Accountable Care Organizations - Don't Ignore the Hype

This article is reprinted with permission from Accountable Care News, a monthly newsletter published by Health Policy Publishing LLC.

Leading up to and finally with the passage of the Patient Protection and Affordable Care Act (PPACA), much has been written about accountable care organizations (ACOs). At this point, no one would disagree that the jury’s still out as to whether these entities will ever be viable, and if so, whether they will fulfill their promise of creating higher quality, more efficient care, at a lower cost. Given the uncertainty, opinions are split whether to pursue an ACO model. While such uncertainty may lead some organizations to write off ACOs as yet another vain attempt to restructure the delivery system that will fail to control cost and improve quality—a déjà vu of the mid-'90s—they may do so at their own long-term financial peril. This time, it not only feels different, it is different. This time, it’s not necessarily about becoming an ACO; it’s about how the process of seeking to become an ACO, in and of itself, can be transformative. As a result, don’t be surprised if a few quality, cost and revenue problems get solved along the way.

ACOs in a nutshell

Although there is a lot of literature about ACOs, they still remain shrouded in mystery. This is in part because there is little detail in the legislation, and many have begun to fill in the gaps with their own visions of how ACOs ultimately will be structured. ACOs are described in the PPACA¹ as follows: 

• Groups of providers and suppliers may work together to manage and coordinate care for Medicare fee-for-service beneficiaries through an ACO; and 
• ACOs that meet quality performance standards established by the Secretary are eligible to receive payments for shared savings.²

The PPCA also states, “. . . the following groups of providers of services and suppliers which have established a mechanism for shared governance are eligible to participate as ACOs under the [shared savings program]:

A. Physicians and other practitioners in group practice arrangements.

B. Networks of individual [physician practices or other clinical practices].

C. Partnerships or joint venture arrangements between hospitals and [physicians and/or other practitioners]

D. Hospitals employing [physicians and/or other practitioners]

E. Such other groups of providers of services and suppliers as the Secretary determines appropriate.”³

ACOs must: (A) be willing to be “accountable” for the quality, cost and overall care of the Medicare beneficiaries assigned to it; (B) participate in the shared savings program for at least three years; (C) have a formal legal structure that allows the organization to receive and distribute payments for shared savings to participating providers; (D) include primary care professionals that are sufficient for the number of beneficiaries assigned to it (at least 5,000 beneficiaries); (E) have a leadership and management structure that includes clinical and administrative systems; (F) have defined processes to promote evidence-based medicine and patient engagement, be able to report on quality and cost measures, and coordinate care through the use of technology; and (G) be able to demonstrate that they meet patient-centeredness criteria.⁴

Under the PPACA, (at least for now) ACOs will continue to be paid Medicare fee-for-service payments in the same manner as they would otherwise except that ACOs are also eligible to receive additional payments for shared savings if the ACO meets the applicable quality performance standards and achieves savings, as to be defined in the HHS regulations.⁵

Challenges presented by ACOs

At first pass, the basic framework for ACOs seems loaded with possibilities, and one can see why organizations may rush to create one—especially given the Jan. 1, 2012, implementation date and the promise of bonus payments in addition to fee-for-service reimbursement. But as much in healthcare, the devil is in the details, and it does not take long in the way of planning an ACO before the questions start mounting. First, there are the obvious questions presented by the lack of detail in the PPACA. So much is left to the Secretary, and will ultimately be determined by the regulations. How will the beneficiaries be assigned? How will the methodology for the shared savings payment be calculated? What will be the quality performance standards to be used by HHS? Will there be further limitations on the proposed structure and governance of ACOs? What will the patient-centeredness criteria entail?

Next, moving beyond the qualifications of ACOs, from a legal (not to mention, operational) standpoint, an entirely different—and perhaps more challenging—set of issues are presented in working through the payment allocation among the ACO participants. In creating financial relationships that align incentives and are effective to create behavioral change, many common sense proposals are simply denied under federal and state anti-kickback and physician self-referral (Stark law) prohibitions, as well as the hospital-physician incentive plan law.

Those laws severely restrict, if not prohibit outright, certain payments to physicians, including any payments that may induce a physician to reduce or limit patient care. Therefore, in a fee-for-service environment, ACOs may have limited financial tools at their disposal to align incentives to achieve cost savings. Added to these challenges are also antitrust limitations, tax exemption requirements, and in some states, fee-splitting and corporate practice of medicine prohibitions.

Finally, in approaching implementation, all sorts of practical questions arise. How to capture data when physician participants don’t have an adequate IT infrastructure? How will payments actually be administered by Medicare? How will the ACO formation impact the participants’ existing managed care contacting arrangements? What will this all cost? Is there adequate return on investment? To what extent can we manage any financial risk?

Looking at the big picture—ACOs as a solution to an organizational problem, not an aspirational goal

Despite the challenges, don’t give in to the chorus of naysayers. The PPACA sets the stage for significant payment reform, and in order to survive in a new payment environment, some form of system reform will be necessary. However, change should be driven by your organization’s strategic goals, and not be in pursuit of another federal health care acronym. If any lessons were learned in the '90s, it’s that those organizations that had much of the following are still going strong today:

• a business model derived from clearly articulated alignment goals aimed at solving specific organizational problems, and taking advantage of specific organizational opportunities 
• experienced leadership, including administrators running physician-related aspects of the organization with strong skills in physician group management 
• flexible governance structures, with appropriate mechanisms to balance power among participants 
• adequate infrastructure and capitalization to ensure that all parties are comfortable with the long-term anticipated economics of the deal 
• a plan for evolving as an organization, experimenting with bonus and other internal payment arrangements to align financial incentives, creating a culture that strives for high quality and efficiency with mechanisms to set metrics and achieve goals 
• internal organizational structures that foster communication among the participants and help create an environment of trust and collaboration 
• overall organizational size/geographic prominence to achieve efficiencies of scale and increased negotiating strength vis-à-vis vendors and payors

As organizations move into an era of reform, ACOs may not ultimately be the answer. However, it appears certain that each organization’s long-term survival will hinge on its ability to obtain sufficient reimbursement and control costs, and it must do so in collaboration with other providers in its market. In this context, all organizations should examine their current strategic plans and focus on their particular challenges and opportunities, with an eye toward collaboration and alignment. Opportunities lie in working through the process and developing the relationships and internal mechanisms that will set the stage for sustainability—and prosperity—in the future.

FOOTNOTES

1. PPACA, Section 3022, creating new Section 1899 of the Social Security Act (Section 1899).
2. Section 1899(a)(1).
3. Section 1899(b)(1).
4. Section 1899(b)(2).
5. Section 1899(d)(1)(A). Note that “if the Secretary determines appropriate," the PPCA does authorize HHS to use a partial capitation model or other payment model that “will improve the quality and efficiency of items and services," rather than the fee-for-service model described above. PPACA § 10307.