iProtean—New ACO Shows Notable Results

Dignity Health, Blue Shield of California and Hill Physicians Medical Group began working on a proto-type ACO in 2007 in response to pressure from the California Public Employees Retirement System (CalPERS), a large healthcare purchaser, and the resulting ACO seems to be doing very well.


The ACO launched in January 2010, serving 41,000 CalPERS beneficiaries enrolled in a Blue Shield HMO. According to a September 2012 article in Health Affairs, by the end of 2011, the partnership had saved CalPers $37 million, and the three partners had split $13 million through their shared savings contract.


The three partners worked on both quality and cost, setting a capitated global budget and sharing risk. Their objectives included reducing costs by at least $15 million in 2010 and maintaining or improving quality of care. The partnership stipulated that “no cost-control initiative can be launched if it would hurt quality,” said the author of a January 31 HFMA article on the ACO.


The risk-sharing agreement holds the three partners responsible for meeting cost-savings targets, and savings above the targets are then shared among the partners. Cost reduction strategies agreed to by the three partners included:


  • Facilitating the exchange of patient information by integrating IT systems
  • Reducing drug costs through patient education, drug purchasing, and contracting
  • Educating physicians about the importance of affordable health care and using data analysis and interventions to reduce variation in physicians’ clinical quality and resource use
  • Using chronic care management, patient education, palliative care, pain management and home visits to reduce unnecessary healthcare utilization
  • Managing utilization by, for example, defining and implementing evidence-based guidelines that eliminate ineffective and marginal surgical procedures.


Some of the team’s initiatives included a proactive discharge planning process and redesigning patient education to boost effectiveness of self-care instructions after discharge. As a result, the readmission rate decreased by 15% in one year. Inpatient admissions and total hospital days also declined by 15% each.  Costs dropped by $20 million.


The partners credit their progress to their focus on transparency—understanding how each of the three made a profit.  When over the hurdle of sharing financial information, they identified ways to deliver care more efficiently. For example, “reducing hospital use was essential to lowering costs across the ACO—but Dignity Health had to have revenue sources to make up for the lost inpatient days.  So Blue Shield worked to ensure that patients who sought outpatient or emergency care out of network were redirected to Dignity Health facilities. Meanwhile, because the organizations were so different, they could not assume financial risk equally. The CFOs of each organization were tasked with figuring out how to spread risk across the partners based on their ability to influence costs in a particular area.” (HFMA, January 31, 2013)


The success of this ACO required mutual trust, transparency and a distinct cultural change.  The partners began to interact with one another in ways that encouraged cooperation and shared success.  Strategies included:


  • Relinquishing oversight when appropriate and trusting the other partners to perform according to ACO objectives
  • Forgetting the past, adversarial relationships
  • Understanding what each organization contributes to the partnership
  • Assigning employees to the project who understand collaboration and partnership principles
  • Using consultants strategically


(L. Butcher, “A Three-Legged ACO Gets Off to a Running Start,” HFMA, January 31, 2013)


The iProtean advanced course Value-Based Purchasing and Accountable Care Organizations details key components of accountable care organizations. Nathan Kaufman, Kaufman Strategic Advisors, discusses the flexibility of commercial accountable care organizations such as the partnership noted above, and advises how to structure the relationship with other partners to ensure savings are shared in an equitable manner.  He notes, “Success is when you share equally in the savings you generate.” iProtean subscribers will find this new course in their course library.



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