4/21/2015

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THE MARKET DYNAMICS OF THE ACO

MOVEMENT

David Muhlestein, PhD JD

Senior Director of Research & Development

Leavitt Partners

May 9, 2015

PRESENTATION OVERVIEW

1. Accountable Care Basics

2. ACO Trends

3. What’s Driving ACO Activity?

4. ACO Market Dynamics

4/21/2015

2

ACCOUNTABLE CARE BASICS

WHAT IS ACCOUNTABLE CARE?

• Bear financial risk for the measured health of a population

• Align incentives to encourage the production of high quality health outcomes

• Oversee the provision of clinical care

• Coordinate the provision of care across the continuum of health services

• Invest in and learn to use appropriate IT to manage population health

• Improve the individual experience of care

• Improve population health

• Reduce the cost of health care for populations

Processes

Outcomes

Structure

ACCOUNTABLE CARE TRENDS

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ACCOUNTABLE CARE LIVESGrowth Over Time

0

5

10

15

20

25

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4

2010 2011 2012 2013 2014 2015

23.5 Million

Co

ve

red

Liv

es

(Mil

lio

ns)

Source: Leavitt Partners Center for Accountable Care Intelligence

ACO GROWTHOverall Trajectory

81 86 104

159

213

318 335

440 467 479

598 615623 645

742

0

100

200

300

400

500

600

700

800

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

Nu

mb

er

of

AC

Os

GROWTH BY CONTRACT TYPEFor New and Existing ACOs

8 8 10 3362

182 183

295 296 296 297

418 418

418

523

76 7888

173196

212 230266 285

316341

381416

463

528

84 86 98

206258

394 413

561 581612

638

799834

881

1051

0

200

400

600

800

1000

1200

2011

Q2

2011

Q3

2011

Q4

2012

Q1

2012

Q2

2012

Q3

2012

Q4

2013

Q1

2013

Q2

2013

Q3

2013

Q4

2014

Q1

2014

Q2

2014

Q3

2014

Q4

# o

f A

CO

Co

ntr

act

s

Government Commercial Total

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ACO GROWTH VS CONTRACT GROWTHOverall Trajectory

82 87 105145

196

317342

444471 483

601 616 624 646

742

84 92 100

214266

402 422

570 590621

647

808843

883

1051

0

200

400

600

800

1000

1200

Q2

2011

Q3

2011

Q4

2011

Q1

2012

Q2

2012

Q3

2012

Q4

2012

Q1

2013

Q2

2013

Q3

2013

Q4

2013

Q1

2014

Q2

2014

Q3

2014

Q4

2014

# o

f A

CO

s a

nd

Pa

ym

en

t A

rra

ng

em

en

ts

# of ACOs

# of Payment Arrangements

WHERE ARE THEY FORMING?

Source: Leavitt Partners Center for Accountable Care Intelligence

HOW MANY LIVES?

Source: Leavitt Partners Center for Accountable Care Intelligence

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AVERAGE NUMBER OF ACOS Based on patient location

Source: Leavitt Partners Center for Accountable Care Intelligence

MEDICARE SHARED SAVINGS PROGRAM

Source: Center for Medicare & Medicaid Innovation

3rd Round

2nd Round

1st Round

4th Round

3rd Round

2nd Round

1st Round

5Th Round

4th Round

3rd Round

2nd Round

1st Round Source: Center for Medicare & Medicaid Innovation

3rd Round

2nd Round

1st Round

5Th Round

4th Round

3rd Round

2nd Round

1st Round

ACO PENETRATION OF LIVES OVER TIME

Source: Leavitt Partners Center for Accountable Care Intelligence

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HOSPITALS IN ACOS OVER TIME

Source: Leavitt Partners Center for Accountable Care Intelligence

WHAT’S DRIVING ACO ACTIVITY?

FACTORS ASSOCIATED WITH ACO GROWTHWhat’s driving ACO activity?

