This article appears in the May 2012 issue of HealthLeaders magazine.
It seems like each week brings yet another announcement about some combination of physicians, hospitals, and even health plans that are forming collaborations or partnerships, and calling them accountable care organizations. The ACO moniker carries a lot of weight these days. It signals that providers and payers are committed to coordinating healthcare to achieve the vaunted triple aim of improving the experience of care, improving the health of populations, and reducing per capita costs of care.
It’s estimated that there are 160 commercial ACO or ACO-like organizations at some stage of development right now, according to Leavitt Partners, a Salt Lake City–based health intelligence business. Add to that the 32 Pioneer ACOs named in November 2011 and the 27 Medicare Shared Savings Program ACOs named in April by the Centers for Medicare & Medicaid Services, and still more are expected to be named later this year.
Aside from the healthcare reform legislation, among the factors driving interest in ACOs is industrywide acceptance that the current system is simply unsustainable. “Our transaction-based system doesn’t make sense,” says Hal Teitelbaum, MD, the CEO and managing partner of Crystal Run Healthcare, a 250-physician group in Middletown, N.Y. “We’re not in the business of selling mammograms or colonoscopies. We’re in the business of improving health and outcomes.”
Others are looking to ACOs to help push more of their revenue stream into a value-based model. “Living with a bunch of different payment models is challenging,” explains Chuck Lehn, vice president of managed care for Banner Health, a Phoenix-based system with 23 hospitals in seven states. “We think getting paid for adding value will make it easier for us to have a more rational system.” The system formed Banner Health Network, an ACO that is involved in commercial projects with Aetna and Health Net as well as Medicare’s Pioneer ACO program. BHN includes Banner Health–affiliated physicians, 13 Banner hospitals, and other Banner services in Arizona.
And some players are approaching commercial ACOs from a defensive posture. Andrew Croshaw, a partner at Leavitt Partners, notes that uncertainties remain as to the extent of the ACO movement and when it might mature. To protect their negotiating strength, some hospitals are making acquisitions to expand their care continuum and increase their leverage with payers; Croshaw points out that these services will be useful to have as the ACO movement matures, but in the meantime it positions hospitals to negotiate more strongly with payers.
Whatever the motivation, C-suite executives across the payer and provider sectors of the industry are considering how they should approach this opportunity. Whether your organization is ready to jump on the ACO bandwagon or is still trying to figure out if it’s the right move, here are some of the key questions your leadership team needs to consider.
What do you want to accomplish with an ACO?
The basic tenet of an ACO is to create a delivery model with processes, financial incentives, and technology systems to deliver quality care in a cost-efficient way.
The best way to start, suggests Lehn, is to look for simple ways to add value to something you already do and then move forward from that. There’s been growing concern at Banner Health about the increasing number of Arizona residents who either lack healthcare coverage or lack coverage that provides access to quality care. It’s a bottom-line issue. Banner Health Network has teamed with Aetna, a diversified healthcare benefits company that serves 36.4 million people, to offer a shared-risk product, Aetna Whole Health, which covers coordinated care only at Banner Health’s Arizona facilities. The incentive for employees is reduced cost of care. The ACO will base compensation and rewards on reduced hospital readmissions, expanded access to primary care physicians, and increased use of preventive screenings. The effort builds on the health system’s extensive investment in electronic medical records and health IT.
The partners in the Northwest Metro Alliance, an ACO in Minneapolis, have focused on clinical care process changes and designs to improve quality and reduce costs for 27,000 at-risk members. A review of prescribing patterns helped increase the use of generic drugs and produced a $1 million savings. “We also looked at high-tech imaging to see when it really benefits the patient and where might it be overutilized without clear benefits,” explains Penny Wheeler, MD, chief clinical officer at Allina Health Hospitals and Clinics, which collaborates on the alliance with Bloomington, Minn.–based HealthPartners.
What makes the collaboration unique is that the four-hospital HealthPartners and the 11-hospital Allina are competitors in Minneapolis market.
How should your ACO be organized?
The short answer to the question of ACO organization is: Any way you want it to be. While CMS-deemed Pioneer and MSSP ACOs must follow a prescribed set of organizational requirements and meet specific quality and cost-containment goals, commercial ACOs have more flexibility. Organizers of commercial ACOs are working their way through what they want their ACO to become and how they want to serve their markets. For some commercial ACOs, the triple aim is a loose concept, while others are developing specific strategies to meet those goals.
The National Committee for Quality Assurance is trying to establish some order to the ACO process through a three-tier accreditation program that will verify ACO competence. Crystal Run Healthcare is among the early adopters of the NCQA process. “The NCQA provides external validation … It says we’ll achieve what we say we will,” explains Teitelbaum.
Pointing to BHN’s mix of commercial and Medicare projects, Lehn says he likes the freedom of different models of ACOs. “The free market, with different ideas and different markets, is really healthy for the industry. I hope we don’t end up with monolithic models [of ACOs]. I hope this results in a lot of innovation and creativity.”
Do you need a partner?
Commercial ACOs are being formed by physician practices, hospital collaborations, and health plans. Some providers and payers are in multiple ACOs. Your organization’s decision should take into account the goals of the ACO as well as your technology and human resources capabilities.
Crystal Run Healthcare is a single-participant ACO, which means the physician group is clinically and financially integrated. Teitelbaum says the advantage of the single-participant ACO, which does not include a hospital, is that Crystal Run’s physicians are free from the constraints of partnering with a single hospital. The physicians are free to shop around for facilities that offer the best care at a cost-effective price. “We don’t have to worry about supporting one particular hospital.”
