The Evolution of Accountable Care Organizations and the Role of Pharmacists

Directions in Pharmacy, October 2015, Volume 2, Issue 4

When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.

Accountable care organizations (ACOs) are groups of doctors, hospitals, and other health care providers, such as pharmacists, who come together voluntarily to give coordinated high-quality care to their Medicare patients. The goal of coordinated care is to ensure that patients, especially the chronically ill, get the right care at the right time while avoiding unnecessary duplication of services and preventing medical errors. When an ACO succeeds in both delivering high-quality care and spending health care dollars more wisely, it will share in the savings it achieves for the Medicare program.

ACOs were launched by the Centers for Medicare & Medicaid Services (CMS) in 2011 as a result of the Affordable Care Act. Earlier this year, CMS announced the latest ACO model, the Next Generation ACO (NG ACO). The model is targeted at ACOs with significant experience in population health management and risk assumption, with the opportunity to move ACOs in this model towards greater assumption of risk. CMS expects approximately 15 to 20 ACOs to participate in the NG ACO program1.

With an eventual (2017) option for capitated payment, NG ACOs have a rich opportunity to incorporate more up-front, proactive work with patients through their pharmacists. Incorporating pharmacists into a care team is likely to lead to improved health outcomes, as they are able to offer services such as medication reconciliation, patient interviews and counseling in an effort to proactively avoid adverse effects.

There are some fundamental flaws in the current ACO model which must be addressed for the model to be financially viable for experienced ACOs, however. The NG ACO hints at some of these improvements, but much still needs to be done.

The current Medicare Shared Savings Program (MSSP) ACO model, for example, is only effective for health care organizations that are in the high-cost category, as benchmarks are generally set higher, and thus offer more shared savings. For those organizations that have already developed efficient, low-cost care delivery systems, MSSP is retrogressive. In that model, inefficiency is rewarded and lower-cost systems are penalized.2

In addition, while the Pioneer ACO program appears to be successful ($384 million in savings to Medicare over its first 2 years—an average of approximately $300 per participating beneficiary per year—with quality improved or staying the same!), the fact that 13 out of the original 32 Pioneer organizations have dropped out, tells a different story.3 If the model were financially and otherwise viable and sustainable, would there have been a 40% dropout rate?

The core fundamental financial challenge for ACOs is CMS’s reluctance to pay providers a competitive amount based on the entirety, or total cost of care delivered rather than the history of payments. What appears as “low cost,” as measured by Medicare’s cost per beneficiary, is actually just low total reimbursement. This low reimbursement is, at least in the case of Bellin-ThedaCare Healthcare Partners, an indicator of an advanced-practice (ie, efficient and effective) delivery model operating in a fee-for-service system.

So what does a better payment system look like? A recent study by Toussaint and Krueger examines the issue and proposes a global risk-adjusted payment system.2 In this proposed system, CMS would pay ACOs a per-member, per-year payment designed to cover all health care costs for a prospectively attributed population of enrollees. The payment would be adjusted for risk and geographical location. Per Krueger and Toussaint, “ACOs would be expected to improve their performance in delivering high quality, efficient care over time while CMS compresses the variation in per-member, per-year payments being made to participating ACOs. While all ACOs would be expected to improve their performance, the least efficient ACOs would be expected to make the greatest improvements.”

There are 4 areas that need improvement:

Area of Improvement


Financing structure

Diminishing returns

• High-cost accountable care organizations (ACOs) have more opportunity to share savings than low-cost ACOs in the existing Pioneer and Centers for Medicare & Medicaid Services (CMS) ACO programs.

• For example: Bellin-ThedaCare Healthcare Partners (BT) ACO had the lowest baseline cost after the first year of Pioneer ($8030 per year) but still managed to deliver Medicare savings (4.6%4). In the second year there were less shared savings and the third year even less.5,6


Efficient ACOs are penalized

• The design and implementation of new care processes avoid redundant hospitalizations, office visits, and tests. Better coordination of chronic illness services, though less expensive than sick care, is not paid for in the current fee-for-service (FFS) environment.

• In contrast, high-cost ACOs have more upside with shared savings which can be applied to new infrastructure.

• As national cost trends decrease, the lower the ACO's starting cost, the greater savings it must achieve to receive shared savings.

• CMS plans to reduce the target amount each year to the new level of FFS costs without including the additional costs for ongoing care coordination and process improvement.

• For example: Bellin ThedaCare Healthcare Partners redesigned the process for chronic illness management to prevent the need for 500 Medicare admissions in 2012, thereby reducing ThedaCare's revenue by 0.7% during the first 6 months of that year.7


Incongruent attribution

• Under the Pioneer model, all participants experienced significant turnover in attribution from the first year to the second (the mean was 32%).

