. As of May 1, 14 entities had applied to become one of these coordinated care organizations, which will cover up to 95% of patients in the state’s Medicaid program. The first groups will start operating in September, with the program fully under way by the end of 2012, Dr. Kitzhaber said.

Participating Oregon health care professionals can share in any savings associated with measured improvements in quality and efficiency, an incentive that is expected to lead to better care management. “This is really about service integration, care coordination, and having a better connection between the acute and postacute system, and also really striving to identify and manage chronically ill patients at home rather than bouncing them back in and out of the hospital,” Dr. Kitzhaber said.

Budget problems driving change

ACOs may have originated in the Medicare and commercial sectors, but the Medicaid arena is the site of the next iterations. “About half the states are in the process of planning this right now,” said Jeffrey Cain, MD, president-elect of the American Academy of Family Physicians. His home state of Colorado has been pursuing a Medicaid ACO-type model through regional care collaborative organizations, medical home services and health information technology initiatives. At least seven states are in the early stages of developing these programs, while other states are looking at legislation that will authorize them to do so.

States that already have significant experience with managing health care delivery — such as Arizona, New York, Oregon and Tennessee — probably are going to be the most comfortable with Medicaid ACOs, said Erik Johnson, a senior vice president at Avalere Health LLC, a health care research and consulting firm based in Washington. Other states also have been advancing models of this type, including Massachusetts, Minnesota, New Jersey, North Carolina and Utah. Many of these states probably have good working relationships with the managed care plans that in turn have well-established pay arrangements with physicians. “So there is a lot of infrastructure in place to stand up to this model,” Johnson said.

A recent report by the Kaiser Commission on Medicaid and the Uninsured concluded that states pursuing Medicaid ACOs hope to find new ways to contain costs, while improving care by more directly engaging physicians and other health care professionals and realigning financial incentives.

State spending on Medicaid increased by 20% in fiscal 2012, the National Governors Assn. and the National Assn. of State Budget Officers reported in their most recent fiscal survey of the states. In Oregon, the state’s Medicaid program, known as the Oregon Health Plan, comprises approximately $6.3 billion — or 11% — of the total state budget.

“Everybody is looking at these things because it makes good public policy sense,” said Matt Salo, executive director of the National Assn. of Medicaid Directors. Absent significant health system reforms, “the budget is going to drive some ugly, downward changes,” including decreases in physician pay, he said.

In the current system, physicians or hospitals don’t necessarily have to care about a patient once he or she leaves the office or the inpatient setting, because they’re not paid to care, Salo said. In an ACO, which might be allotted $5,000 per patient per year, for example, participating health care professionals will have to start caring, because the ACO “has to make sure that you make the investments needed to keep that person healthy enough that you’re spending less than $5,000. If you’re under a financial incentive, you’re going to figure out ways that you can impact this,” he said.

Success more than just a money issue

Some state delivery reforms have been successful. Community Care of North Carolina, for example, which manages Medicaid primary care through medical homes and has many accountable care aspects, has saved the state and Medicaid nearly $1 billion over the last 15 years, said Stephen Keene, general counsel for the North Carolina Medical Society. Keene said the state’s Medicaid “would be in shambles” without this program.

Paying someone with the expectation that they’re going to do things better isn’t going to produce a successful model on its own, said Kathleen Nolan, director of state policy and programs with the Medicaid directors association.

North Carolina, which, according to the Kaiser report, has been leveraging diverse quality measurements and provider networks to promote accountable care in Medicaid, incorporates a provider assistance line that makes sure managed care companies and hospitals share needed information with physicians. For instance, a doctor can use the resource to determine that one of his or her patients was admitted through the emergency department the night before. “All of that is going to make these accountable care arrangements successful, not just the financial side,” Nolan said.

If done correctly, there is a potential for physician payments to increase significantly under these models, Salo said. Currently, the vast majority of Medicaid spending “goes to drug companies, hospitals, nursing homes. So, the doctor part of the spend is relatively small.” But if one pays with an eye toward providing care in a coordinated, integrated way, “you bring down the number of hospitalizations, bring down institutional placements, unnecessary tests or doctor-shopping for drugs,” he said. Through shared savings, physicians could see a significantly larger share of money that otherwise would have been spent elsewhere, he said.

Betsy Boyd-Flynn, a spokeswoman for the Oregon Medical Assn., said it’s not yet clear whether her state’s Medicaid reforms will result in a net gain or loss for physicians. Some doctors worry they may be shut out in the event a coordinated care organization wants to use a specific panel of doctors, although she said “we haven’t seen that yet.” The association plans to educate members on the organizations and what to look for in their contracts.