Teitelbaum says most physicians don’t have the scale, capital, infrastructure, or management in place to take this approach. Teitelbaum points out that Crystal Run already has in place a sophisticated IT structure as well as care and utilization management and the quality assurance teams that characterize ACOs. It also has database analysts who work with the business intelligence team to manage care and costs. In other words, the group isn’t starting from square one.
Teitelbaum leaves open the possibility that, depending on its needs, the physician group may decide to partner with another organization as an ACO or just on a contract-for-services basis. “Just because an entity doesn’t want to be at risk for costs, quality, and outcomes doesn’t mean we can’t work with them. But they won’t be inside the ACO.”
Mountain States Health Alliance, meanwhile, a 13-hospital system based in Johnson City, Tenn., opted for a more extensive structure for its ACO: Mountain States is the umbrella company that includes Mountain States Medical Group and Integrated Solutions Health Network. ISHN is the parent company of Anew Care Collaborative, the ACO, and CrestPoint Health, the third-party administrator that will contract with Anew Care as its payer.
As part of the ACO, Mountain States is partnering with four other physician groups that aren’t part of MSHA. If you decide you need a partner, Wheeler says the most important consideration is a shared vision that drives outcomes. It was that shared vision that helped Allina and HealthPartners, competitors in the Twin Cities market, develop their collaboration in the Northwest Metro Alliance.
Wheeler adds that in considering a partner, you “can’t underestimate the ability to marry claims information with really good clinical data” to develop a full picture of care. In the alliance, HealthPartners is able to provide Allina with data for its 27,000 patients. The ability to track those patients improves care by reducing the variability of practice patterns. “We know what is going on with them. We know when they fill their prescriptions, and we know when they are admitted to a hospital that’s not in our system. When a patient arrives at our hospital or clinic we already have that information in our medical records so we don’t duplicate tests. That’s information that Allina on its own couldn’t know.”
What financial and human resources will you need?
“There is no way to underestimate the dollars and organizational time it takes,” says Marvin Eichorn, senior vice president and CFO of Mountain States Health Alliance, which began developing its ACO from scratch 18 months ago. He estimates his group’s investment is $5 million, which doesn’t include soft dollars like employee time on the project. He says it could take another $5 million over time to get the ACO where it needs to be. Mountain States contracts for its back-office capabilities to lower costs; Eichorn estimates that the investment could easily triple or quadruple if it had to buy all the information systems, hardware and software, plus hire staff to run the operation.
Lehn at Banner Health says forming an ACO is a costly proposition, but because his organization already had the infrastructure in place, it didn’t view the cost as prohibitive. Wheeler describes a similar situation at Northwest Metro Alliance: Together, Allina and HealthPartners already had many of the components in place when they began their ACO. “Where a lot of people are still talking about implementing the system, we’re talking about optimizing the system,” says Wheeler.
Despite that advantage, Wheeler notes that changing the system and having a significant impact on total cost of care, even with the components in place, requires a lot of hard work, collaboration, and true commitment to the triple aim of healthcare.
Teitelbaum warns that the human and financial cost “isn’t discrete. It’s ongoing.”
According to the April HealthLeaders Media Intelligence Report on ACOs, 54% of healthcare leaders whose organizations are or plan to be part of an ACO estimate that annual infrastructure investment for their ACO will amount to more than 1% of attributed patient costs each year.
Are ACOs Too Good To Be True?
Accountable care organizations certainly aren’t a panacea for poorly run organizations, and even well-oiled ACO machines encounter difficulties.
Wheeler says that while the collaboration between Allina and HealthPartners hasn’t been a problem, the Northwest Metro Alliance has faced other challenges common to coordinated care efforts:
- Lack of timely claims data. The alliance works with adjudicated claims, but there is typically a two- to three-quarter delay in receiving the information. The group keeps its own quality measures but needs timely claims data so it can assess outcomes in terms of cost efficiency and quality improvement. Wheeler says the alliance is working to receive some feeds on commercial claims that are pre-adjudicated, meaning they aren’t completely settled up. CMS has agreed to provide monthly feeds of adjudicated Medicare claims.
- Overwhelmed physicians and medical staff. Wheeler explains that much of the care savings achieved by the alliance involves providing patient care in different ways. That means getting the clinical involvement of the providers who know the patient best. “But they are often loaded up with patient care and improvement initiatives of their own, so we have to try and sync those things up to make sure we aren’t overtaxing them.” She notes that within the Allina system alone, providers are responsible for more than 700 quality measures requirements from regulatory agencies and different commercial payer arrangements.
- Migratory nature of health plan members. Wheeler would like to work with the same patients throughout the collaboration, but the reality is that health plan members come and go, so it’s impossible to develop perfect cost or quality comparisons from year to year.
She says entering into an ACO-like strategy allows providers to really look at and understand all of their clinical practice patterns. It puts a focus on developing efficiencies and improvements around staff, work flow, and clinical performance—all to the benefit of patients.
Still, she cautions that “there’s no quick fix to the total cost of care, so things like collaboration and joint commitment to the mission become even more important and take time.”
About Morgan Hunter HealthSearch
Morgan Hunter HealthSearch (MHHS) provides Executive Search and Interim Leadership solutions for hospitals and health systems throughout the United States. Our services include executive healthcare recruiting, retained healthcare executive search, healthcare interim management, executive placement for hospitals.