Can we get it right this time?

Some believe that accountable care organizations may succeed where many HMOs failed, provided they can balance quality and cost.

The question is simple: Can payers – public and private – stop reimbursing providers on the basis of volume, and begin paying them on outcomes, that is, on how well they take care of people? If an answer is found, experts believe it could stop the unrelenting rise of healthcare costs. Some believe accountable care organizations could provide at least part of that answer.

Accountable care organizations hit prime time when the Patient Protection and Affordable Care Act (the healthcare reform law) was signed into law by President Obama in March 2010. Section 3022 of the legislation calls for the Department of Health and Human Services to establish a shared savings program by January 2012 “that promotes accountability for a patient population and coordinates items and services under [Medicare] parts A and B, and encourages investment in infrastructure and redesigned care processes for high quality and efficient service delivery.”

Translated into English, that means that on Jan. 1, 2012, the government will recognize accountable care organizations, which bring together inpatient and outpatient providers to provide high-quality, efficient care to a specific patient population. Organizations that provide such care at a cost that is less than a target established by the government will get a percentage of the savings – though exactly how much is still unspecified.

To be eligible, accountable care organizations will have to meet a number of criteria, including:

  • Must be accountable for the quality, cost and overall care of beneficiaries.
  • Must agree to participate in the program at least three years.
  • Must have a formal legal structure in place to allow it to receive and distribute payments for shared savings.
  • Must have at least 5,000 beneficiaries.
  • Must define processes to promote evidence-based medicine.
  • Must report to the government on quality and cost measures.
  • Must meet “patient-centeredness criteria,” such as the use of patient and caregiver assessments or the use of individualized care plans.

There remain many, many unknowns. For example, how many accountable care organizations will be set up? How will consumers be “assigned” to a particular organization? (It does seem clear that signing up will be voluntary, however.) How much money can the organization expect to make based on the “shared savings” aspect of the plan?

But one thing is certain: Section 3022 is the government’s way of nudging providers toward improving care while reducing cost.

Shift of focus
“Today, our healthcare system focuses on caring for the sick and rewards healthcare providers within their silos of care, i.e. physician offices, hospitals, nursing homes, and so on,” says Wes Champion, senior vice president, Premier Consulting Solutions, Charlotte, N.C. “This reality contributes to inefficiency, waste and poor care coordination. Premier has created two “collaboratives” designed to help members explore and set up accountable care organizations.

“ACOs are widely viewed as a way to transform healthcare to address these concerns simultaneously,” he says. “In an ACO, providers will no longer be rewarded for the volume of care provided – they will instead be paid based on their ability to provide preventive care and keep people healthy.

“When doctors, hospitals, nurses and other care providers efficiently deliver the right care, in the right setting, patients benefit and overall costs are reduced,” continues Champion. “For example, if the ACO can work proactively with heart failure patients to manage medications and recommend lifestyle changes that improve their condition, they can prevent serious complications that require expensive surgeries and long hospital stays. The savings generated from these care improvements can then be shared by the ACO and the payer. The incentives shift to promote the value rather than volume.”

HMOs all over again?
By no means are accountable care organizations the first attempt by the government to address healthcare costs. There were DRGs in 1983. And 10 years earlier, in 1973, President Richard Nixon signed the Health Maintenance Organization Act, intended to stimulate the creation of HMOs. The results of that experiment were, well, mixed.

“There are a lot of HMOs out there today,” says Chet Speed, vice president, public policy, American Medical Group Association. In fact, the association has among its members several Permanente groups, which are the medical group component of Kaiser Permanente. “But people would say that in some HMOs, quality wasn’t emphasized; rather, cost,” he says.

A number of primary care practices and multispecialty groups across the United States are still paid today under capitated contracts, particularly in California, notes the American Medical Association in a recently released white paper titled “Pathways for Physician Success Under Health Care Payment and Delivery Reforms.” (In capitation, the provider receives a set amount of dollars per member per month or year, in return for providing all of the member’s healthcare needs.)

But capitation – a typical reimbursement method for HMOs – fell into disfavor in many parts of the country, says the AMA. One problem was the fact that physicians were paid the same amount even if they had patients with more health problems, which discouraged them from taking on sicker patients. What’s more, reliable ways to measure quality of care were lacking, so there was no way to ensure that physician practices were not withholding needed care in order to save money.