Evan Saulino, MD, is a family physician whose practice will participate in a coordinated care organization that represents the three most populous counties in Oregon. He said doctors in his state made sure physicians were on the boards that will govern these entities.

“We have the ability, if we are somewhat organized, to try to make our voices heard, to really shape what happens as these structures are being set up,” Dr. Saulino said. He said front-line health care professionals need to advocate what’s best for patients — “and what makes the most sense for that front-line, whole person, coordinated care. If you have that, then I think you’re going to be OK.”

Medicaid an unpredictable ACO test bed

Physicians should be aware, however, of the risks of attempting to manage the care of a very unpredictable and resource-intensive population in an ACO environment, Avalere Health’s Johnson said.

Medicaid patients go on and off the rolls, “which kind of disrupts the whole concept of ACOs and [employing] managed care consistently, continuously and across time. If you’re losing that patient from that coverage, then it becomes really difficult to accomplish that,” he said.

As a result, Medicaid ACOs must “set the traps very aggressively to fill in those gaps,” Johnson said.

Also, at least half of all physicians participating in Medicaid today are being paid for those services under managed care arrangements. “Whether they’d be willing to go at further risk, with further measurement requirements in an ACO model, given their relative low reimbursement, is an open question,” he said.

As the Kaiser report noted, the boundaries between traditional managed care and ACOs “can be difficult to discern in Medicaid.” In some instances, managed care organizations may be coordinating with ACOs, and in other cases they may be acting as ACOs.

Rather than form ACOs of their own, doctors may want to leverage the expertise of Medicaid managed care organizations and form partnerships with them as ACO models continue to develop, Johnson said. “Managed care plans do and can be very helpful and very catalytic in the way these things come into being. So I don’t think this would be a bad thing, especially if they’re able to capture and share [savings] with the provider networks that they built.”

Johnson predicted that states probably will have “a pretty heavy hand in what managed care plans are allowed to do” when it comes to Medicaid ACOs.

Keene, of North Carolina’s medical society, asserted that physicians should be the ones driving the clinical care protocols for ACOs, and not just in Medicaid. The society plans to work with the state’s medical specialty and county societies to educate doctors on how to lead accountable care models.

It will take awhile to gauge whether these models succeed in reining in Medicaid costs and improving care, the Kaiser report concluded: “It remains to be seen how states will balance short-term cost-containment pressures against the investments in partnerships and delivery system design necessary for the success of Medicaid ACOs over the longer term.”

What’s still unknown, at least in Oregon, is how these groups will structure payments, where the money will come from and how that money is going to flow, Dr. Saulino said. “How are those potential shared savings actually going be shared within the coordinated care organization? Those sorts of things will be really critical as these organizations are set up.”

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How 4 states are pursuing Medicaid ACOs

Oregon and several other states are actively developing accountable care-type organizations within Medicaid as a way to improve care and reduce costs. A recent report from the Kaiser Commission on Medicaid and the Uninsured indicates that most of these efforts still are in an early stage of development.

Colorado: The state’s Medicaid ACO program includes three components: primary care patient-centered medical homes; seven regional care collaborative organizations to manage networks and support primary care delivery; and a data analytics contractor to build a data repository and portal to assess performance measurements and facilitate quality improvements.

New Jersey: Legislation to authorize a three-year demonstration project for community-based ACOs was approved in 2011. As it awaits federal approval of a waiver for its demo, the state’s Medicaid division is drafting regulations and determining the processes for accepting, reviewing and approving applications from potential Medicaid ACOs. Medicaid staff also are developing measurements for patient outcomes and gainsharing.

Oklahoma: The University of Oklahoma in Tulsa had been exploring the idea of an ACO model that would cover Medicare-Medicaid dual-eligibles, but that plan fell through. The state now has turned its attention to a comprehensive primary care initiative that involves Medicaid, Medicare and private payers entering into an agreement to pay physicians for care coordination using the same payment model.

Utah: The state hopes to contract with health plans and large health systems as ACOs on a comprehensive risk basis in its four most populous counties. ACOs would be authorized to pay incentive payments. The state is revising a federal managed care waiver to transform the way it operates its Medicaid program, in the hopes that Medicaid ACOs will be operational by Jan. 1, 2013.

Sources: State health department and physician sources; “Emerging Medicaid Accountable Care Organizations: The Role of Managed Care,” Kaiser Commission on Medicaid and the Uninsured, May (link)

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External links

“Emerging Medicaid Accountable Care Organizations: The Role of Managed Care,” Kaiser Commission on Medicaid and the Uninsured, May (link)

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