IndicatorsIndicatorsIndicatorsIndicators MeasuresMeasuresMeasuresMeasures DiscussionDiscussionDiscussionDiscussion

Level of insurance coverage % Population under 65 w/ Insurance Higher rate of insurance encourages ACO

Age of the population Median Age Older the population, the more common for ACO

Experience w/ managed care % of Privately Insured Covered by HMO Experience with managed care increases ACO receptivity

Employer size Est. Proportion Employees in Large Firm Large risk-bearing employers more likely to consider ACO

Physician group dynamics Proportion of Drs. in Group Practice Greater physician alignment makes it easier for ACO

Employee insurance type % of Individuals in a Self-Insured Plan Employers with heavy risk seek to mitigate thru ACO

Historical economy Economic Strength Pre-Recession Stronger econ. foundation enabled experimentation

Medical spend Avg. Medicare Spending/Beneficiary Increased ACO activity in lower cost markets

Key Quantitative Indicators of Projected ACO Activity

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PROJECTED GROWTH OF ACOS

Darker Red = More VBP Activity19

DRIVERS OF EARLY GROWTH

Belief that accountable care represents a better way of delivering care

Preparation for future risk-bearing

Attempt to increase market share

Response to accountable care activities of market competitors

Inability to stay competitive with traditional payments

DRIVERS OF FUTURE GROWTH

Success of current ACOs and expansion of contracts

Mandated/Incented adoption by government payers

Belief that providers are going to be forced to bear risk in the future

Response to accountable care activities of market competitors

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TYPES OF CONTRACTS ADDEDFor New and Existing ACOs

84

252

154167

15

70 72

114

0

50

100

150

200

250

300

2011 2012 2013 2014

# o

f A

CO

s

First Contract Additional Contract

Source: Leavitt Partners Center for Accountable Care Intelligence

LIKELY SCENARIOSContinued vs. Slow Growth

Continued Growth:• Increasingly favorable, though

modest, financial results

• MSSP does not require two-sided risk

• Commercial payers aggressively

move toward risk-based contracts

Slowed Growth:• Continued mixed financial results

• Medicare continues to support

MSSP; requires two-sided risk for

organizations that continue beyond 3

years

• Gradual expansion of model across

commercial payers

23

COMPARISON Continued growth compared to slowed growth

[VALUE]

Million

0

10

20

30

40

50

60

70

80

2010 2012 2014 2016 2018 2020

Co

vere

d L

ives

(Millio

ns)

Predicted

Actual

[VALUE]

Million

0

10

20

30

40

50

60

70

80

2010 2012 2014 2016 2018 2020

Co

vere

d L

ives

(Mil

lio

ns)

Predicted

Actual

Continued Growth:

Number of ACO Lives

Slowed Growth:

Number of ACO Lives

24

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ACO TREND IMPLICATION

As accountable care grows, the practice of delivering care will evolve

which will effect all health care sectors

Accountable care will continue to exist as a viable payment model for

the foreseeable future

The organic growth of ACOs will be relatively slow

External pressures, particularly those from government payers, could

significantly accelerate the growth

ACO MARKET DYNAMICS

ACCOUNTABLE CARE IN CHICAGO

Jan 2011

Advocate Health

Care & BCBSIL

sign ACO contract

May 2011

DuPage Medical Group

& Edward Hospital form

Illinois Health Partners

for HMO patients

July 2012

Advocate Health

Care joins MSSP

Jan 2013

Presence Health

Partners joins

MSSP

Jan 2014

Ingalls Care

Network

joins MSSP

Adventist

Health

Network

signs ACO

contract

with Cigna

July 2014

Presence

Health

Partners

adds ACO

contract

with Cigna

Illinois

Medicaid

launches

ACE

Program

Northwest Community

Healthcare signs ACO

contract with BCBSIL

Advocate adds

ACO contract with

UnitedHealthcare

Jan 2015

Loyola Physician

Partners joins

MSSP

Presence Health

Partners adds

ACO contract

with BCBSIL

NorthShore signs

ACO contract with

BCBSIL

Vanguard Health

Chicago joins MSSP

Alexian Brothers

joins MSSP

Independent

Physicians ACO of

Chicago joins

MSSP

Independent Physicians

ACO of Chicago adds

ACO contract with

BCBSIL

Alexian

Brothers adds

ACO contract

with BCBSIL

Kane County IPA

signs ACO contract

with BCBSIL

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CHICAGO, IL: MARKET OVERVIEW

