ACOs – Health Reform’s Latest Approach to Costs and Quality

Fall Issue 2010Newsletters Staying Well Within the Law

There is a new acronym floating in the increasingly crowded alphabet soup that is health care, right next to PPACA (Patient Protection and Affordable Care Act). It’s ACO, “Accountable Care Organization,” adopted as a curve-bending strategy in the recently enacted Patient Protection and Affordable Care Act. Much as HMOs in the 1970s were designed to try to reorient health care toward maintenance of health instead of treatment of disease, the ACO concept is intended to place accountability for quality and costs collectively upon those who are believed to have the most control over them – physicians, hospitals and other community providers.

Under PPACA, ACOs may qualify for Centers for Medicare and Medicaid Services (CMS) incentive payments under health care reform for achieving improvements in quality and reductions in cost based on risk-adjusted shared savings against historical benchmarks. CMS has predicted that regulations clarifying the scope and requirements of the ACO program will be published in the fall of 2010, and a shared savings program is required by the reform law to go live by January 1, 2012.

So far, ACOs are loosely defined, local delivery systems comprising physicians and the hospitals where they work or admit their patients that provide coordinated care and chronic disease management. Sound familiar? If you’ve been in the business for a while, you may also remember similar claims and goals for integrated delivery systems, gainsharing programs, physician-hospital organizations (PHOs) and medical staff-hospital (MeSH) organizations. Payors’ previous approaches included capitation and restricting access to specialists and high-cost services through gatekeeper primary care physicians. What makes the ACO concept different from prior attempts to incentivize management of costs and quality?

One way to distinguish the ACO from its predecessors is to look at what didn’t work in the past. For instance, PHOs and integrated delivery systems were designed around fixed payment models such as capitation or fees for episodes of care (remember Highmark’s Adesso fiasco?) and shifted economic risks to providers, putting them into the economic role of insurers, but did not give them the tools to work together to achieve either financial or clinical goals. Gainsharing, where hospitals share a portion of their cost savings with the doctors whose decisions generate those savings, has been limited by a thicket of legislative and regulatory restrictions, and only a handful of narrowly focused programs have been approved to date, primarily in cardiology. Capitation and primary care gatekeepers have been largely abandoned by the insurance industry as failing to effectively control costs or improve outcomes.

Elliott S. Fisher, M.D., M.P.H., of Dartmouth, in his paper “Creating Accountable Care Organizations: The Extended Hospital Medical Staff” (Health Affairs, Dec. 5, 2006), suggested ACOs avoid the flaw of earlier efforts that incentivized individual providers only for the care within their direct control. Instead, ACOs reward shared accountability for the care of a population of patients spread among a hospital, those physicians providing inpatient work at the hospital and those community physicians whose patients are treated at the hospital (which Fisher calls the “extended medical staff”).

Design and Structure

There is no single organizational model for developing an ACO. ACOs may be formed and organized by health systems using employed and contracted physicians, by integrated delivery systems, by physician groups (either primary care or multispecialty) or through joint ventures or contractual relationships among providers. Regardless of the organizational structure, an ACO must be physician-led and physician-driven. Physician leadership is critical because an ACO is primarily a vehicle for clinical integration, not financial or risk integration. Only physicians are able to develop, monitor and adjust clinical care protocols that can more efficiently use resources based on documented effectiveness.

Qualifying ACOs will be assigned a pool of patients whose care the ACO will be responsible for managing in a cost-effective and clinically appropriate manner. The ACO will need to develop internal mechanisms for monitoring and managing costs and quality that cut across traditional reporting lines and result in a higher degree of clinical interdependence than is typical in a less-integrated medical community.

The PPACA states that any of the following groups of providers of services and suppliers that have established a mechanism for shared governance are eligible to participate, in accordance with regulations to be developed by the Secretary of Health and Human Services (HHS):

  • ACO professionals in group practice arrangements;
  • Networks of individual practices of ACO professionals;
  • Partnerships or joint venture arrangements between hospitals and ACO professionals;
  • Hospitals employing ACO professionals; and
  • Such other groups of providers of services and suppliers as the Secretary determines appropriate.

ACOs Under Health Reform

Section 3022 of PPACA requires HHS to establish a shared savings program under which qualifying ACOs may be eligible for incentive payments. The criteria in the statute, which will need to be further defined by regulation, include:

  • The ACO must be willing to become accountable for the quality, cost and overall care of the Medicare beneficiaries assigned to it.
  • Minimum three-year agreement with CMS is required.
  • The ACO must establish a formal legal structure to receive and distribute payments for shared savings.
  • The ACO must include a sufficient number of primary care professionals to manage the ACO’s panel of beneficiaries. (Nobody knows what ratios will be adopted, but California currently requires at least one full-time equivalent primary care provider for each 2,000 enrollees.) At a minimum, each ACO will be assigned at least 5,000 beneficiaries in order to be eligible.
  • The ACO must provide HHS with information regarding its participating professionals to support the assignment of Medicare fee-for-service beneficiaries, the implementation of quality and other reporting requirements and the determination of payments for shared savings.
  • The ACO must have in place a leadership and management structure that includes clinical and administrative systems.
  • The ACO must define processes to promote evidence-based medicine and patient engagement, report on quality and cost measures and coordinate care, such as through the use of telehealth, remote patient monitoring and other such enabling technologies.
  • The ACO must be able to demonstrate it meets patient-centeredness criteria, such as the use of patient and caregiver assessments or the use of individualized care plans.

