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.


Health Plan “Early Adopters” for Extended Dependent Care Coverage

by Clive Riddle, April 22, 2010

The bandwagon started rolling at full steam this week for major health plans to allow applicable dependent coverage up to age 26 in advance of the September 23rd, 2010 effective date provided in The Patient Protection and Affordable Care Act.

HHS has been in communication with a number of major plans for purposes of stimulating such an initiative. On Monday, April 19th during the day, UnitedHealthcare and WellPoint issued releases regarding their new policy in this regard. HHS Secretary Kathleen Sebelius issued a statement discussing the initiative, and acknowledging the two health plans.

Monday evening Humana issued their release in this regard, and the Blue Cross Blue Shield Association issued a release on Tuesday committing the entire association of Blues plans. It’s interesting to note the WellPoint’s statement came ahead, and wasn’t coordinated with announcement of the BCBS Association policy. HHS Secretary Kathleen Sebelius issued a follow-up statement on Tuesday acknowledging Humana, the BCBS association and Kaiser Permanente. Kaiser has not issued a formal public statement in this regard, but made a general commitment to HHS and has acknowledged their position with the media.

On Wednesday the 21st, Aetna issued a statement announcing their plan to extend coverage, without providing specific details. CIGNA has not yet issued a statement. Local and regional plans (other than BCBS plans) generally have not yet issued such statements, due to the fact the initial HHS outreach was to national plans, and more to the point in a number of regions because state laws already require dependent coverage until age 26 or higher.

Regarding the varying state dependent coverage requirements, one example, as the Dayton Daily News reminds readers is that "in Ohio, that age will rise to 28 on July 1, under the provisions in the two-year budget state lawmakers approved last year." The National Conference of State Legislatures (NCSL), in a web page dedicated to the state-by-state coverage issue on this topic, provides a summary of various state initiatives to address this issue, that started all the way back in 1994, when "Utah become the first state to enact legislation allowing coverage for unmarried dependents to continue up to age 26, regardless of school enrollment status." New Jersey enacted legislation extending dependent coverage to age 31 in 2006 and the NCSL notes that now "at least 30 states have now enacted similar legislation to extend dependent coverage regardless of enrollment in school." (NCSL provides a state by state table in their web site.) The Robert Wood Johnson Foundation also provides a web site dedicated to State Coverage Initiatives that summarized Dependent Coverage provisions.

Regarding the details of the national plans extension of dependent coverage (with links to their statements):

  • UnitedHealthcare’s change is effective immediately. They state “this extension of coverage applies to college students who currently are covered under their parents' fully-insured health plan offered through UnitedHealthcare. Individual family health plans through UnitedHealthcare's Golden Rule business already allow all dependents to stay on the plan until age 26 and enrollees do not need to take any action.”
  • Humana’s change is also effective immediately, and they note “the decision by Humana directly impacts the adult children of members who are enrolled in Humana’s fully insured lines of business. (Children of members enrolled in a HumanaOne individual health plan have already been able to remain on their parents’ or guardians’ coverage until age 26.) Humana is also encouraging large employers who self-fund their coverage with Humana to extend coverage to the adult children of their employees who would otherwise lose their coverage this year.”
  • WellPoint’s policy will take effect June 1st. They state that at that time “WellPoint's affiliated health plans will automatically retain these young individuals on their parents' policies in both fully insured group and individual health plans. Our self insured clients and members will have the option of not offering this extended coverage.”
  • The BCBS Association policy is also tied to June 1st, but further equivocates that the extension is only definite for individual plans, and that they will make the option available to their employer groups, as they state “every Blue Cross and Blue Shield company has agreed to allow covered individuals under age 26 to remain on their parents' individual health insurance policies effective June 1. We will offer this extension of coverage to our employer accounts for their members.”
  • Aetna for now is at the stage where they are “working with their customers” to develop a policy: “We understand that young adults are concerned about potential gaps in health care coverage. We are working with our customers to allow young adults to remain on their parents' plan until the dependent coverage requirements of the Patient Protection and Affordable Care Act go into effect later this year. We believe this is in the best interests of our members and is in keeping with the spirit of the health reform law.”
  • Kaiser was cited in USA Today as planning “to extend coverage before September to consumers who have individual policies and is in discussions with employer groups about their policies. Details are still being worked out, ‘but our intent is to avoid an interruption in coverage for them,’ spokesman Chris Stenrud said.”

Employer Health Care Strategies: Multinational Edition

by Clive Riddle, April 15, 2010

 It's one thing for a multi-state employer to weave their health care strategies through the maze of varying state regulations, delivery systems, demographics, patterns of care and consumer behavior. Consider the daunting task of attempting to synthesize a strategy that reaches across nations and continents.

TowersWatson tackles the subject, this week releasing results from their multinational employer health care survey: Workforce Health Strategies: A Multinational Perspective.  The survey “includes responses from 106 organizations that have at least 500 employees and significant business operations in more than one country. Ninety-three percent of the participating companies are based in North America and manage, on average, 25 health programs and operate in 20 countries around the world.”

Francis Coleman, senior international consultant with Towers Watson tells us “to mitigate growing health care risks and associated costs as well as boost worker productivity, multinationals can increase their use of health strategies that are truly global. In particular, forward-looking multinationals are using leading indicators of health and well-being to proactively and effectively focus their resources rather than react to the rising costs caused by lifestyle diseases and increased adoption of advanced medical technologies.”

