A Taxonomy of Accountable Care Organizations:

A Taxonomy of Accountable Care Organizations: Different Approaches to Achieve the Triple Aim David Muhlestein Paul Gardner Thomas Merrill Matthew Petersen Tianna Tu June 2014

A Taxonomy of Accountable Care Organizations: Different Approaches to Achieve the Triple Aim David Muhlestein Paul Gardner Thomas Merrill Matthew Petersen Tianna Tu CONTENTS Abstract... 1 Introduction.... 2 Framework.... 3 Analytic Approach... 3 Types of Accountable Care Organizations... 4 Opportunities and Challenges... 4 Conclusion.... 5 ABSTRACT As providers begin to bear risk for defined populations, providers and payers have begun to change the way they deliver and pay for health care. Accountable care organizations (ACOs), in particular, have proliferated with the common goal to fulfill the triple aim of improved patient satisfaction, improved care and decreased health care costs. Though ACOs operate with similar objectives, they vary considerably in their organizational structure, ownership and patient care focus. By incorporating information from ACO surveys, ACO director interviews and a comprehensive database of American ACOs, we identify six core types of structurally distinct ACOs. For each ACO type, we identify commonalities, principal challenges and different opportunities to achieve the triple aim. This ACO taxonomy will help researchers evaluate ACOs, serve as a resource for policymakers to revise ACO programs and provide direction to vendors to create services and products that will facilitate the transition to value-based care. INTRODUCTION Background Accountable Care Organizations (ACOs) are provider-led health care entities that bear responsibility for the financial and clinical outcomes of a defined population. Coupled with existing commercial ACO activity, the Affordable Care Act s requirement that Medicare create an ACO program has significantly enhanced the ACO movement. Since 2010, the ACO concept has evolved from an intellectual idea into a A Taxonomy of Accountable Care Organizations 1

A Taxonomy of Accountable Care Organizations pragmatic health system strategy within mainstream health care discourse 1,2. The past few years have seen significant growth of ACOs throughout the country 3 and an increased focus on the outcomes they generate, particularly as results relate to achieving the triple aim of improved population health, increased patient satisfaction and lowered costs 4. Overall, the results have been mixed; some claim that ACOs are on the path to achieving the triple aim, while others believe they are destined to repeat past industry failures 5. Simply looking at aggregate metrics, though, is insufficient to make any conclusions regarding ACOs as a whole. The success of any organization engaged in accountable care is predicated on its underlying structure and the specific activities it engages in. ACOs represent provider groups that range in size from primary care-focused physician groups with a handful of offices to large, multi-state integrated delivery systems with dozens of hospitals and hundreds of office locations. In order to evaluate ACOs and learn which approaches to care management are most likely to achieve the triple aim, it is necessary to compare and contrast organizations of similar structure. Research Objectives To successfully identify opportunities for ACOs, more needs to be known about the specific provider organizations that are aspiring to achieve the triple aim. This paper presents a taxonomical classification for ACOs that describes commonalities between organizations that are transitioning toward accountable care. Additionally, we provide examples of approaches to achieving the triple aim, care management needs and future opportunities for different types of ACOs. The ultimate value of any conceptual classification comes from its usefulness in practice. As researchers, we have already found the taxonomy vital to our understanding of how different types of organizations are evolving to bear risk for defined populations. Providers with current ACO contracts can identify similar organizations and learn from others experiences when changing their approach to managing care. Organizations preparing to accept risk can more thoughtfully structure their own relationships and choose effective partners from the outset. Payers can evaluate payment relationships based on their taxonomical classification and modify contracts based on the success of early adopters. Vendors will also use the taxonomy to identify the varying needs of different types of ACOs and create products and services to help targeted market segments. Finally, state and federal policymakers will be able to utilize the taxonomy to refine how public ACO programs are structured for different types of ACOs. FRAMEWORK A taxonomy is a conceptual classification of objects, organisms or systems. A successful taxonomy of ACOs will identify structural commonalties between different organizations that will indicate common approaches to managing patient care, typical needs or concerns and similar opportunities to achieve success. The key principle in classifying ACOs is to define the organizational types based on the structure of the