A

B

C

B

IndicatorsIndicatorsIndicatorsIndicators Market DetailMarket DetailMarket DetailMarket Detail

MeasureMeasureMeasureMeasure ACO IndicatorACO IndicatorACO IndicatorACO Indicator ValueValueValueValue PercentilePercentilePercentilePercentile DriverDriverDriverDriver

% Population under 65 w/ Insurance More Insured 84.0% 60

Median Age Older Population 36.4yrs. 30

% of Privately Insured Covered by HMO More Managed 10.8% 42

Proportion of Drs. in Group Practice More Groups 66.6% 58

Est. Proportion Employees in Large

Firm

More Employees 49.6% 89

% in a Self-Insured Plan More Self-

Insured

69.5% 67

Economic Strength Pre-Recession Stronger Econ. -- 82

Avg. Medicare Spending/Beneficiary Higher Spending $9,140 75

Key Indicators of Current & Projected ACO Activity

ACO Contract Type Number of ACOsNumber of ACOsNumber of ACOsNumber of ACOs

Commercial only 5

Medicare only 3

Government & Commercial 4

Medicaid ACE 9

PROVIDER DYNAMICSACO Market Dynamics

WHEN ONE PROVIDER DOMINATES A MARKETProviders have the ability to drive or restrain ACO growth

• 2012: Began small scale ACO-like pilot projects

• 2012: Signed ACO-like agreement with Aetna

• 2013: Signed ACO agreement with Cigna

• 2015: Joined MSSP

“We’re so far behind that we can be ahead”

Ann Huston, Chief Strategy Officer of Cleveland Clinic

NY Times, March17, 2015

VS

• 2011: Signed ACO contract with BCBSIL

• 2012: Joined 1st round MSSP

• 2014: Joined Illinois Medicaid ACE program

• 2014: Signed ACO contract with UnitedHealthcare

(Shared savings contracts account for 2/3 of hospital revenue)

A more cautious approach by a dominant provider may lead to slower net adoption of

ACOs in the market.

When a dominant provider pursues ACO growth, others in the market quickly respond.

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PAYER DYNAMICSACO Market Dynamics

PAYER-DOMINATED MARKETSHow can payer-dominated markets drive ACO growth?

New York Alabama

Number of Payers with at least 10k

Lives21 8

Largest Payer’s Market Share 38% 90%

Number of ACOs 34 2

Estimated Number of ACO-Covered

Lives~1.2M ~140K

Number of Commercial Payers with

ACO contracts9 1

Examples:

• New York – Many payers

adopting ACO contracts in

many different markets

• Alabama – With the

largest payer not

endorsing accountable

care, ACO growth has been

slow

STATE MEDICAID PROGRAMS AND ACO GROWTH

Leavitt Partners Center for Accountable Care IntelligenceSlide last updated 9/12/2014

Passed ACO Legislation, or

Pilot/Active ACO-like Program

Examples:

• Oregon – Approx. 627K lives, first state to

move entire Medicaid population to CCOs

• Vermont – Approx. 140K lives, mimicking

MSSP

• Illinois – 3-year path to capitation, goal to

cover approx. 1M lives by 2015

• Colorado – Approx. 352K lives, large

investment in Statewide Data Analytics

Contractor (SDAC)

• Alabama – 6 organizations in approval

process, will cover approx. 800K lives

• Maine – Approx. 357K lives, ACOs select 3

of 7 elective measures to be evaluated

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ACO GROWTH ≠ MERGERS

Very few mergers have happened as a result of ACO activity (<5)

Instead, hospitals and health systems are choosing non-ownership

affiliations

• Working together to achieve mutual objectives gets both parties more

traction than squabbling over who holds the keys.

CONCLUSIONS

CONCLUSIONS

ACO growth will continue to be market dependent

Past history is often indicative of future trends

Dominant payers and providers can accelerate or slow the adoption

The ultimate key is how successful providers are at managing

populations

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