Accountable care organizations differ from HMOs in a number of ways, says Speed. First, they will be reimbursed predominantly on a fee-for-service basis, rather than the capitated method. Second, accountable care organizations are provider – not payer – organizations. Third, and most important, “to get the shared savings, accountable care organizations would have to hit both the quality and cost metrics,” he says.

Limited tools in the past
“That movement in the ’90s was a lot about flawed execution,” says Jay Want, M.D., president and CEO, Physician Health Partners, a 45-year-old physician management services organization in Denver, Colo. “But to be fair to people of that era, there were no quality parameters. People didn’t think you could define quality, much less judge it.”

If anything, the 1990s proved how difficult it is to align incentives between insurers and providers in a way that results in better, more efficient healthcare, says Want. “It was adversarial,” he says. “[Providers were saying], ‘If I do X, I create greater profit for the insurance company, but if I do Y, I create greater good for the patient.’ What’s fundamentally different about accountable care organizations is that they are not insurance products. It’s about how you deliver care, and only secondarily, [about] how you finance it.”

Says Champion, “We know much more about how to measure quality and assess top performance than we did in the ’80s or ’90s, when IDNs and managed care were popular. This is not just about trimming costs; it’s also about measuring and sustaining improvements in quality and satisfaction. Also unlike efforts in the past, we now have irrefutable evidence that the current model must change. We simply must test new, innovative approaches in order to get spending under control, quality improved and satisfaction increased.”

Consumers may harbor some skepticism, even fear, about accountable care organizations, says Peggy Naas, M.D. MBA, vice president, physician strategies, VHA. But those fears are unfounded. She cites three reasons why:

  • Even though the legislation refers to consumers being “assigned” to organizations, they would, in fact, be free to seek care from others outside an accountable care organization.
  • Care would be measured “not only on bending the [cost] curve, but on outcomes.” Ten or 15 years ago, consumers feared that HMOs were rewarding providers for denying care, rather than for providing high-touch, high-quality care, based on comparative-effectiveness data.
  • Providers can deliver much better, more intensive care in lower-cost outpatient settings than they could in the heyday of HMOs.

Who would run the show?
By its very nature, the accountable care concept demands that groups of providers – hospitals, primary care doctors, specialists, allied health professionals and others – work together to coordinate care for their patients. That said, the government has refrained from dictating who must be part of these organizations. In fact, Section 3022 says that any of the following may be included: group practices, networks of individual practices, partnerships or joint ventures between hospitals and accountable-care-organization professionals, or hospitals employing accountable-care-organization professionals.

Perhaps not surprisingly, AMGA’s Speed believes large physician group practices are well-suited to serve as accountable care organizations. “Having your primary care doctor, cardiologists, surgeons, [and other providers] all under one roof seems to make sense from a delivery-of-care point of view.” Large multispecialty groups also invest heavily in allied health professionals, that is, “the nurses, diabetic educators and others, to better drill down to treating the chronically ill folks, who need a lot more attention than the physician can provide …. Evidence is showing that larger group practices do better on quality and cost.”

Nevertheless, hospitals have to be included, in order to provide inpatient care, he says. “But the important thing is, [physicians and hospitals] don’t have to be legally integrated.”

Says Champion, “Depending on the community, we anticipate that different providers will be able to successfully convene ACOs. However, in all models, a hospital will need to be included in some way as the providers of acute and emergency care.

“Several health systems in our ACO Implementation Collaborative are made up of physician-based clinics, and we are testing this approach, along with hospital-led models,” continues Champion. “In many respects, the convener of the ACO will vary based on the community’s needs and the facilities in the area.

We do believe that flexibility is key, because in some communities, the hospital may be the only provider with the resources or abilities to organize the ACO.
“Physicians are fiercely independent and are at the core of most hospitals’ clinical decision-making teams,” he adds. “Hospitals don’t tell physicians what to do; they work together to do what’s best for people. Physicians understand that all people are different, and that a variety of approaches may be required to deliver the best care. That’s why ACOs will measure physicians and hospitals on their ability to improve quality based on widely vetted clinical measures that are based on the scientific evidence of what we know leads to better outcomes.”

The medical home
One thing that probably will be part of all accountable care organizations is the concept of the medical home, says Naas. To be recognized by the government as a medical home, a physician practice must meet strict criteria, she points out. But the bottom line is this: To qualify as a medical home, the provider must know the patient, have a “longitudinal awareness” of him or her, and communicate and share information with the patient, regardless of where care is delivered. In addition, the practice must be able to manage information, use comparative-effectiveness and evidence-based practices, and help the patient understand and comply with the medical plan.