organization, or what the organization is 6. Beyond structure, there are also processes and outcomes; however, these are dependent on the underlying structure of the organization 7. Processes represent what the organization does and are subject to constant revision. Outcomes are what the organization achieves and are dictated by the structure of the organization and the processes that it undertakes. Because structure is the most difficult to change and directly affects subsequent processes and outcomes, that is what we focus on when classifying ACOs. A physician group, for example, could change its process of coordinating care for its patients, but it would be a more significant change if the same physician group purchased a hospital and began directly offering inpatient care. In creating a taxonomical structure, we built on the work of Bazzoli, Shortell and Dubbs, who sought to create a taxonomy of health networks and systems 8 11. In this work, the authors identified three domains that were relevant to how health networks were structured: integration, differentiation and centralization. As ACOs act as networks of providers and payers that care for defined populations, we took these same structural domains and applied them to ACOs. Integration and differentiation relate to the range of health care services provided by the ACO. Integration consists of the range of services that are directly furnished by the ACO to their defined population. Differentiation includes the total range of services that the ACO provides to their population, either directly or through a contracted provider, if not offered by the ACO itself. A physician group may, for example, agree to a risk-bearing contract and directly provide ambulatory services (an outpatient focus for the domain of integration) while it directly contracts with a hospital system that is not bearing risk to provide inpatient services (a joint ambulatory/hospital focus for the domain of differentiation). 2 Leavitt Partners

Leavitt Partners Centralization refers to the number of decision makers that comprise the ACO. For example, two physician groups may jointly run an ACO (a multiple owner arrangement for the domain of centralization). ANALYTIC APPROACH Data Data for the taxonomy project came from three sources: a database of ACOs, a targeted ACO survey and interviews with ACOs. Since 2010, we have been tracking the growth of entities that are adopting risk-bearing contracts 12. This database, built off of public reports, news releases and industry directories, provides a national view of the relative growth of ACOs throughout the country and includes information such as the providers involved in ACO contracts, the affiliated hospitals, the number of covered lives and the number of physicians participating. The ACO database served as our population of ACOs. At the initiation of the taxonomical review in September 2013, we had identified 491 ACOs throughout the United States. Through the end of March 2014, this number had increased to 627. To learn more about the types of care that ACOs are directly providing, we created a survey that included a variety of questions about ACOs, including topics such as ownership, names of participating organizations, approaches to managing patient care and population health, contract initiation dates, and types of care that are provided by the ACO or by a contracted affiliate. We specifically asked about 69 types of care that were then grouped into 15 categories: behavioral treatment, community services, diagnostic services, emergency care, general acute care services, long-term care, outpatient care, pediatric services, psychiatric services, specialty services, subspecialty services, surgical services, trauma care, women's health services and other services. We administered the survey by contacting ACOs, providing a copy of the survey and requesting they refer us to a person who was well-situated to respond to the questions, often an ACO executive or project director. Participating ACOs could either complete the survey online or over the phone. In exchange for the survey, ACOs received a benchmarking report that indicated how their organization compared to other ACOs. The structure of the ACO taxonomy is based on 41 completed surveys. This sample is sufficiently large to identify commonalities among the structural dimensions, though it does not allow us to make national estimates as to the prevalence of different types of structures. Qualitative understanding of ACOs is driven by interviews with ACO directors. Since 2012, we have been actively interviewing ACO directors to gain insight into topics such as strategies to manage population health, different approaches to care coordination, the use of health information technology and partnership and affiliation activities. Findings from over 100 of these interviews informed our understanding of the ACO types. Methods The process of creating the taxonomy was comprised of both quantitative and qualitative methods, beginning with survey data and proceeding to a qualitative assessment based on interview findings. The structural classifications for differentiation, integration and centralization were based on survey data. An overview of