What’s the Difference Between ACOs and “AC-Like” Arrangements?

Vince Kuraitis

Posted 3/09/12 on the e-CareManagement Blog

A lot. AC-Like arrangements will be MUCH simpler to create and maintain.

The health care market is moving toward accountable care. There are at least two broad paths forward:

1) Formal Accountable Care Organizations (ACOs) by which care providers contract with Medicare

2) Informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans

What are the differences between these routes? I see at least 5 factors at play:

  • Transaction costs
  • Timing
  • Incrementalism
  • Flexibility
  • Capital cost

1) Transaction Costs

ACO —  Everyone needs their own attorney, including one for the new yet-to-be-created ACO entity. Expect to pay people during months of negotiations. Anticipate formal board meetings, minutes, white china.

Want to form an AC-Like arrangement? Gather people in a room and have a meeting. Paper plates and plastic cups. Yes, you’ll still need the lawyers to write up a contract.

2) Timing

ACO — Anticipate months of negotiation with partners to form the ACO. Anticipate months of negotiation with Medicare to hammer out a contract.

AC-Like arrangement — theoretically it could all be done in an afternoon.

3) Incrementalism

ACO — Want to start small with an experiment? Sorry, Medicare has a long list of take-it-or-leave-it conditions in all their ACO models.

AC-Like arrangement — want to start with an experiment, e.g., putting nurse care managers in primary care physician offices? Pick up the phone and start negotiating.

4) Flexibility

ACO — Want to change something about your ACO internal structure? Start digging into the ACO by-laws. Want to change your contract with Medicare? Sorry, your deal runs for 3 years..

AC-Like arrangement — pick up the phone and start renegotiating.

5) Capital Costs

ACO — The American Hospital Association estimated that capital costs could range from $11–26 million.

AC-Like arrangement — won’t be cheap, but will depend greatly on what you plan to do.

The bottom line: AC-Like arrangements between commercial health plans and care providers will be MUCH simpler to create and maintain.

3 thoughts on “What’s the Difference Between ACOs and “AC-Like” Arrangements?

  1. Despite the PCMH demonstration in the state of Colorado that included multiple payers and was touted a success, the payers haven’t just extended it to other primary care practices. Many practices are now undergoing transformation but still working under FFS even as they expend resources on transformation.
    “Pick up the phone and negotiate” – What incentive does a practice have to do so? After all, under FFS, a practice can generate more revenue by doing more. And if practices, in a state that had a PCMH demonstration, don’t have payers beating at their doors to pursue an ostensibly cost-saving model (after all savings accrue to the payers rather than to the practices in terms of reduced utilization because of better follow up and care), it is obvious that payers interest in new, innovative models, isn’t consistent across the nation.
    I understand your point might be the nimbleness of a smaller bureaucracy than Medicare but the entire premise underlying market-changing dynamics like the ACO is that Medicare can force such shifts and many providers are still resistant. Please explain why you believe that it is just a question of picking up the phone to have an ac-like arrangement with any payer.

  2. RadhikaN, Thanks for your comment.

    Yes, as you note, the central theme of my post is around “the nimbleness of a smaller bureaucracy than Medicare” — i.e., that AC-Like arrangements can be easier to form than ACOs.

    You’re right that “payers interest i new, innovative models isn’t consistent across the nation.” Payers in different markets are at varying stages of enlightenment and execution toward accountable care approaches. If a payer in your market isn’t ready to move, neither 1) spending 6 months forming an ACO, nor 2) picking up the phone — is likely to be productive.

    It will take a while to sort all this out. Another factor of AC-Like arrangements is that they won’t necessarily be visible in the marketplace. Hard to tell exactly how many and what shape they will take..

  3. But something about your post makes me believe that you think AC-like arrangements may win out in terms of achieving specific outcomes, and quicker than Medicare ACOs. Are you seeing things in the marketplace that indicate this or lead you to intuit this? Would love to hear more.

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