The number of accountable care organizations (ACOs) continues to grow in both the public and private payer markets, and recent Medicare ACO results are promising.a Nonetheless, long-term financial sustainability remains questionable.

ACOs have been proposed as a structure that leverages payment reform to achieve the set of goals characterized by the Institute for Healthcare Improvement as the "Triple Aim": enhancing patient outcomes and the patient experience of care, improving the health of populations, and reducing the per capita cost of care.

Creating and managing a financially sustainable ACO are immense challenges that require thoughtful planning and a commitment to continuous learning and improvement. An ACO that is not founded on a rigorous evaluation of organizational capabilities, a thorough understanding of payment policies, and a deep knowledge of local market conditions will struggle to achieve long-term success.

To help health system leaders navigate the challenges involved in ACO design, we have developed an evaluation framework that outlines key external factors and organizational characteristics to consider (see the accompanying exhibit). These considerations can help form a strategic road map for optimizing the use of people, processes, and technology under value-based payment structures.

An Intensive Process

A health system's chances of achieving long-term success as an ACO hinge on:

  • Understanding the environmental context
  • Establishing robust governance structures
  • Aligning system design with value-based principles
  • Using measures to improve organizational performance

Understanding the environmental context. The evaluation process begins with an environmental scan that captures insights into the local market and the organization's market position and readiness to move to a value-oriented health system design. Obtaining consensus on value-based aims is a critical first step, because without foundational agreement on strategic direction, efforts will be unfocused and unproductive.

Establishing robust governance structures. Next, a rigorous examination of the organization's design is required. The focus should be on whether the organization has the core competencies and management structures necessary for the optimal use of performance management systems, execution of new care-delivery processes, and implementation of novel patient-engagement strategies.

Aligning system design with value-based principles. Without a strategy supporting sequential and systematic execution of essential components of a value-based care model, ACO implementation is likely to encounter significant barriers. For instance, organizations that hire "midlevel providers" to help with case management of chronic diseases might see costs of care go down somewhat through a reduction in hospital stays or visits to the emergency department. But most costs embedded in those settings are fixed, so the marginal-cost savings will be modest even if the ACO includes a hospital setting. If the midlevel providers do not replace higher-level—and costlier—providers, the net impact of the effort might be to simply add costs.



A successful approach is to understand the size, demographics, patterns of health services utilization—including utilization outside one's own health system—and potentially avoidable costs of a particular patient population. Structures, processes, and incentives should be aligned to provide the highest-value care to the patients of interest. Again, substitution—not addition—of personnel is preferable, with concurrent goals of creating care teams aligned to patient needs and increasing efficiency by having providers operate at the top of their license.

Using measures to improve organizational performance. Broadly agreed-upon measures should be used to continuously monitor all transformation initiatives, such as aligning compensation with strategic aims, establishing effective care-coordination processes, and creating IT capabilities that support essential data needs at the payer, provider, population, and patient levels. A health system should be able to incrementally improve organizational structures, care processes, and incentives as it learns which interventions, configurations, and processes most effectively create value.

Opportunities Await

No one can predict how successful ACOs will be in the long term. By adopting payment models that give provider teams incentives to coordinate care, improve provider-provider and provider-patient partnerships, remove unnecessary healthcare services and costs, and empower patients in their own care, ACOs could not only slow per capita spending, but also achieve meaningful improvements in patients' health outcomes.

ACOs are unlikely to succeed without the required groundwork and continuous self-evaluation. But with proper insight into the organization and market context, robust governance, value-oriented processes, and a culture of continuous improvement, ACOs could realize their promise of being a sustainable means to achieving the "Triple Aim."

Gregory Kotzbauer is managing director, strategic technology initiatives, Dartmouth Institute for Health Policy and Clinical Practice, Lebanon, N.H.

William B. Weeks, MD, MBA, is a professor, Geisel School of Medicine, Dartmouth College, Hanover, N.H., and a member of HFMA's New Hampshire-Vermont Chapter.


a. Muhlestein, D., "Accountable Care Growth in 2014: A Look Ahead," Health Affairs blog, Jan. 29, 2014; and "Medicare's Delivery System Reform Initiatives Achieve Significant Savings and Quality ImprovementÑOff to a Strong Start," U.S. Department of Health and Human Services, Jan. 30, 2014.

Publication Date: Friday, August 01, 2014

Login Required

If you are an existing member, please log in below. Username and password are required.



Forgot User Name?
Forgot Password?

If you are not an HFMA member and would like to access portions of our content for 30 days, please fill out the following.

First Name:

Last Name:


   Become an HFMA member instead