Value Based Payment

6 Tactics of Successful ACOs

August 9, 2018 2:52 pm

High-performing accountable care organizations (ACOs) offer their peers important lessons in best-practice tactics for achieving success under value-based payment.

Over the past decade, industry leaders who have been anticipating the market dominance of value-based payment models have looked to form ACOs in the hopes that they will save money, improve care, and equip their organizations for the future. As a result, ACOs have proliferated rapidly to the point that today, by some estimates, there are more than 32 million lives covered by roughly 1,000 private and public ACOs operating across the country. a  

Despite this impetus for change, success of individual ACOs has varied greatly. The Centers for Medicare & Medicaid Services reported in October 2017 that only 31 percent of ACOs participating in the Medicare Shared Savings Program (MSSP) received shared savings payments in 2016, and 44 percent were unable to generate any savings at all. b  

One of the most common stumbling blocks has been encountered during the critical task of building and maintaining relationships among the people and organizations that come together to form the ACO. The various stakeholders’ different experiences, values, habits, needs, and cultures often impede true integration. ACOs can overcome these impediments and build effective networks by adopting six strategies that can enable them to anticipate and ameliorate issues that often arise between participating organizations.

As risk-bearing entities, ACOs must promote the health of the people they cover to be fiscally and operationally viable. The medical care that historically has been delivered solely by healthcare providers is estimated to only account for about 10 to 20 percent of an individual’s health; one’s physical and social environment, behavior, and genetics and biology account for the rest. c This circumstance underlies arguably the greatest challenge an ACO faces: building a comprehensive health system capable of caring for patients when they are outside the walls of the ACO’s facilities. To meet this challenge, an ACO must build relationships with partners both within and outside of its covered network, which requires strong leadership, a shared vision, and a carefully defined and refined operational structure.

A common characteristic of successful ACOs is that their leaders engage with partners that have a variety of backgrounds and levels of involvement in the ACO’s operations. These high-performing ACOs are able to build the relationships that are essential to achieving success in value-based payment arrangements largely by applying the best practices embodied in the following six steps.

1. Conduct a Readiness Assessment

ACO leaders should complete a readiness assessment during the organization’s formative stages, and it is important that the assessment include an evaluation of the ACO’s relationships with its providers and community. For this purpose, the leaders can benefit from using vetted tools created by research and academic institutions, professional associations, and consulting firms to gain a sense of the organization’s and its prospective partners’ strengths and weaknesses. A tool developed by the UC Berkeley School of Public Health and available for public use, for example, includes the following questions: d

  • To what extent do partnerships exist with local hospitals to enable your organization to provide cost effective care to an ACO population? 
  • To what extent do partnerships exist with local specialist physicians to enable your organization to provide cost effective care to an ACO population?  
  • To what extent are your current or potential future provider partners willing to add services or delete redundant services to better serve an ACO population?

It is best to have multiple leaders complete the readiness assessment, to facilitate comparison of results and discussion of discrepancies, thereby promoting greater alignment and awareness of strengths and weaknesses and needed action steps. Completing multiple assessments also can provide a more comprehensive view of the organization’s readiness and help build the foundation for the ACO’s strategic plan.

2. Design an Effective Governance Structure

Designing and establishing an effective governance structure, with the right personnel in leadership positions, is critical to an ACO’s success. A well-designed governance structure with appropriate leadership representation for key stakeholders will help the organization draw from the resources and expertise of these stakeholders and give them a voice. The challenge of this step is in balancing the answers to the following questions.

Which stakeholders get which seats? Under-representation can lead to disengagement; over-representation can lead to dominance. 

Which people should be included? The personalities of members of the governance structure also will be important factors, so consideration should be given to who might dominate conversations and who might have difficulty voicing their opinions.

What bylaws and procedures for meeting and voting should be adopted? These bylaws and procedures can prevent more dominant personalities from exerting too much influence and create more space for more quiet personalities to speak up. Rules for voting outcomes—for example, whether a favorable decision requires a simple or a two-thirds majority or must be unanimous—should reflect the extent to which the ACO values either expediency or consensus in decision-making.

Possible stakeholder entities that should be considered for representation on the ACO’s board include general hospitals, clinics, private practice offices, physicians, behavioral health providers, patients, and other relevant organizations within the ACO’s geographic service area. ACO board members should be receptive to change, given that ACOs inherently represent a significant change to the healthcare system.