classification categories is in Exhibit 1. An ACO s level of integration is based on the services for which the risk-bearing entity directly oversees the provision of care and does not include services that are delivered by contracted providers paid by the ACO. Integration falls into three categories: outpatient, inpatient and full spectrum. The categories are additive so that each subsequent category includes the attributes of the previous category/categories. ACOs in the outpatient category directly provide ambulatory care, which may include some specialty care in addition to primary care. ACOs in the inpatient category provide outpatient care as well as inpatient care and may provide some subspecialty services. In addition to inpatient and outpatient care, an ACO in the full spectrum category will directly provide a wide range of subspecialty, surgical and diagnostic services and some combination of psychiatric, long-term care (skilled nursing, home health, hospice, etc.) and community services (health screenings, insurance enrollment assistance, mobile health, etc.). Differentiation is classified based on the range of services that the ACO either directly provides or contracts for. Differentiation categories include ambulatory, hospital and advanced care. In the Medicare Shared Savings Program (MSSP), patients are assigned to ACOs based on use of primary care services, meaning that ACOs must, at a minimum, provide ambulatory services. Beyond this formal MSSP requirement, we have found that ACOs universally provide primary care to their patients. The ambulatory care differentiation represents the basic level of services provided A Taxonomy of Accountable Care Organizations 3

A Taxonomy of Accountable Care Organizations Exhibit 1 I Structural Domains of ACO Taxonomy Integration Differentiation Centralization Additive Outpatient Ambulatory Single Owner Inpatient Hospital Multiple Owners Full Spectrum Advanced Care --- in an outpatient setting, including primary care. Hospital differentiation constitutes ACOs that provide ambulatory services in addition to emergency services, surgical services, diagnostic services and specialty services (such as cardiology and oncology services). Advanced care differentiation includes ACOs that additionally provide trauma services and subspecialty services (such as burn care or transplant services). Centralization refers to the level at which decisions are being made within an organization. As a proxy for this level of decision-making, we use the number of entities that own and control the ACO. We categorize centralization into two categories: single owner and multiple owners. Based on where an ACO fits within each of these domains, we were able to classify ACOs into clusters. We used a qualitative process of prioritizing the three categories, with integration being the most important, followed by differentiation and centralization. Integration takes priority because it indicates the total amount of care being given by the providers that are bearing risk and structurally represents where the ACO has the direct ability to influence how care is provided, with a more integrated ACO having the opportunity to directly affect more of the care process. Differentiation indicates how much care the ACO is responsible for but is less important, as the risk-bearing entity does not directly provide all of the services. Finally, centralization is relevant because it indicates the number of organizations or entities involved in decision-making, which will affect how a population s health is managed. After identifying the core types of ACOs, we qualitatively evaluated them. Data for this analysis came from our broader ACO database and repository of interviews. We first reviewed information about the ACOs that were included in our survey, including interview transcripts and previously identified news stories about the ACOs. We used this review to confirm that our groupings identified organizations that are meaningfully similar and went through an iterative approach of revising some of the groupings of domains. After finalizing the groupings, we began to understand more about commonalities between ACO types. By qualitatively reviewing these surveyed organizations, we were able to identify more explanatory descriptions of the organizations and then reference our broader repository and match ACO types to existing interviews. TYPES OF ACCOUNTABLE CARE ORGANIZATIONS We have identified six core types of ACOs that are described structurally in Exhibit 2. While the structural nature of the ACO is important, the real value in the taxonomy is in identifying commonalities within these different groups, including descriptions, needs and opportunities they share. ACO types cluster into three broad groups: those led by hospitals (Independent Hospital and Hospital Alliance), those led by physician groups (Independent Physician Group, Physician Group Alliance and Expanded Physician Group) and those led by integrated delivery systems (Full Spectrum Integrated). These broader clusters are useful in monitoring and studying ACOs, but important differences, particularly as they relate to opportunities and challenges of specific organizations, are found when evaluating the six individual organization types. 4 Leavitt Partners

