Accountable care organizations in Medicare operate on a basic premise: The greater the risk, the greater the reward. While the idea is quite simple, the execution appears to be less so.

CMS just announced that nine of Medicare's 32 Pioneer ACOs ? those taking on the most risk ? may drop out of that model, and some may move into the safer shared savings program, which provides upside incentives with no downside risk for three years. At a minimum, the recent news highlights the many challenges associated with implementing both upside benefit and downside penalties. The underlying assumption was that organizations more experienced with coordinating care and taking on risk would be able to handle the risk early on. But even for more advanced organizations, it is still a daunting task to set up an ACO. Start-up costs have been estimated at anywhere from $12 million to $30 million, with annual ongoing costs running millions more.

So given all the challenges and setbacks, what does this mean for someone in the biopharmaceutical arena? We see two major lessons learned.

  1. This news highlights that there are still significant opportunities for partnership and innovation as ACOs try to find their way. ACOs, even the more advanced players in the market, are still trying to figure things out, which is a great time to be thoughtful about partnership and ways to be innovative in the delivery of care -- particularly in the quality areas that these organizations will be measured (chronic disease, patient engagement, etc.).
  2. Manufacturers need to be thoughtful and fluid with any efforts around segmentation. Much of the segmentation that we are seeing (and helping to develop) in the market is focused heavily on risk, which is understandable given that organizations with downside risk represent the segment of ACOs that have the most to gain with a ?total cost of care value?story. But as this recent news shows, we may be moving faster than our customers and we must develop strategies, depending on the therapeutic arena, that progress with these organizations as they continue to grow in sophistication and levels of risk.

Without a doubt, having Pioneer ACOs pull out of the program is a setback for CMS and reimbursement reform. But there are still more than 500 ACOs in operation or in the process of being created (Medicare, commercial and Medicaid). Whether or not ACOs succeed or morph into another form, there is little doubt that ACOs will exert significant influence on the evolution of provider reimbursement now and in the future.

Follow John Jaeger on Twitter @JohnJaeger_DRG


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