ACOs will be required to measure and report their progress to HHS, including clinical processes and outcomes; patient and caregiver experience of care; and utilization, such as rates of hospital admissions for ambulatory care sensitive conditions. Data reporting requirements may include care transitions across health care settings, including hospital discharge planning and post-hospital discharge follow-up by ACO professionals.

One significant gap in the scheme is how patients will be assigned to ACOs’ rosters. PPACA only instructs the Secretary to determine an “appropriate method” to assign Medicare fee-for-service beneficiaries to an ACO based on their utilization of primary care services provided by an ACO professional. It is not clear whether CMS will be able to assign a fee-for-service patient to the ACO that includes the patient’s PCP, but to the patient, there may be no economic impact. If a fee-for-service Medicare beneficiary does not want to be in an ACO, perhaps because of perceptions of pressure to ration care, it is not clear if he or she will be permitted to opt out. ACOs may not select their beneficiaries based on risk criteria. If they are caught taking steps to avoid patients at risk in order to reduce the likelihood of increasing costs to the ACO, they may be subject to sanctions including termination from the program.

Most problematically, beneficiaries may not be locked in to receive care only through ACO members, but the ACO remains accountable for the cost and outcomes of their beneficiaries’ care. As the rules are developed, look for heavy lobbying to permit ACOs to either limit beneficiaries’ access to out-of-network providers or to carve out negative consequences of such utilization from shared savings formulas. Either step may require further Congressional action, and anything that appears to limit patient choice would be hard to sell politically.

Payment Mechanisms

The shared savings program contemplates that ACO member providers will continue to be paid under the original Medicare fee-for-service program under parts A and B in the same manner as they would otherwise, and the ACO would potentially receive additional bonus payments for shared savings if it meets quality performance standards and the estimated average per capita Medicare expenditures under the ACO for Medicare fee-for-service beneficiaries for parts A and B services, adjusted for beneficiary characteristics, beats the applicable benchmark by a percentage to be specified by HHS, which percentage may vary based on the number of Medicare fee-for-service beneficiaries assigned to the ACO. This is the first step toward aligning incentives. The ACO’s traditional Medicare payments are not at risk but the ACO may earn bonus payments for achieving cost savings. It looks a lot like the hospital-specific gainsharing programs of the past, but the cost savings are funded by Medicare, not the hospitals.

Several alternative risk-shifting methods are contemplated by PPACA. The Secretary of HHS may offer a partial capitation model in which an ACO is at financial risk for some, but not all, of the items and services covered under Medicare parts A and B. The partial capitation model may be limited to ACOs that are highly integrated systems of care and capable of bearing risk, as determined to be appropriate by the Secretary. It is anticipated such a model would offer greater upside opportunities in exchange for bearing more downside risk.

Another alternative method is bundled payments for episodes of care. HHS is authorized to develop payment models that identify certain qualifying medical conditions and bundle payment for the following services: acute care inpatient services; physicians’ services delivered in and outside of an acute care hospital setting; outpatient hospital services, including emergency department services and post-acute care services, including home health services and skilled nursing services; inpatient rehabilitation services; and inpatient hospital services furnished by a long-term care hospital, along with any other services the Secretary determines appropriate. An episode of care means the period that includes the three-day window prior to admission, the hospital stay and the 30 days following the patient’s discharge. Applicable conditions are to include a mix of chronic and acute conditions, a mix of surgical and medical conditions, conditions for which there are opportunities for cost savings and quality improvement, those for which there is significant variation in the number of re-admissions and the amount of expenditures for post-acute care spending, and high volume conditions with high post-acute care costs.

One problem with the bundled payment model is there are no incentives to avoiding an episode of care, i.e., by aggressive preventative care. How the system will reward an ACO for managing a patient who avoids a hospital stay due to effective preventative services remains unanswered.

The Devil in the Details

As noted in many media reports, the phrase “the Secretary shall” appears 976 times in the health reform law. The Secretary of Health and Human Services must put a lot of flesh on the bones of the PPACA before the shared services program becomes a reality. Among the many unanswered questions are:

  • How to assign patients to ACOs?
  • How to set benchmarks?
  • What percentage savings from those benchmarks will qualify for payments?
  • What quality measurements and criteria will protect patients from rationing?
  • How to avoid cost shifting by non-governmental payors?
  • How to adjust payments for patient population risk variations?
  • How to account for out-of-network services?
  • What to do about mobile patient populations such as “snowbirds” who spend winters in the south and the rest of the year in the north? Which ACO gets credit for their cost savings or dinged for their utilization?
  • How much IT and governance infrastructure will be needed to track the statistics required to qualify for shared savings, and what will it cost?
  • Will independent or semi-integrated physicians, hospitals and other providers be able to develop the level of trust needed to cooperate to succeed in this new environment?

Some of these questions can and will be answered by the Secretary, but others, particularly those requiring the cooperation of traditional competitors, cannot be imposed by Uncle Sam and must evolve organically.

What Now?

Although many of the details about ACOs remain murky, one clear message is that success will require further integration of clinical decisions, measurement of costs and outcomes, and improved information gathering and reporting capabilities. Larger hospital networks and larger group practices may have an apparent head start due to their size and top-down organizational structure, but independent players who can collaborate, integrate and make informed decisions may ultimately be better positioned to take full advantage of these opportunities. The long-predicted death knell for the mom-and-pop small practice may not have arrived, but by working together to integrate clinically as well as economically, well-organized physician practices may be best ready to lead the development of ACOs.

For more information about this topic, please contact William H. Maruca at 412.394.5575 or [email protected].

This article first appeared in The BULLETIN of the Allegheny County Medical Society and is reprinted here with permission.