Board-level committees represent another opportunity to leverage the input of ACO stakeholders. Chartering cross-functional committees is a good way to encourage collaboration among entities that may traditionally be siloed. An example of an innovative, cross-functional committee is a “value committee” that combines the quality and finance committees into a single entity composed of quality professionals, financial professionals, and external experts who provide guidance on cost-effective models. e  

Many organizations also create patient and family advisory councils and community advisory boards to give patients and external stakeholders a voice on the board. These bodies are independent from the board of directors and management structure; they comprise patients, residents, consumer advocates, and community organizations with the goal of providing feedback to ACO leadership. Incorporating patient and community stakeholders into the governance structure enables an ACO to learn about issues the community cares about and increases engagement and support from these stakeholders because they know their voices are being heard through a formal mechanism.

The best way to ensure stakeholders are engaged is to include them in an official capacity through governance, but it is simply not possible to extend this opportunity to everybody who might have something to contribute. Less formal methods also exist. Public status meetings, open houses, and breakfast meetings all are good ways to keep stakeholders involved even if they don’t hold formal governance positions. 

Finally, every governance structure benefits from feedback mechanisms. Online surveys are an excellent tool for soliciting feedback because they are anonymous, they allow respondents to take their time and carefully construct written feedback responses instead of having to speak up in meetings, and they obviate the problem of scheduling conflicts because respondents can complete them any time. 

3. Establish a Strong Provider Network and Other Strategic Partnerships

Strong provider networks are critical to ACO success, as are strong strategic partnerships with other industry organizations, including health plans.

Provider network formation. ACOs should conduct capacity planning and modeling exercises before they launch to ensure they have strong provider networks. These exercises should be performed by an interdisciplinary group—in addition to leadership, good candidates include epidemiologists, biostatisticians, health economists, analysts, and data scientists. Once the group is established, they should gather membership data and compare the data with the network as envisioned to determine where gaps exist. Geographic tools such as GeoAccess reports can help right-size capacity. 

Next, depending on the gaps identified, the ACO should seek to expand its network to ensure the following critical provider groups are included to the extent necessary:

  • Primary care physicians
  • Specialists
  • Hospitals
  • Ancillary providers
  • Community partners, including behavioral health providers, long-term services and supports providers, and public health entities

To ensure that providers selected for the ACO network are high-performing and can deliver high value, which includes following evidence-based guidelines throughout the course of care, the ACO should assess all prospective network providers using multiple methods, including analyses of performance and cost data and whether they prescribe brand name or generic drugs, and evaluations of specific cases. f

Finally, the ACO needs to forge strong working relationships across its provider groups. Provider groups new to risk arrangements may not be completely familiar with their regional community partners and other ancillary partners. The process of meeting with these stakeholders and forging relationships may take time, but it is worthwhile. 

Assigning responsibility at both the payer and provider side for creating contract terms can prove helpful because each brings a unique perspective. Insurers have a good understanding of claims data and risk profiles, and providers understand their capacity to fulfill contract requirements. Building contracts that are right-sized for an ACO network will necessarily lean on the payer’s knowledge of the provider landscape and the providers’ familiarity with patient populations. 

Further, by working directly with community partners, provider groups can help promote the creation of new workflows and efficiencies. For example, care teams working closely with primary care practices will increase their understanding of community care options, which will enable them to serve more effectively as a liaison between the physicians and the community. As a result, primary care physicians will be able better manage and coordinate patient care outside their offices by delivering more appropriate levels of care (e.g., reducing unnecessary trips to the emergency department [ED]). 

Provider-health plan partnerships. When choosing a financial partner to help assess and bear risk for the ACO, it is important to consider the other party’s perspective. Both providers and payers will benefit from partners on the other side that have expertise in the market, a track record of managing risk, sophisticated operations, and strong clinical and utilization management capabilities. Flexibility in governance and risk arrangements can make an ACO more appealing to them. The partnership should be assessed for overall fit; both partners will want a relationship that involves aligned priorities, mutual trust, and synergies, and that is lucrative over the long-term. 

4. Focus on the Culture Shift: From Volume to Value

It can be difficult to shift the culture and practice operations of providers to align with new value-based payment methodologies. Within each ACO’s network, provider commitment to these new models will vary substantially and generally be based on past experiences. ACO leaders often struggle to gain traction in building support for the value-focused paradigm. When contemplating this issue, leaders should give attention to following key considerations.

