Arranged Marriages: The Evolution of ACO Partnerships in California

CHCF Regional Markets Issue Brief
September 2013
Joy M. Grossman, Ha T. Tu, Dori A. Cross

Across the country, hospitals, physicians and other providers are collaborating with public and private payers on delivery system and payment reforms intended to slow health care spending growth and to improve the quality of care. Medicare initiatives to develop ACOs—groups of providers that take responsibility for the cost and quality of care of a defined patient population—have spurred interest in similar, commercial ACO contracting arrangements between private insurers and providers.

While most commercial ACO initiatives nationally focus primarily on new provider payment approaches that are incorporated into existing insurance products, the study found initial California ACO collaborations have combined payment changes with new limited-network ACO insurance products. These limited-network products include financial incentives for enrollees to use ACO providers; they typically are structured either as health maintenance organization (HMO) products that restrict patient access only to ACO providers or as preferred provider organization (PPO) products with reduced patient cost sharing for using ACO providers.

The study explores factors that have spurred ACO activity in California, describes how the state's commercial insurance market has affected ACO product design, and identifies market conditions in local communities that affect ACO product development and structure. The analysis also considers how market factors are likely to affect the evolution of commercial ACO arrangements in California and the rest of the country.

Key findings include:

• California's unique market factors—large physician organizations experienced in managing financial risk for patient care, and competitive pressure from the growing dominance of Kaiser Permanente—have helped drive interest in developing ACO agreements in the state.
• The pace of ACO product development varies according to insurer and provider market structure and competition in each community.
• While significant savings are possible, ACO efforts require intensive collaboration and investment to support care management and exchange of sensitive performance data. These commitments present challenges even in California communities where market conditions are favorable for ACO development

Access to this article is available at California HealthCare Foundation website.