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4 Ways to Think About ACO Strategy

Stephen Jenkins, Vice President, Sg2, December 9, 2010

My one caution to these organizations is that the ACO strategy they pursue for commercial reasons will likely one day lead to a risk contract that ties their payment to quality and cost performance. If their clinical enterprise is not up to the job, the financial losses they incur on an ACO risk contract at that point could easily swamp any market growth benefits.

Strategic Logic #3: "I see a fast-moving train that can help me accelerate what I need to do strategically anyway."
The savvy advocates of this perspective long ago put their organizations on a strategic path that emphasizes aligning with physicians, managing care transitions more effectively and driving cost out of the system. These CEOs have seen the future and have confidence in their strategic formula. They may or may not have confidence in the staying power of the ACO concept, or the importance of Medicare's 2012 Shared Savings Program. No matter, these CEOs reason. The ACO frenzy gives a jolt of momentum to a set of strategies that they know they need to advance in any case.

So these organizations are happy to jump aboard the ACO train and ride it as far it will take their reform readiness strategy. That's smart leadership. The one caution for these CEOs is that they must be ready to explain and sustain their organizational strategy if the ACO movement fades. It's a little like President Bush's challenge of explaining the Iraq War, after no weapons of mass destruction were found. They will need to remind their boards and management teams why it is still important to take 20% of cost out of delivering clinical care, even if they are not ultimately going to become an ACO.

Strategic Logic #4: "I want to be the market aggregator for both growth and clinical performance reasons and I welcome the opportunity to take on risk."
Finally, there are those organizations that have an appetite for risk and like to blaze trails. They believe they have created a better clinical mousetrap and want to shape a new market and financial structure that rewards what they have built. In his chairman's letter published earlier this month, Michael Sachs wrote about the ACO-like contract that Advocate Health Care has established with Blue Cross and Blue Shield of Illinois. Advocate's strategy is an exemplar of this type of formula behind an ACO strategy.

Core to this approach is the ability to demonstrate that your clinical enterprise delivers better results at a lower cost. Also vital to this strategic approach is a willingness to move forward in the face of great uncertainty. As another example, participants in Medicare's Shared Savings Program in 2012 will make the decision to be a part of the program with many questions left unanswered and details left undefined. They must be able to live with that ambiguity.

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1 comments on "4 Ways to Think About ACO Strategy"


Jennifer Dennard (12/9/2010 at 1:41 PM)
This is a very handy overview of ACO strategies, and certainly reflects much of the sentiment we've heard regarding ACOs in the past year or so. I recently published a 3-part series on ACOs via PorterResearch.com (http://bit.ly/a3X6UB), and in talking with folks for those articles, it seems that most - providers and vendors at least - are at least thinking about it. Some are taking baby steps to initiate it, and others are going full steam ahead, such as Norton Healthcare. But everyone is taking a wait-and-see approach when it comes to the value of the model.