Leavitt Partners Full Spectrum Integrated ACOs Full Spectrum Integrated ACOs directly provide all aspects of health care to their patients. In practice, these organizations embody what many policymakers initially envisioned when discussing ACOs 13 16, with a large, integrated delivery network either acting as the dominant or sole entity in the arrangement. These organizations are usually a dominant player in their market. Our interviews reveal that their involvement in accountable care is generally motivated more by a desire to prepare for a future, valueoriented health care landscape than short-term financial goals. As such, these ACOs are often involved in other forms of provider risk bearing, such as bundled payments or ownership of a health plan. Academic Medical Centers typically fall into this category. Generally, these ACOs are well financed and have an established health information technology (HIT) infrastructure. They often have or are in the process of implementing sophisticated analytics systems. These ACOs will generally prefer to address gaps in their capabilities independently or by working closely with a partner focused on a narrow area of improvement rather than turning to a vendor offering a complete solution. Independent Physician Group ACOs Independent Physician Group ACOs are those that have a single physician group owner and do not contract with other providers for additional services. These ACOs are typically smaller primary care physician groups and are frequently only involved in one accountable care payment arrangement, most commonly the MSSP. Their HIT capabilities are usually unsophisticated. A number of these organizations were previously independent physicians who have joined together to create a newly formed organization large enough to qualify for the MSSP s minimum of 5,000 lives. Exhibit 2 I Structural Classification of Types of ACOs ACO Type Integration Differentiation Centralization Full Spectrum Integrated Full Spectrum Advanced Care Independent Physician Group Single Owner - Multiple Owners Outpatient Ambulatory Single Owner Physician Group Alliance Outpatient Ambulatory Multiple Owners Expanded Physican Group Outpatient Hospital - Advanced Care Single Owner - Multiple Owners Independent Hospital Inpatient Hospital - Advanced Care Single Owner Hospital Alliance Inpatient Hospital - Advanced Care Multiple Owners A Taxonomy of Accountable Care Organizations 5

A Taxonomy of Accountable Care Organizations Physician Group Alliance ACOs Physician Group Alliance ACOs are similar to Independent Physician Group ACOs but include multiple participating groups. The partners involved in these ACOs are often multispecialty physician groups, though they still lack affiliation with hospitals. Like Independent Physician Group ACOs, their HIT capabilities are generally less sophisticated than Full Spectrum Integrated ACOs. Expanded Physician Group ACOs Expanded Physician Group ACOs only offer outpatient services directly, but they do contract with other providers to offer hospital or advanced care services. This type of ACO can potentially have any number of owners, though we observe that it is more common for there to be multiple owners. An example is a physician group that partners with hospitals that permit real-time data sharing, thereby enabling the ACO to track inpatient treatments. Independent Hospital ACOs The defining characteristic of Independent Hospital ACOs is that they have a single owner that directly offers inpatient services. Outpatient services can be provided directly by the ACO if the owner is an integrated health system or a physician-hospital organization, or they can come from a contracted provider. The ACO can also contract with additional providers to offer advanced care services. ACOs of this type are most commonly a health system that offers both outpatient and inpatient care but does not offer advanced subspecialties. These tend to be smaller systems or independent hospitals that are not dominant players in their local markets. Independent Hospital ACOs have reported that they are often concerned with preventing leakage of patients to larger, more dominant systems and are focusing on encouraging patients to receive as many services as possible from the ACO. Because these ACOs often have a substantial number of employed physicians, many are focused on incorporating clinician input into their ACO strategy. These ACOs typically have established foundational HIT tools and some are experimenting with developing analytics capabilities. Hospital Alliance ACOs Hospital Alliance ACOs are those that have multiple owners with at least one owner directly providing inpatient services. Outpatient services can be provided either directly or by a contracted provider. These ACOs may also contract with providers to offer advanced care services. The participants in these ACOs tend to be smaller organizations: stand-alone hospitals, small hospital systems, or small physician groups. For hospital-physician group partnerships, the arrangement may be a marriage of equals or either the hospital or physician group may serve as the driving force. Though these ACOs can have as