Accountable Care Organizations Strategic Planning & Preparations Bob Perna, FACMPE, Director, WSMA Practice Resource Center

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1 Bob Perna, FACMPE, Director, WSMA Practice Resource Center

2 Bob Perna, FACMPE Director, WSMA Practice Resource Center Phone:

3 DISCLAIMER Disclaimer: This presentation and any materials provided in connection with the presentation are for educational purposes only. The information provided is not legal advice nor is it intended to be substituted for legal advice. Parties affected by issues discussed in these materials should consult independent legal counsel, as the specific facts of any given case will greatly influence the legal advice given.

4 Agenda: Overview of ACOs Impact on Physicians Practices Strategic Planning Considerations 4

5 Accountable Care Organizations (ACOs) The What and Why of ACOs An Accountable Care Organization is an organization of health care providers that agrees to be accountable for the quality, cost, and overall care of Medicare beneficiaries who are enrolled in the traditional fee-for-service program who are assigned to it. (Centers for Medicare & Medicaid Services) Physicians and other providers are encouraged to work together and improve care coordination. This concept could complement medical homes. The goal of an ACO is to promote accountability for quality and resource use over an extended period of time for a population of patients. (MedPAC, Report to Congress, June 2008, p. 16) 5

6 Accountable Care Organizations (ACOs) MedPAC June 2009 Report to Congress ACO: consists of primary care physicians, specialists, and at least one hospital, formed from an integrated delivery system, a physician hospital organization, or an academic medical center. Defining characteristic: a set of physicians and hospitals accept joint responsibility for the quality of care and the cost of care received by the ACO s panel of patients. Goal: create an incentive for providers to constrain volume growth while improving the quality of care. Achieves both quality and cost targets, members receive a bonus. Fails to meet both quality and cost targets, its members could face lower Medicare payments. 6

7 The What and Why of ACOs Problem: Government Accountability Office (GAO) Long Term Fiscal Outlook Report Expenditures on Medicare, Medicaid & Social Security are unsustainable and pushing the US to historically high levels of public debt. 7

8 Government Accountability Office: Long Term Fiscal Outlook, January 2010 As the baby boom generation retires, federal spending on retirement and health programs - Social Security, Medicare, and Medicaid - will grow dramatically. At the same time, state and local expenditures on Medicaid and the cost of health insurance for state and local retirees and employees are also projected to increase significantly. Absent policy changes, these trends will result in an unsustainable imbalance between expected spending and tax revenues over the long term. 8

9 GAO: Long Term Fiscal Outlook, January 2010 The economic downturn and the federal government s response continue to shape the near-term budget outlook. In fiscal year 2009 the overall federal deficit reached 9.9 percent of GDP - the largest since 1945, and the deficit is expected to decline only slightly in While deficits are projected to decrease further as federal support for states and the financial sector wind down and the economy recovers, the increased debt and related interest costs will remain. Under our Alternative simulation, debt held by the public as a share of GDP could exceed the historical high reached in the aftermath of World War II by

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12 The What and Why of ACOs Solution: Curb health care services and expenditures particularly in Medicare and Medicaid programs - and achieve better quality of care. Private sector mirrors those goals of cost reduction and quality improvement, with health insurance largely underwritten by employer-purchasers. 12

13 The What and Why of ACOs Solution: e.g.: Blue Cross Blue Shield Association Recommendations for Delivery System Reform (May 2009) Encourage greater integration of providers through "virtual" arrangements. Establish public-private pilot programs on ACOs which emulate fully integrated delivery systems. These models are expected to greatly improve care coordination as well as lower costs by allowing participating providers a share of savings gained through efficiency. 13

14 The What and Why of ACOs e.g.: Blue Cross Blue Shield Association Recommendations for Delivery System Reform (continued) Incentivize coordination through group-level quality reporting and payments that tie a provider's performance rating to that of all other providers involved in the patient's care. Set spending targets for care with opportunities for providers to receive a share of any savings, as long as quality benchmarks also are met. Pilots should be structured to determine who best to serve as the primary recipient of shared savings and under what method those savings should be allocated to providers involved in the patient's care. 14

