I’ve traveled around and seen market after market and spoken with a range of health system leaders who are committed to participating in an accountable care organization (ACO) because they believe they have to. When looking at the facts – the structure of those markets, the health system’s share, the payer dynamics, and the overall economics – the runway to value-based models is often longer than they realize. As many systems that performed well in the past year as the result of aggressive cost containment will tell you, there is still a place for maximizing margin with traditional approaches. And this is important not because it will last forever, but because systems will need to fund the transition to the inevitable.

For many hospitals and health systems the inevitable is now, and pursuing an ACO makes strategic sense and can be economically sustainable. Given the most effective near-term lever of an ACO will be to reduce per-member hospital utilization, health systems that can check off any of the following should be those considering more immediate ACO participation:

1. Can share risk by convincingly lowering total cost of care. If a hospital can differentiate on cost containment while maintaining quality of care, they can earn volume preference by payers and consumers. The hospital business model must be able to support less utilization and margin per patient but on a larger pool of lives, and they must be clearly better than their competitors.
2. Owns profitable care delivery outside of the four walls of the hospital. Appropriate care must shift to more cost effective settings. Networks of surgery, imaging, and other treatment centers will be critical to long term sustainability. In addition, health systems can create ambulatory care models like CHF centers of excellence that promote better health and decrease avoidable per-patient inpatient utilization. The more success they have, the more lives they will earn – which positions them well for the times when a patient actually does need inpatient care. Less utilization per patient, but more patients will be a critical stepping stone in the transition to risk-based models.
3. Has a credible and imminent threat that a competitor is going to beat them to the punch on numbers one and two. This one is pretty simple – value as a market differentiator will be increasingly necessary. Outcomes, clinical excellence, patient satisfaction, at an attractive price, will be the cost of admission in many markets. Health systems facing a competitive threat may need to jump in the ACO arena sooner than they expected given competitive threats.

ACOs and other value-based models are on everyone’s agendas, but the motivation isn’t always grounded by individual market realities. For those considering making the move, they should look closely at their motivations and position in their market before taking the plunge. For those that have jumped in boldly already, building an aligned physician force armed with the tools to impact cost of care across the entire continuum has never been more important.