Incentives must be identified and aligned. It is not reasonable to expect physicians to change the way they practice if they still strongly believe in the incentives of fee-for-service. To address this concern, ACOs should facilitate rather than impose a culture of quality, based on evidence-based standards. They should publicly report performance on key indicators; provide financial bonuses that adhere to behavioral economic concepts such as loss aversion, mental accounting, immediacy, and diminishing sensitivity to gains or losses; and reward only those outcomes that are actually within the physician’s control. 

Clinical leaders tend to be most responsive to other clinical leaders. One of the most effective ways to facilitate culture change in which physicians are fully engaged is to deploy peer physician advisers who are change champions.

Physicians require access to support services to be able to practice team-based medicine in line with population health standards. In the words of one ACO director, “The days of the onesie-twosie physician practices are numbered.” Physicians increasingly need to group together to be able to afford administrative, care management, quality, and compliance support. Offering these services to make their job easier will go a long way to advancing the desired culture of physician engagement; however, physicians won’t be convinced that this support is truly helpful unless they also are receiving good data.

Collecting and analyzing data physicians will find meaningful is not a simple task, and presenting these data to physicians often requires multiple conversations.To make this easier, a best practice is to ensure that data are easy to access, easy to understand, and relevant, and that supports are in place to facilitate action by the physicians. Massachusetts General Hospital in Boston, for example, sends out branded email messages containing dashboards clearly displaying performance against a concise set of quality goals—and the messages boast an impressive 60 percent open rate. g Dashboards need not be limited to quality programs; they also include patient information, such as admissions, emergency department and no-show rates, updates on care and case management programs, and issues or wins. Clinician buy-in and leadership are critical to the success of ACOs, but clinicians cannot be leaders without the information that facilitates high-level, strategic thinking. 

If the formation of the ACO could potentially change patient networks, the ACO should perform a “disruption analysis” to determine how much the networks might change and to anticipate and prepare to ameliorate any possible consumer backlash against the loss of current, trusted physicians. Such an analysis also can inform projected changes in demand for providers, and out-of-pocket expenses for patients. Any anticipated issues should be brought up with relevant stakeholders before changes become effective.

5. Establish an Effective Funds-Flow Model

ACOs need to establish an effective funds-flow model that is clear and fair. The rationale for risk-bearing entities such as ACOs is that they provide a way to give providers incentives to deliver high-value rather than high-volume care. However, just because an ACO has set up a risk contract between its provider network and a payer doesn’t mean the ACO is ready for risk. The system will fail if the incentives of providers, who are working on the front lines and making decisions about the care their patients receive, are misaligned with those of the broader ACO. Determining which providers get money from risk-based contracts is one the most consistent points of contention in risk-bearing networks and has important implications for how well the organization performs on risk contracts. 

Establishing a funds-flow model that is attractive to all parties is tricky. When it comes time to distribute revenues (or penalties) from risk contracts, high performers often resent having to subsidize low performers. Low performers often feel that they shouldn’t be punished for caring for a riskier population, and that they need more resources to improve their performance. Many ACOs have a funds-flow committee to make recommendations to the board of directors. The interests of providers from various geographic areas and with various levels of performance and population risk should be represented by seats on this committee. 

Another important consideration is the level of funds flow. In this cases, key points that should be considered include whether the ACO will distribute payments to physician groups, practices, or individual providers, and the extent to which physician groups or practices will have control over their allocation of funds to individual providers.

The is a spectrum of risk reflected in various funds-flow models developed for providers. On one end of the spectrum is distribution of funds by panel size, where each provider receives payment in proportion to the number of patients he or she cares for. This model can help providers whose populations present difficult challenges. A commonly cited shortcoming of this model, however, is that it lowers the incentive for high performance, because in recognizing only patient volume, it does not reward performance excellence, with the result that high performers may feel they are unfairly rewarded under this model.

On the other end of the spectrum is a model where funds are distributed according to performance quality or contribution to shared savings. This model can be frustrating for practices that don’t perform as well; these practices may perceive it as perpetuating a system where “the rich get richer and the poor get poorer.” Performance on some quality metrics may be out of their control. However, this approach does allow the performance incentives from risk contracts to percolate down to the provider level, and it creates the strongest incentives for providers to perform well. 

