4 Ways to Think About ACO Strategy

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

We are in the midst of a full-fledged frenzy of activity around accountable care organizations (ACOs). Be wary of a frenzy—these are the times when action becomes separated from thought and we lose track of why we are doing what we are doing. There are good reasons to pursue becoming an ACO, and some bad ones too. Over the past several months I have talked to dozens of organizations to understand the logic behind their strategy—why they want to be an ACO. The following mind-sets capture the four predominant ways that Sg2 sees healthcare organizations thinking about ACO strategy.

 

Strategic Logic #1: "I don't understand ACOs, but I don't want to be late to the party."
Many organizations have not yet wrapped their heads around what it means to be an accountable care organization—either the internal competencies needed to be successful or the external strategic considerations of pursuing this path. But they recognize a rising trend when they see it and are determined not to be left behind, just in case ACOs turn out to be something important. So they join a study collaborative, or engage a consultant to perform an ACO readiness assessment.

There is nothing wrong with this line of thinking, even if there is very little thinking behind it. In fact, the CEOs of these organizations are perhaps more honest than the rest of us in admitting that the strategic logic underpinning their ACO strategy is vague because ACOs are vague. It is a hedge-your-bets approach in the face of great uncertainty. The key caution for this group is: How much time and money will you invest in an ACO strategy before you are certain about whether it makes sense for your organization? Be decisive about how many dollars and full-time employees you will dedicate, and the time frame for reopening the question about whether continuing that investment makes sense. If, in 6 or 12 months, you cannot articulate a clearer rationale for pursuing an ACO strategy, be ready to pull the plug.

Strategic Logic #2: "I will take advantage of this short-term opportunity to consolidate my position and seize market power."
Policy wonks talk about ACOs as vehicles to drive long-term improvement in clinical quality and cost reduction. But some health care organization CEOs view their ACO strategy through a lens that is much more short-term and slanted toward commercial considerations. These masters of the local market chessboard see ACOs as a way to lock in physician relationships and build their wallet share of health care services in the communities they serve. In this line of thought, ACOs very well may drive broader performance improvement and, if so, terrific! But that would be a happy by-product. The driver of these organizations' ACO strategies—how leadership convinced their chief financial officers and their boards—is rooted in more prosaic market power considerations. Fair enough.

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