But in considering the topic that TowersWatson raises, the question rattles around in the back of my mind ‘How big of a deal is this? After all, can the scope of the multinational work force really be that large?’ So a little background research was in order. First stop, the U.S. Census Bureau, Table 772. United States Multinational Companies--Selected Characteristics which indicates that in 2006 their scope incorporated:

  • Total assets $18.5 trillion
  • U.S. Parents
    • Capital expenditures $442 billion
    • Value added: $2.5 trillion
    • Employment : 21.7 million
  • Majority-owned foreign affiliates:
    • Capital expenditures $153 billion     
    • Value added: $996 billion
    • Employment 9.6 million

So the answer is, yes, the scope is big, and is largely U.S. centric. The National Foreign Trade Council in a press release last year entitled U.S. Multinational Companies Strengthen the Domestic Economy informed us that “The worldwide operations of U.S. multinational companies are highly concentrated in America, not abroad in their foreign affiliates. Domestic parent companies accounted for nearly 70 percent of worldwide employment of U.S multinationals….and represents about 19 percent of total private-sector payroll employment….Foreign affiliates are located primarily in high-income countries that in many ways have economic structures similar to the U.S., not in low-income countries. Affiliates in high-income countries accounted for 79 percent of total affiliate output. …U.S. parent companies account for nearly 25 percent of all private-sector output (measured in terms of GDP), or more than $2.5 trillion.”

Getting back to the matter at hand, here are some key results from the Towers Watson Multinational Survey:

  •  26% have a global health strategy in place today, and  an equal number plan to implement a global health strategy by 2012
  • 77% offer employee health programs in lieu of, or in addition to, publicly provided programs in all or most of the countries in which they operate.
  • 83% of respondents said that stress have a high or moderate impact on their health care costs and workforce productivity, while 77% said chronic conditions and 63% said obesity (63%) had this impact.
  • 40% of respondents provide case management programs in most or all countries, while 25% provide disease management, 30% offer health promotion, health screenings and behavioral health programs and 25% provide health risk assessments in most or all countries.
  • 51% indicate that non-U.S. markets lack available or reliable health care cost data 44% said these markets lack available or reliable health care products and services and 30% said they lack desired health care vendors

<!--[if !supportLists]-->·             <!--[endif]-->26% have a global health strategy in place today, and  an equal number plan to implement a global health strategy by 2012

<!--[if !supportLists]-->·             <!--[endif]-->77% offer employee health programs in lieu of, or in addition to, publicly provided programs in all or most of the countries in which they operate.

<!--[if !supportLists]-->·             <!--[endif]-->83% of respondents said that stress have a high or moderate impact on their health care costs and workforce productivity, while 77% said chronic conditions and 63% said obesity (63%) had this impact.

<!--[if !supportLists]-->·             <!--[endif]-->40% of respondents provide case management programs in most or all countries, while 25% provide disease management, 30% offer health promotion, health screenings and behavioral health programs and 25% provide health risk assessments in most or all countries.

51% indicate that non-U.S. markets lack available or reliable health care cost data 44% said these markets lack available or reliable health care products and services and 30% said they lack desired health care vendors

Hewitt Says We’re More Engaged in Selecting Our Benefits

by Clive Riddle, April 2, 2010

Hewitt Associates this week released data indicating that employees in 2009 were more engaged in selected their health benefits than in previous years. That being said, Hewitt concluded their choices weren’t all that different than before, they were just more involved in the process.

Here’s some of what Hewitt had to report on the matter: “Hewitt's analysis of 6 million U.S. workers, for whom Hewitt managed benefits enrollment in the fall of 2009, revealed the highest number of active enrollees since Hewitt began tracking the data in 2003. Nearly half (45 percent) of employees actively chose their benefits for 2010 instead of passively defaulting into the same coverage or no coverage at all. This is up significantly from the 2009 open enrollment period, where just 39 percent of employees actively enrolled. Despite employees taking a more active role in selecting their benefits, Hewitt's data shows very few workers enrolled in different health insurance plans.”

So what plans are employees enrolling in? Here’s a data table Hewitt shared indicating enrollment by plan type for the past three years (note that the survey involves large employers):

Enrollment by Plan Type

Open Enrollment Year





























So what does Hewitt make of all this? Sara Taylor, Hewitt’s Health and Welfare Strategy Leader tells us: "Employee inertia continues to play a large role in enrollment decisions—it's encouraging to see that people are more engaged in assessing their benefits, but that doesn't mean they are necessarily making different choices. If employers want workers to make different elections, they might need to adopt a more aggressive approach—whether it's changing or reducing plan options or offering plans with widely differing price points."


Accountable Care Organizations: A New Pathway for Physicians and Hospitals

by Claire Thayer, March 26, 2010

MCOL’s Healthcare Web Summit has announces Accountable Care Organizations: A New Pathway for Physicians and Hospitals.  Please join us on Thursday, April 29th at 1PM Eastern as industry leader William DeMarco, Pendulum Healthcare, provides an introduction and overview of Accountable Care Organizations, including structural components of ACOs, organizational requirements to function as an ACO and business opportunities resulting from new federal regulations being discussed.

Detailed information at: