Is Your ACO Ready for Downside Risk?

By Annette Schandl, CPA, and Ryan Willhite, CIA, CISA, CFE
| 4/9/2019
Is Your ACO Ready for Downside Risk?

The transition from volume-based to value-based reimbursement in the healthcare industry is not slowing down. In fact, with its final rule published on Dec. 21, 2018, the Centers for Medicare & Medicaid Services (CMS) is seeking to accelerate this shift for Medicare accountable care organizations (ACOs). This rule, “Pathways to Success,” overhauls the existing Medicare Shared Savings Program in many ways. One of the most critical changes is the requirement for ACOs to assume downside financial risk at an earlier point – after two years of participation for most ACOs versus up to six years under the current program. In the 2018 Medicare Shared Savings Program, approximately 80 percent of ACOs participated in upside-only tracks,1 meaning that either a change in status or an exit from the program is on the horizon for many. The new participation criteria will take effect on July 1, 2019, leaving these ACOs with little time to prepare.

Taking on downside financial risk does not directly introduce the need for new processes and controls, but it does magnify the importance of embedding certain steps into an ACO’s operations. These critical steps fall into four main categories.

1. Data aggregation

As an ACO is responsible for the total cost of care for each attributed beneficiary, there is a need to build a complete patient health record across all points of care, from clinic visits and hospital stays to post-acute services. This can be challenging due to the number of disparate electronic health record (EHR) systems that may be used by an ACO’s participants. According to a 2017 Health Affairs survey, the average number of EHR platforms used within an ACO network was 13.2 Furthermore, both the type and amount of information that is captured may vary by system. Whether through a vendor or internal system development, an ACO should have one central repository that receives feeds from all of the EHRs at each participant and generates a consistently formatted and searchable record for each beneficiary. This complete record should be available to providers when a beneficiary presents at any of the ACO’s points of care.

2. Population analysis

Once a complete record is created, the next step is to determine which beneficiaries are the highest risk and likely to require the highest spend. One component of this analysis is clinical. Some ACOs have developed internal algorithms to predict the likelihood of hospitalization for each beneficiary. This analysis may include factors such as chronic conditions (for example, diabetes, hypertension, or chronic obstructive pulmonary disease), completion of recommended immunizations, and emergency department utilization. Beyond just the clinical analysis, though, it is increasingly important to include social determinants of health in beneficiary risk scoring. A study published in November 2018 by Population Health Management found a 10 percent reduction in healthcare costs among Medicaid and Medicare Advantage members who were successfully connected to social services compared to a control group of members who were not.3 Key determinants that can be considered in this category include housing stability, food security, employment status, literacy level, and access to reliable transportation. In order to capture this information for analysis, some providers have begun integrating targeted questions into their EHRs or including a social determinants checklist with the standard patient history and physical form.

3. Proactive patient engagement

Many ACOs have personnel – referred to as care coordinators, patient navigators, health coaches, or another term – dedicated to actively engaging those beneficiaries who have been identified as high risk. Often embedded into both clinic and hospital settings, these individuals can assist patients with transition-of-care decisions as well as appointment scheduling, prescription adherence, and condition-specific education. Proactive outreach to beneficiaries also is becoming increasingly common for reminders on annually recommended services such as mammograms and prostate exams. Here also, an ACO should consider addressing the social determinants of health by having social workers available who are able to connect beneficiaries with relevant community services such as housing and nutrition programs. In line with the goal of building a complete health picture, it is critical to document this type of communication with beneficiaries in the EHR or another location that is readily accessible by providers at every point of care.

4. Continuous performance monitoring

Because actual beneficiary utilization and spending are dynamic measures that can change on a daily basis, it is important for an ACO to have a mechanism to track whether it is trending toward achieving year-end financial targets. Historical cost data is a simple and readily available starting point, but continuous assessment may require the use of predictive analytics or actuarial analysis. The ACO’s executive management team and its board should be involved in both the selection of the method of analysis and the creation of formal action plans when results are trending below target. Additionally, with the risk scoring methodology built into the Medicare program that adjusts spending targets based on the overall health status of an ACO’s attributed population, it is critical that an ongoing clinical documentation improvement program is in place to identify instances where diagnoses or other elements may have been undercoded.

Care that covers the whole spectrum

In response to increased exposure to financial risk, ACOs should implement a formal population health strategy that includes elements of the steps described here in addition to participation from every point on the spectrum of care, including clinical providers, nursing teams, care management personnel, and revenue cycle team leadership.


1 “NAACOS Overview of the 2018 Medicare ACO Class,” National Association of ACOs,
2 Kate de Lisle, Teresa Litton, Allison Brennan, and David Muhlestein, “The 2017 ACO Survey: What Do Current Trends Tell Us About the Future of Accountable Care?” Health Affairs Blog, Oct. 4, 2017,
3 Zachary Pruitt, Nnadozie Emechebe, Troy Quast, Pamme Taylor, and Kristopher Bryant, “Expenditure Reductions Associated With a Social Service Referral Program,” Population Health Management, Nov. 28, 2018,


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Annette Schandl
Ryan Willhite