• For example: Bellin ThedaCare Healthcare Partners had less than 8% of the population change PCPs in the first 2 years according to the CMS patient surveys, yet 28% of the attributed population turned over.

Quality performance

Inconsistently set targets

• Current quality metrics are inadequately defined, change rapidly, and derive benchmarks from faulty data sets.

• National consistency on metrics is the current goal, but a better solution appears to be local and regional efforts to measure quality emerging as the best alternative.

How Can These Issues be Addressed in the NG ACO model?

Dr. Toussaint along with Dr. David Krueger have written about 6 key components of a global risk-adjusted payment system that need to be in place for all ACO stakeholders to succeed.8 Their recommendations are summarized here:

  • Payment should be market-competitive and adjusted for geography, risk, and outcomes.
  • The risk adjustment model should be flexible such that health systems that have lower risk scores due to improvements in care delivery would be rewarded.
  • Participants ACOs will need protection against catastrophic events. Ideally, CMS will continue to act as an insurer and provide secondary reinsurance.
  • ACOs should be financially rewarded (with no downside risk) for successful management of high cost and outlier patients.
  • There should be a mechanism to allow patient attribution to be geographically adjusted (if beneficiaries are absent from their primary geographic location for 3 months or more).
  • Patient choice and responsibility mechanisms should be included in order to engage beneficiaries in their own care decisions.

The Next Generation ACO model offers financial arrangements with higher levels of risk and reward than current Medicare ACO initiatives, giving experienced ACOs a potential opportunity to truly be rewarded. As these ACOs take on more risk, they are likely to view pharmacy both as a potential value producer on care delivery in some contracts, but also as a cost center in others. The NG ACO model allows for special relationships with other entities, and as such the implications of such relationships need to be considered for pharmacies trying to work with ACOs. By changing care processes, including utilizing important expertise such as pharmacists, nurses, etc, ACOs will deliver more coordinated care. Coordinated care leads to higher quality outcomes and lower costs. The right pharmacist interventions for health and wellness of a patient, at the right time, in the right setting, could truly lead to better health at lower cost.

Rachel Regan is the Program Manager for Payment Initiatives at ThedaCare Center for Healthcare Value. She is responsible for the payment initiatives value stream, which focuses on exploring payment systems that reward health outcomes instead of volume. Her role includes facilitating payment experiments through the (Wisconsin) Statewide Value Committee, a multi-stakeholder organization that was formed to address the issue of accelerating the improvement of the overall value of healthcare in Wisconsin. Prior to joining the Center, Rachel held various roles during her ten-year tenure at the Lean Enterprise Institute. Rachel is a Shingo Prize Examiner and received a bachelor of science in mechanical engineering from The Johns Hopkins University in Baltimore, MD.

John Toussaint, MD, is CEO of the ThedaCare Center for Healthcare Value and one of the foremost figures in the adoption of lean principles in healthcare. Under his leadership, the Center has launched several peer-to-peer learning networks, developed in-depth workshops and advanced the idea of healthcare value through delivery reform, transparency and payment reform. He is a featured speaker, contributor to peer-reviewed and consumer publications, and author of three groundbreaking books: On the Mend: Revolutionizing Healthcare to Save Lives and Transform the Industry; Potent Medicine: The Collaborative Cure for Healthcare; and Management on the Mend: The Healthcare Executive Guide to System Transformation.


  • Next generation ACO model. Centers for Medicare & Medicaid Services website. Updated August 26, 2015.
  • Toussaint J, Krueger D, Shortell SM, Milstein S, Cutler DM. ACO model should encourage efficient care delivery. Healthc (Amst). 2015;3(3):150-152. doi: 10.1016/j.hjdsi.2015.06.003.
  • From 30 to 19: three more ACOs drop out of Pioneer program. The Advisory Board Company website. Published September 26, 2014.
  • Medicare Pioneer accountable care organization model performance year 1 (2012) results. Centers for Medicare & Medicaid Services website.
  • Medicare Pioneer accountable care organization model performance year 2 (2013) results. Centers for Medicare & Medicaid Services website.
  • Medicare Pioneer accountable care organization model performance year 3 (2014) results. Centers for Medicare & Medicaid Services website.
  • Toussaint J, Milstein A, Shortell S. How the Pioneer ACO Model needs to change: lessons from its best-performing ACO. JAMA. 2013;310(13):1341-1342. doi: 10.1001/jama.2013.279149.
  • Krueger D, Toussaint J. Creating the next generation: the payment model we need from medicare. Health Affairs website. Published October 5, 2015.