few as two participating organizations, it is not uncommon for this type to include eight or more participants. They also are more likely than other ACO types to be located in rural areas with larger geographies and smaller populations, having presumably formed for the purpose of aggregating a patient-base large enough for risk bearing. These ACOs are likely to participate in a health information exchange. Additional Attributes We have also identified two additional attributes that can overlap with the six core types of ACOs: decentralized decision-makers and specialty ACOs. Decentralized decision-maker ACOs exist in two cases: (1) many organizations (greater than 3) are involved in the ACO and actively contribute to decisions and/or (2) previously unaffiliated organizations come together to create a new ACO. In the former case, independent provider groups must collaboratively make decisions affecting the ACO, which leads to unique challenges of creating consensus among, in some cases, very different stakeholders. ACOs considering this approach to accountable care and vendors serving this type of ACO must be aware of organizational barriers that may impede timely decision-making. In the latter case, disparate provider groups are effectively coming together to create a larger group practice, most commonly when multiple small physician offices combine. While there is a new, single decision-making entity, the degree of consolidation ranges from minimally integrated providers, such as those practicing in an independent practice association (IPA), to a more consolidated group practice with strong administrative oversight. In addition to learning to bear risk, these provider groups are in the process of learning how to work as a larger entity with those attendant challenges 17 19. The second special case involves ACOs that are focused on a subset of all patients. Most ACOs include a population that covers a broad portion of society, including those that are relatively healthy and those that have a wide range of illnesses. Some ACOs, though, are built around a single illness or subpopulation, such as cancer or end-stage renal 6 Leavitt Partners

Leavitt Partners disease 20,21. In these cases, the needs of the ACO are going to be very customized and explicit to that specific population. While many of the general observations for the ACO type will remain, there is the added need to develop and administer disease- or population-specific capabilities and technology. OPPORTUNITIES AND CHALLENGES Beyond simply identifying types of ACOs, we have begun to identify opportunities for different ACO types to achieve the triple aim. We believe that different types of ACOs have different opportunities to achieve the triple aim and that one size does not fit all when it comes to managing patient populations. The suggested opportunities and challenges are based on general observations and do not apply to every ACO in each category, but they do provide directional guidance. ACOs may move between categories, but each has an opportunity to achieve the triple aim without migration. Full Spectrum Integrated ACOs Full Spectrum ACOs already directly provide care for the continuum of health care services and as such have the ability to focus on the widest range of care activities. To realize the benefits of this integration, HIT must be completely interoperable between all provider locations and reduce redundant services. Beyond this, these ACOs are well positioned to use sophisticated analytics tools to identify high utilizers and focus on implementing strategies that prevent high-cost procedures. A challenge that many of these ACOs have is that they still view hospitals as a revenue driver. More money can be saved by reducing admissions than by reducing the length of stay for admissions. Many of these organizations still focus on the inpatient side rather than on ambulatory care with the specific intent to reduce admissions. A further challenge is that these organizations are generally so large that any substantial change will require significant administrative resources and a longer time frame. Independent Physician Group ACOs Independent Physician Group ACOs have a low cost structure and smaller workforces and are thus able to implement changes to care more quickly and cheaply relative to other types. With fewer participating physicians, if the ACO can get initial buy-in from their physicians, then it is easier to make the organizational switch to population health. Additionally, these ACOs are not affiliated with any hospital and have no pressure to drive inpatient volume and can focus on eliminating admissions. With smaller patient populations, there may not be a need to invest in highly sophisticated care coordination technologies but instead provide targeted care coordination for a subset of their patients. A significant disadvantage for these ACOs is their inability to affect the delivery of inpatient care. They are likely to refer patients to many hospitals throughout their market and have an opportunity to create strategic relationships with some of them, potentially progressing into an Expanded Physician Group ACO. These ACOs generally do not have ready access to capital, and