Accountable Care Organizations Lower Costs Compared to HMOs, PPOs

Commercial accountable care organizations (ACOs) in California are outperforming two common provider network arrangements in terms of care quality and total cost of care, according to a recent analysis by the Integrated Healthcare Association (IHA).

Using data from the California Regional Healthcare Cost and Quality Atlas (Atlas), a comprehensive benchmarking tool that examines data from ten health plans and Medicare, researchers found that the average care quality performance rate for commercial ACO members was 66.7 percent in 2017.

Members of health maintenance organizations (HMOs) scored a similar rate of 65.6 percent on the same eight measures, while members of preferred provider organization (PPO) networks earned a lower score of 57.4 percent.

Commercial ACO members also achieved the lowest total cost of care compared to HMO and PPO members, the analysis revealed. In 2017, ACO members had a total cost of care of $4,405 compared to $4,453 for HMO members and $4,601 for PPO members.

The total cost of care difference between ACO and PPO members was $196, approximately 4.4 percent, researchers added.

“The Atlas analysis reveals that the commercial ACO model is developing into a strong competitor, outperforming PPO provider networks and challenging HMO provider networks,” they wrote in the report. “ACOs will evolve with the needs and opportunities in the market; ideally, that evolution will be informed by a solid understanding of the key features that drive ACO performance.”

The number of ACOs has grown exponentially since the Affordable Care Act (ACA) made the alternative care delivery and payment model a main player in the push toward value-based care. As of 2018, providers operated over 1,000 ACOs, up from 58 in 2011, researchers reported.

Commercial ACOs make up a significant portion of the organizations in operation. Leavitt Partners recently found that 477 of the 1,013 ACOs in 2018 had at least one commercial contract, while 647 had at least one Medicare contract and 86 had at least one Medicaid contract.

Industry experts have likened the ACO model to HMO and PPO arrangements. All three arrangements aim to lower total cost of care and improve care quality by steering patients to high-value providers using provider networks.

However, ACOs lower costs by coordinating care rather than fixing prices for services provided in and out of the network. And the alternative care delivery and payment model seems to be working in the commercial space, according to the case study in California.

Researchers found that of the 18 observations of high care quality performance and lower total cost of care, nine represented ACOs. The other nine were HMO provider networks and no PPO provider network appeared in the high-value category.

ACOs also had the fewest high-cost outliers even though all three types of provider networks demonstrated a wide distribution for total cost of care.

Additionally, in terms of care quality, most ACOs and HMO provider networks scored above the statewide average, researchers reported. Only one of 19 ACO observations and two of 19 HMO observations fell below the statewide average line, while all but two PPO provider networks had scores below the statewide average for clinical quality.

“The bottom line: ACOs show similar performance compared to HMO provider networks on both clinical quality and total cost of care, and better performance compared to PPO provider networks,” researchers highlighted.

The findings may push the ACO model ahead of the HMO. Over 9.3 billion individuals belonged to an HMO in 2016, while ACO contracts covered about 32.7 million patients by the start of 2018.

HMOs suffer from several well-publicized drawbacks. Chief among patient complaints about HMOs is difficulty accessing medical specialists and other providers, especially when HMO networks change. Patients also complain that HMOs involve too much administration.

ACOs may offer providers in commercial contracts a new way to lower costs while also improving care quality. But researchers emphasized that while the goals of ACOs are the same, implementation significantly differs by payer and provider.

“Given the variation in ACO structure, these results raise important questions: what elements drive cost and quality performance? How do key design decisions, including ACO partners (physician organizations, hospitals), risk and incentive sharing, and attribution methodology influence results,” researchers asked in the report.

Answers to these questions would help to inform healthcare reform policy and advance value-based care while substantially cutting costs.