States increasingly are experimenting with the use of Accountable Care Organizations (ACOs) in their Medicaid programs as a possible avenue to curb the escalating costs of providing care to expanding Medicaid populations. Although there has yet to be a universally accepted definition for ACOs, they generally are recognized to be provider-run collaborations in which the participant providers are accountable for improving health outcomes and quality of care for a defined population of patients while relying on performance measures to support payments that are aligned with improvements in care, quality and cost. While the concept of ACOs was originally rooted in the Affordable Care Act, it was quickly adopted in the commercial realm, and states are attempting to transition the model to the multidimensional world of Medicaid.

The National Academy for State Health Policy is tracking state efforts, including, among others, Texas, Oregon, Colorado, Illinois, New York and California, to lead or participate in accountable care models that include Medicaid and Children’s Health Insurance Program populations. The models vary considerably and can be heavily influenced by the presence of risk-based managed care in the state.

While some states have incorporated such private managed care plans into the model, others have utilized a more direct role for the state in contracting with providers. Most models include opportunities for providers to receive shared savings payments if certain quality and performance benchmarks are met. However, while many providers welcome such upside risk, a recent FTI Consulting survey found that most are unwilling to accept downside risk. Such unwillingness or inability of providers to accept risk will present significant challenges to states obtaining the necessary provider engagement.

Additional challenges for the states utilizing ACOs in Medicaid include: (1) the prevalence of higher complexity that exists in the Medicaid population; (2) providers that disproportionately or uniquely treat Medicaid beneficiaries; (3) the federal-state Medicaid funding structure; and (4) the ability to offer meaningful incentives to providers to participate and invest the time and resources. In some circumstances, states are proceeding despite these concerns, and providers have found that the burden is great to help negotiate appropriate and actuarially sound payments.

The Centers for Medicare and Medicaid Services (CMS) recently announced the formation of a new program—the Medicaid Innovation Accelerator Program—that will oversee a $100 million technical assistance fund to pay contractors to provide states with the necessary assistance in developing and refining reforms to their Medicaid programs. Specifically, CMS advises that the “Medicaid Innovation Accelerator Program will develop Medicaid specific resources to support state-based innovative health care reform efforts by identifying and advancing new Medicaid service delivery and financing models to improve patient care by providing data analytics, improving quality measurement and rapid cycle evaluation capabilities, and advancing effective and timely dissemination of best practices and learning among states.”

Early indications in states that have incorporated ACOs into their Medicaid programs show promise. In states such as Oregon, Iowa, Vermont and Colorado, the concept is being used. In Oregon, in fact, ACOs are reported to have saved money in 19 of the 21 financial measures, primarily in the usage of outpatient primary care.

Whether Medicaid ACOs will generate similar savings and quality improvement nationwide is a remaining question. However, the budget certainty they provide for payors—commercial and government payors alike—means more providers likely will be drawn into participation in these payment models.