The most common method for distributing savings is according to the number of ACO patients covered, weighed by quality metrics. It is possible to adjust for the risk of a patient population , although the accuracy of such adjustments will always be subject to debate. 

6. Engage with External and Community Stakeholders

An ACO also must integrate with providers and organizations outside its network to deliver services for which it lacks expertise or capacity. Organizations that provide services for behavioral health and long-term supports and services (LTSS) have great potential to reduce ED and inpatient utilization rates. 

To ensure patients with complex conditions will receive well-coordinated, care, the ACO will require formalized relationships with behavioral health and LTSS providers in which the organizations develop integrated workflows and collaborate on patient assessments, with shared results… Initial meetings with these providers are necessary for establishing contractual and operational relationships. It is worthwhile spending at minimum five hours over a series of meetings, preferably in person, to cover the following topics:

  • Enrollee assignment, engagement, outreach, and data sharing/IT systems
  • Administration of care management and coordination
  • Transitions of care 
  • Integration and contractual relationships

In addition to forging such relationships with behavioral health and LTSS providers, the ACO should consider reaching out to organizations that do not directly provide health care but that, nonetheless, can affect the health of the ACO’s patients. The Center for Healthcare Strategies, a not-for-profit health policy resource center, provides a list of community stakeholders with which an ACO should consider engaging, describing the potential roles they can play and value they can add. These organizations include the following:

  • Community service organizations that offer health services such as in-house nurse visits, cultural competency training, and translation services, and that focus on advocating for and providing information to patients
  • Faith-based organizations that provide patients with spiritual and other supports, and that seek to influence and unify communities and organize meetings
  • Housing and homeless services that provide permanent or temporary shelter
  • Food pantries and soup kitchens that provide food and nutrition
  • Transport services (particularly important for disabled patients)
  • Patient advocates that provide patient support services such as Medicaid enrollment, and that focus on advocating for and providing information to patients

State and local public health agencies that provide access to data and conduct prevention and wellness programs coordinated with quality improvement efforts

Social services organizations that provide referrals to state, local, and community services and access to public benefits, and that can work alongside or as part of care teams

Government officials who provide public support and exposure

Key Takeaways

The U.S. healthcare industry is changing in profound ways, and the shift from volume to value in payment structures has manifested itself in rapid changes, including provider consolidation. Larger entities and networks tend to be better able to perform under risk contracts because they can draw from a wide variety of expertise and capabilities and can leverage centralized resources such as IT, billing support, and care management. Yet for all ACOs, success in risk contracts requires strong relationships as a critical ingredient. And to build these relationships, an ACO first must develop effective strategies to identify, engage, and coordinate with stakeholders, both internal and external, to ensure that it can meet wide variety of patient needs, and then ensure align the operations and goals of involved entities are aligned.

The authors are grateful for the contributions of Niko Lehman-White to this article.


a. See Muhlestein, D., Saunders, R., and McClellan, M., “Growth of ACOs and Alternative Payment Models in 2017,” Health Affairs, June 28, 2017.
b. See Saunders, R., Muhlestein, D., and McClellan, M., “Medicare Accountable Care Organization Results For 2016: Seeing Improvement, Transformation Takes Time,” Health Affairs, Nov. 21, 2017.
c. Booske, B.C., Athens, J.K., Kindig, D.A., Park, H., and Remington, P.L., “Different Perspectives for Assigning Weights to Determinants of Health,” County Health Rankings Working Paper, February 2010.
d. Shortell, S.M., and Weinberger, S., Safety Net Accountable Care Organization (ACO) Readiness Assessment Tool, UC Berkeley, School of Public Health and Warren Institute’s Health, Economic & Family Security Program,  UC Berkeley,  February 2012.
e. Houston, B., McGinnis, T., Dees, B., and DeLia, D., An Overview of thee New Jersey Medicaid Accountable Care Organization Business Planning Toolkit, Presentation, Center for Health Care Strategies, Inc., July 12, 2013.
f. For example, the “ Hospital Compare” web page at provides performance data that include surveys of patient experience, timely and effective care, complications and deaths, and payment and value of care.
g. Torchiana, D.F., Colton, D.G., Rao, S.K., Lenz, S.K., Meyer, G.S., Ferris, T.G., “Massachusetts General Physicians Organization’s Quality Incentive Program Produces Encouraging Results,” Health Affairs,October 2013.


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