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The Impact of Accountable Care Organizations During the Next Few Years

by William J DeMarco, April 27, 2010

I was asked to address the following question for the current issue of MCOL’s Thought Leaders newsletter: "How large of an impact will the emergence of Accountable Care Organizations have during the next few years, and what are some of the implications we might expect as a result?”  

I supplied a brief summary statement for Thought Leaders. Here are my expanded thoughts on this topic:

We believe that ACOs will have a tremendous impact on lowering costs and improving quality long term because these initiatives will be operated at the local level and therefore make quality improvement an ongoing process versus a short term discount approach to value improvement.

The concept of having local providers competing as integrated systems has long been a scholarly supported and business researched model that theoretically should work. The problem has always been in the reimbursement at the practice level. Money and care delivery have been separated from the care coordination making payment a barrier versus the bridge it should be to better patient management.

We have spent millions of dollars as health plans, medical groups, and hospitals to come up with reporting systems that are just now yielding some patterns of care that we know offer positive solutions in the area of chronic care and general prevention.  However, the savings from this more effective care outcome has always gone to the payers. The providers, patients, and most employers never really see these savings in the form of better benefits or lower premium costs so there has never been an incentive for physicians and hospitals to work together to better coordinate inpatient and outpatient care.

We think that the bundled payment opportunities will change this and, as Medicare continues to reduce or flatten its fee increases, bundled payments will become more attractive.

By having risked adjusted patient care guidelines tied to payments for hospital, physician and drug costs for each episode of care, well planned care management protocols will yield a margin IN ADDITION to billed charges to Medicare.  Therefore, there may be a way for many providers to actually see Medicare revenue start to come closer to commercial revenue.

Managed care companies handling commercial payers would also have an interest in seeing hospitals and physicians work together to improve everything from coding to clinical outcomes in order to secure a share of the savings created by their innovation and discipline. There is talk that delegated models of medical management as seen in Florida and California may offer an even more lucrative opportunity to participate by taking 85% of premiums through global or bundled payment structures. This would represent an outsourcing of medical management to hospitals and physicians who, we have always thought, should explore this as a business opportunity to leverage care AND management of care. Health plans and insurance companies would pay a nominal fee to have this management done, but that would only enhance the ability of the caregivers to hire navigators to assist people within and outside the care system so discharges are followed up and preventive services explored before admissions.

The ACO structure will truly be following the integrated care guidelines to improve care with an incentive versus just avoiding anti trust issues. Perhaps we will see different physician driven governance and locally based quality and utilization feedback to physicians and hospital staff whose compensation is dependent upon not just delivering more services but delivering more of the right services at the right levels within the delivery system. We reaffirm this point by saying if physician are incented to deliver top quality and share the savings but the hospital staff operates business as usual to load beds and get paid based upon gross revenue, we have created a monster in terms of two factions in the delivery system going in opposite directions. This happened under early bundled and capitation payments where doctors were starting to see serious gains in income while the hospital’s losses were mounting due to reduced lengths of stay.

Finally, the long term impact here will be collaboration between hospitals in an area where they were competing against one another in a small market. The larger delivery system and its primary care referral system offer great coverage of a larger Medicare and commercial population. This allows PCPs and specialty practices to grow and align better benchmarks and communication with other MSO services that share expense and allows a network of small practices to operate as a large multi-speciliaty group practice. This group without walls can achieve some of the economies of scale but would need to be linked by Health Information Exchange making patient records, ordering of tests, and recommending follow-up care more efficient than much of the paperwork and patient chasing by phone done now.

Assuming the demonstration projects give CMS some good feedback on key performance indicators and that many hospitals and physicians arrive at the conclusion that indeed there is an opportunity to perform better and be paid better under this ACO framework, we would say the government’s estimate of savings from ACO development is largely understated.  The costs curve will bend regionally which will create even more savings than projected for Medicare.

Even now states are talking about ACOs for Medicaid and some employer coalitions are attempting to encourage ACOs around centers of excellence to push providers to compete more on quality and less on discounts.  We have told these large, self funded employers that they need to stop being passive players in the health insurance arena and take an active interest in designing benefits that offer incentives to patients who see the ACO aligned doctors versus the non aligned doctors, who may be part of a discount network but have no real accountability when it comes to performance. Then the employer or health plan must also offer some sort of shared savings plan to continue to incent doctors and hospitals to improve quality and outcomes. This additional amount shared from savings costs employers and health plans nothing more than what they normally pay, but it opens the door to seeing waste removed from the system permanently and better coordination of services for the employee. This levels off premiums and reduces employee out of pocket costs.

We are excited about the ACO opportunity.  While there will be a large education process needed to implement these approaches in some markets, most agree this beats the alternative of price controls and further mandates on payers and providers.

Reader Comments (1)

Although the ACO model does present significant opportunity for improvement in quality and suppression of the cost growth curve, there are many major obstacles to implementation. 1. Groups that included hospitals in the demonstration project did not fare well, economically. There is little reason to believe that hospitals would treat an ACO as any thing more than a "patient pipeline". 2. Physician involvement is voluntary. Few physicians will voluntarily submit to the meaningful care management necessary for the ACO to be effective. (I believe that they can be persuaded if the system is explained to them and they have a meaningful role in the care management pathways.) 3, Patient choice is bypassed in that CMS will "assign" them to the ACO with which their PCP is participating. Although the only change the patient should see is improved quality, that is a hard sell to certain demographics.
Bottomline: ACOs will have a rough road before they have a major impact on the quality and cost of care.

April 28, 2010 | Unregistered CommenterRichard M. Tuten, Esq.

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