By Don Michaels, Ph.D., Senior Vice President, Hayes Management Consulting
Twitter: @HayesManagement
One of the key concepts to rise out of the turbulent past decade in the healthcare industry is the Accountable Care Organization (ACO). In the ACO model, private and government payers offer the opportunity for financial incentives to groups of providers to encourage them to come together voluntarily to deliver high quality while keeping costs down. The theory is that rewarding providers for outcomes rather than just the number of services provided will ensure more efficient and effective patient care. The initiative makes sense, but putting it into practice has proven to be challenging.
The Department of Health and Human Services (HHS) established some guidelines for ACO’s in 2011, a year after the Affordable Care Act (ACA) was passed, but the concept is still being debated today. Some organizations have jumped on the bandwagon, embraced the idea, and have thrived. However, others haven’t enjoyed much success and no longer wish to take the risks, causing a fairly significant migration away from ACOs.
Understanding the issues driving these two opposite results is an important first step in deciding whether becoming an ACO is right for you. The decision, which comes with risk, is a big one with potentially important financial, strategic, and competitive rewards, so you should evaluate the situation carefully before you make the move.
Shaky Start
One of the early attempts at an accountable care model was an experiment known as the Physician Group Practice Demonstration (PGP) that ran from April 2005 to March 2010. Nine providers covering 220,000 Medicare beneficiaries signed up for the program and the first year savings for Medicare was $26.6M.
Unfortunately, only two of the participants lowered spending enough to receive incentive bonuses and three providers never received a bonus in any year. Participants without savings outnumbered bonus winners by a four to one margin. It was a win for Medicare, but offered no financial benefit to providers.
ACA key turning point
Passage of the ACA gave the ACO concept new life. As defined by CMS, an ACO accepts accountability for Medicare beneficiaries, coordinates services across the care continuum, and makes the investments and process changes necessary to improve healthcare quality and service for its members.
Key features of an ACO include shared savings with payers, accountability for quality, free choice of providers by patients, and financial rewards for slowing health care spending while improving the overall quality of care. Commercial carriers are following suit and offering at-risk products to their providers. We believe that this is an ongoing trend and one with significant financial implications to the provider community for the foreseeable future.
The ACO program includes several initiatives. The Pioneer program currently has 19 participating organizations and focuses on significant shared savings but with high risks as well. The Medicare Shared Savings Program (MSSP) encompasses over 400 hospitals, doctors, and other providers.[1] The MSSP includes an opt-out of penalty option if a provider is unable to meet the program goals, but this model offers lower shared savings.
Some winners emerge
According to financial details released in August, Pioneer and MSSP ACOs reported $411M in total savings. Ninety-seven ACOs qualified for $422M in shared savings. Of 220 ACO’s reporting, 53 earned shared savings, 52 saved money but failed to meet minimum targets and the rest received no savings. Of the 19 providers in the Pioneer program, 15 produced savings and 11 earned $82M in bonuses. Five generated losses and owed combines shared losses of $9 million.
Feedback from participants suggested that providers must heavily focus on practice management, not just value-based conversation. Overall, beneficiaries are receiving measurably better care and carriers (including Medicare) are saving money, but the model likely will be difficult to sustain without positive financial benefits for providers.
Questions to Ask Before Making the Leap
So where does that leave you? There are pro’s and con’s to becoming an ACO, but before you sign up, you need to do a careful, detailed self-analysis to make sure you’re ready. Here are five things to consider before deciding whether becoming an ACO is the right choice for you.
1. Are your systems ready?
In the original PGP program, only one provider – Marshfield Clinic, with 800 physicians at 50 sites in Wisconsin – was financially successful. A key reason was a homegrown EHR system that was able to provide ongoing testing and feedback for physicians. The customized system aggregates data from all care settings, including third party providers, using unique patient identifiers. Marshfield also has a comprehensive enterprise data warehouse to report on outcomes, costs, quality, and patient experience.[2] This is the type of detailed data you must have to succeed.
2. Do you have the right culture?
In addition to Marshfield being advanced technologically, they are acknowledged as having a progressive medical culture in the way their physicians take care of their patients. They have a close working relationship between administration and the medical staff. You need a commitment from the entire staff to embrace the changes that will be necessary.
3. Do you have proper process control?
To be successful in an ACO you must have controlled, documented processes for every care service. These should cover dispensing of medicine, guidelines for physicians on all major conditions, and establishing pilot programs to address particular care areas like blood pressure control.
4. Do you understand your cost structure?
In order to succeed in any type of value-based payment model you need to completely understand your cost drivers. Knowing what it costs to deliver a unit of care is critical when you begin negotiating with payers on reimbursement models. It is also crucial when you begin to develop service lines and determine how payments are going to be apportioned among providers in the program. To get these costs means you need detailed, thorough cost accounting capabilities.
5. What is your tolerance for risk?
This is perhaps the most important question to ask. Participating as an ACO can clearly provide significant financial benefits, but there are inherent risks involved and you could lose money. Senior management needs to fully embrace the risks and lead the organization in making the commitment to minimize those risks as much as possible.
One in four providers have now committed to some level of ACO participation.[3] Becoming an ACO may be the right choice for your organization as well, but it’s not a slam-dunk. If you decide to go for it, make sure you have the right answers to these important questions to ensure you have the pieces in place to be successful.
[1] What do ACOs need from hospitalists, by Phyllis Maguire, Today’s Hospitalist, November 2015.
[2] Marshfield Clinic: Demonstrating the Potential of Accountable Care, by Sarah Klein, Douglas McCarthy, and Alexander Cohen, The Commonwealth Fund case study.
[3] What do ACOs need from hospitalists, by Phyllis Maguire, Today’s Hospitalist, November 2015.
This article was originally published on Hayes Management Consulting and is republished here with permission.