those that decide to make significant technological improvements may struggle to finance the investment. Smaller ACOs are at heightened actuarial risk for severe losses with smaller populations that are more prone to higher cost fluctuations, potentially necessitating reinsurance. Physician Group Alliance ACOs Physician Group Alliances are similar to Independent Physician Groups but have multiple decision makers and more stakeholders. They may have more specialists involved, which can give them an increased ability to limit costly specialty care and hospital admissions. These ACOs often face a steep organizational learning curve as they figure out how to work together. Additionally, the disparate organizations face the added challenge of exchanging data between potentially different electronic medical record (EMR) platforms. Expanded Physician Group ACOs Expanded Physician Groups start with the same ambulatory base as the other physician group types, but they additionally contract with hospitals to provide inpatient care. This allows the ACOs to have some insight into what is happening on the inpatient side, particularly if they share data with the hospitals. While they are not able to directly provide inpatient care, these ACOs can often help with inpatient stays, potentially by hiring hospitalists or care coordinators who work within the hospital. Additionally, without a hospital participating in the ACO, there is less pressure to view hospitals as a revenue center. Some of these ACOs are large enough to secure a sizeable risk pool and are thus positioned to potentially take full risk for their population via capitated payments. A challenge for Expanded Physician Group ACOs is setting up operational arrangements with hospitals so that the ACO A Taxonomy of Accountable Care Organizations 7

A Taxonomy of Accountable Care Organizations is better able to manage their patient s health, particularly if the hospital operates on a different EMR. Independent Hospital ACOs Independent Hospital ACOs are somewhat similar to Full Spectrum ACOs but don t provide as many subspecialty or post-acute care services. This is an advantage because an Independent Hospital ACO s cost structure will often be lower than that of Full Spectrum ACOs, which then leads to relatively lower operational costs. These ACOs generally have strong relationships with primary care providers and specialists and can work closely with these physicians to coordinate care outside of the hospital. These ACOs have the possibility of increasing market share by becoming a high value provider, particularly if they can minimize variability in inpatient costs. HIT investments in care coordination and predictive analytics will increase their ability to manage larger populations. Similar to Full Spectrum ACOs, Independent Hospital ACOs struggle with limiting inpatient usage, as the hospital is often their primary source of revenue. Those that do not have strong existing ties with primary care providers will be at a particular disadvantage, as they are limited in their ability to provide preventive, low-cost services. Necessary subspecialty services, such as transplants, will also have to be contracted out, limiting the ability of the ACO to manage potentially costly episodes of care. Hospital-based ACOs often accept many types of insurance, which requires either negotiating ACO contracts with many payers or only managing a small subset of their patient population under accountable care contracts. areas, these ACOs must address transporting their patients to appropriate locations of care. CONCLUSION The ACO taxonomy is an important mechanism to help interested parties better understand the organizations that are adopting accountable care. By learning about the structures of different types of ACOs, opportunities to redesign organizations, modify patient care processes and eventually achieve the triple aim will become more apparent. ACOs that are currently bearing risk, providers that are considering adopting accountable care, vendors that are serving ACOs and policymakers that are directing accountable care programs will all benefit by recognizing the varied needs, challenges and opportunities of different types of ACOs. For inquiries about this report or Leavitt Partners please email David Muhlestein at david.muhlestein@leavittpartners.com or Paul Gardner at paul.gardner@leavittpartners.com.. Hospital Alliance ACOs Hospital Alliance ACOs are similar to Independent Hospital ACOs in terms of opportunities and challenges. When hospitals and physician groups partner, they gain an increased ability to effectively manage populations across the continuum of care. They can gain many of the benefits of integration without common ownership. This partnership model appeals to many physician groups and may decrease antitrust scrutiny in more concentrated markets. With disparate providers, particularly when a significant number of different EMRs are in place, interoperability is a significant operational hurdle. Even when data is shared, effectively using it across multiple practice areas is challenging. Across large distances, particularly in more rural 8 Leavitt Partners

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