Care Transformation Center Blog

How a local ACO changes market dynamics—especially if it's not yours


Even if you’re not looking to create an accountable care organization, someone in your market probably is, or will be soon.

Already, over 50% of Americans live in an area with an ACO. And from what our Southwind consultants are seeing in their engagements nowadays, that means big changes in health care market dynamics in even the most stable communities.



At risk of losing your physician partners

With ACOs, patients of participating primary care physicians are “attributed” to the accountable care organization. Since shared savings payments are calculated based on the spending of actual beneficiaries, the more patients that are enrolled in the ACO, the larger its potential financial gain.

That means that ACOs need to recruit primary care physicians in their network to capture more “attributed” patients, and it does this quickly and aggressively once entering a market. If a local health system doesn’t already have strong physician relationships—as in formal alignment arrangements—it risks losing its key primary care physicians to the ACO, and thereby the competing health system. And this is all before the health system has time to respond.

So why does this matter? Because primary care physicians who join the ACO are going to begin operating within that network, including passing referrals to participating specialists. It’s fair to say that those specialists are most likely referring patients to the ACO’s health system sponsor, which is also your competitor.

Also keep in mind that if payment reform happens, primary care physicians are essential to preventative care and you want to be closely aligned with them.



Anecdotes from working with our clients

We’re working with one client now that, like many other health systems, has focused on building a well-run employed group of mostly specialty physicians, while leaving its relationship with independent primary care physicians to languish. But now, there’s an ACO in the market that is pursuing primary care physicians for attribution. And so this health system now realizes it needs to revise its physician network development strategy, but the stakes are very high and time is short.

It’s not only local ACOs that are a strategic threat to physician relationships. If ACOs don't have enough physicians, or the right mix of physicians, for sufficient attribution in its own market, we have seen them recruit from nearby suburban and rural areas previously untouched by the ACO’s health system sponsor.

We have another health system client that was not expecting an ACO to reach its semi-rural market. Within a couple of months, more than one health system-sponsored Medicare ACO popped up in surrounding areas, and now our client’s physicians are being invited by those health systems to attend “educational seminars” for the ACOs—seminars where representatives hand out ACO participation agreements.



Local payers more inclined toward value-based payment

But it’s not just physician relationships that ACOs affect; relationships with payers are affected as well.

When a health system chooses not to pursue value-based payment contracts, such as ACOs, it’s often because local payers just aren’t ready yet. Yet if there is a Medicare ACO in the market, it’s probably working actively to get accountable care-like contracts from commercial payers as well, so that participating providers’ incentives are better aligned across all the patients they care for.

And that means that local payers—and employers—could be moving toward offering value-based care contracts much faster than anyone previously anticipated.

Keep in mind, too, the ACO’s ability to expand the competitive geography. You can’t be certain how close an ACO needs to be to impact your payer or physician dynamics.



Two conclusions for every market

Whether you’re an ACO sponsor, planning to develop one, or not at all interested, at the end of the day, you need a physician network strategy that features primary care, fosters alignment with independent and employed physicians, and enables physician-led quality initiatives.

And regardless of where you think value-based payment stands in your market, you should identify which care transformation initiatives make sense to pursue across your physician network in today’s reimbursement environment—these can both be beneficial today and prepare your institution for future changes. 

Value-based contracts could be coming sooner than you think.

Next, Check Out This Case Study

Learn how Health First and Melbourne Internal Medical Associates recognized the imperative to integrate in the wake of health reform, and came together through acquisition to create the largest multi-specialty group in Brevard Co., Fla., with 281 physicians.

Watch the video


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Where the ACOs Are



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