“Some would say that the patient-centered medical home is … one of the stepping stones or bulwarks of the idea of accountable care organizations,” says Naas. “And then add to that the concept of clinical integration, where groups of physicians come together to deliver high-quality care.”

Inevitably, the idealized version of accountable care organizations will collide with the reality. What the outcome will be is anybody’s guess.
Before they are rolled out, lawmakers will have to deal with some thorny issues. For example, hospital-physician collaboration, especially divvying up “shared savings” money, could be construed as a violation of the Stark Law (banning self-referrals) as well as anti-kickback laws.

But there are more fundamental obstacles, which the legal system can’t touch. A huge question is, can doctors and hospitals work together? The two groups have a long and complicated relationship with one another, and the creation of accountable care organizations could place them at odds with one another.

“Several of the most important ways to reduce healthcare costs would be to prevent the need for hospitalizations through more effective prevention programs, early detection, improved chronic disease management, etc.,” points out the American Medical Association in its white paper. “These initiatives would be achieved primarily or exclusively through the actions of physician practices, not by hospitals themselves.

“Moreover, to the extent that these initiatives are successful, they will not only reduce the hospitals’ revenues, but they may well have a negative impact on the hospitals’ margins, particularly in the short run, if revenues decline more than costs can be reduced. As a result, at least in the short run, the interests of primary care physicians and hospitals in many communities will not only be unaligned, but could be in opposition to each other.”

The creation of accountable care organizations can complicate relationships within physician groups as well. “Does the group practice have a culture of providing team-based care?” asks Speed. “Do they work well with nurses and the rest of the allied health professionals?

“Culture is a really important aspect of the accountable care organization. You have to work like a team. You have to be comfortable having your performance measured and having it compared to that of your peers. These are some of the things our folks have to look at internally.”

“For a long time, we’ve been pursuing a strategy … of clinical integration, where you become interdependent as providers,” says Want. “The [independent practice associations that PHP manages] formally committed to that about a year and a half ago. They said, ‘This is clearly what we need to do to keep our practices viable.’ You really have to start operating as an interdependent entity. You’re all accountable for success as a larger organization.”

Financial obstacles
Cultural issues aside, financial issues may be just as formidable.

Judging from the government’s recent physician group practice demonstration project, startup costs for accountable care organizations could be as much as $1 million, says Speed. “You have to hire a whole set of allied health professionals to coordinate the care of these Medicare beneficiaries,” who will need coaching before and after discharge from the hospital, as well as ongoing monitoring. New medical devices, such as home monitoring equipment, may be needed as well.

“You also have to refine your electronic-medical-records system,” he adds. Accountable care organizations will have to meet a series of quality measures, and that means they must collect large amounts of data on their patients. “You really have to regard your EMR not just as a medical record, but as a data collection tool.”

How many organizations can afford these upfront costs, particularly if they are unsure how much they will recoup from the shared-savings component of the program?

“The shared savings from management of congestive heart failure may take years to document and realize,” says Naas. “Organizers of accountable care organizations quite appropriately will ask, ‘How can we capitalize and fund [our operation] in the interim?’” Some providers will insist on some type of capitation, to help finance some of the upfront costs, she adds.

Medical groups are asking themselves the same questions. “The costs associated with lack of preventive services will occur in the future, and higher spending in the short run may be needed to reduce costs in the long run,” says the AMA in its white paper. “Measuring costs on an annual basis could actually discourage the use of preventive services.”

“Because of the high startup and maintenance cost, you have to have a very strong physician and administrative leadership that is able to convince a provider to become an ACO,” says Speed. “If you’re going to say, ‘We’re going to spend $1 million upfront and we hope to get a bonus payment 18 months from now,’ you really do need champions. You need to convince [others] that this is worthwhile. It’s a hard sell.”

Despite the difficulties, experts believe accountable care organizations can work. First, many policymakers and providers have reached the point where they feel something must be done to stop the rise in healthcare costs. Second, insurers realize they might have goofed in their implementation of HMOs, and they’re willing to let providers have their turn. Third, after the many failed marriages of hospitals and physician group practices of 10 or 15 years ago, it appears that hospital administrators and physicians have learned how to live – and work – together.