15 Patient Protection and Affordable Care Act Related developments on experimentation CMS Center for Medicare and Medicaid Innovation (Sec. 3021) By January 1, 2011, the HHS secretary is required to establish a CMS Center for Innovation to test care models that improve quality and slow the rate of growth in Medicare costs. Medicare Shared Savings Program (Sec. 3022) By January 1, 2012, the HHS secretary is required to establish certain Medicare shared savings (ACOs) for various providers. 15

16 Patient Protection and Affordable Care Act Related developments on experimentation National Pilot Program on Payment Bundling (Sec. 3023) By January 1, 2013, the HHS secretary is required to establish a Medicare pilot program for integrated care. This will include episodes of care involving a hospitalization to improve the coordination, quality and efficiency of health care services, such as: (1) physician services delivered inside and outside of an acute care hospital setting; (2) other acute care inpatient services; (3) outpatient hospital services, including emergency department services; (4) post-acute care services, including home health, skilled nursing, inpatient rehabilitation, and inpatient services furnished by long-term care hospitals; and (5) other services the secretary determines are appropriate. 16

17 Patient Protection and Affordable Care Act Related developments on experimentation Community Health Team Support for Patient-Centered Medical Homes (Sec. 3502) The HHS secretary is required to provide grants or enter into contracts with eligible entities to establish community-based interdisciplinary, inter-professional health teams to support primary care practices (including obstetrics and gynecology practices) within their local hospital service areas, and to provide capitated payments to primary care providers. e.g.: Health teams could collaborate with medical homes in coordinating prevention and chronic disease management services, or develop and implement care plans that integrate preventive and health promotion services. 17

18 A Closer Look at the Proposed Medicare ACO MedPAC suggested that some multispecialty group practices and integrated delivery systems (hospital and physician organizations) already may be functioning as ACOs. These organizations could be asked to volunteer to test the concept for a patient population, and be rewarded on their performance. 18

19 A Closer Look at the Proposed Medicare ACO MedPAC s June 2009 Report to Congress identified two primary types of ACOs: voluntary and mandatory, based on whether physicians and other entities volunteer to form an ACO or are required to participate in one. To induce physicians and hospitals to volunteer to form an ACO, Medicare would have to provide physicians with a significant upside reward and little or no downside penalty. For that reason, MedPAC argued that the voluntary ACO model it presented at that time would be a bonus-only design, rather than having bonuses and penalties. 19

20 A Closer Look at the Proposed Medicare ACO A voluntary, bonus-only model would require bonuses large enough to offset the current incentives in the fee-for-service system that increase volume. To fund those bonuses, Medicare fee-for-service rates would have to be constrained. By constraining FFS Medicare payment rates to fund larger ACO bonuses, Medicare would have to create an environment in which physicians want to form ACOs and are rewarded when they constrain volume growth and improved the quality of care. 20

21 A Closer Look at the Proposed Medicare ACO ACOs would have to be fairly large (at least 5,000 patients) to make it possible to distinguish actual improvement from random variation on a reasonably consistent basis. Each ACO would have a spending target set in advance. One approach is to set the ACO s spending target based on its past experience plus a national allowance for spending growth per capita (e.g., a fixed dollar amount of $500 per enrollee). 21

22 A Closer Look at the Proposed Medicare ACO MedPAC s proposal differs from some others in that the growth allowance is not affected by the ACO s past experience of spending. Over time, using a single national growth allowance could compress regional variation in spending per capita. 22

23 A Closer Look at the Proposed Medicare ACO An alternative approach would set a lower allowance in highservice-use areas and a higher allowance in low-service-use areas. This alternative would place greater pressure to constrain volume in areas with historically high utilization. Savings would result primarily from ACOs incentive to change overall practice patterns and eventually constrain capacity. Therefore, successful ACOs would need to have a formal organization and structure that allows them to make joint decisions on capacity. 23

24 A Closer Look at the Proposed Medicare ACO To overcome incentives to expand capacity and volume in the FFS payment system, a large share of the patients in a physician s practice would need to be in an ACO. To achieve this critical mass, private insurers might have to join Medicare in providing ACO-type incentives to constrain capacity. In a voluntary bonus-only ACO variant, some providers might receive bonuses for shared savings stemming from favorable random variation rather than from the ACO s efforts to reduce spending growth. 24

25 A Closer Look at the Proposed Medicare ACO Under a mandatory bonus-and-penalty variant, the bonuses could be funded by the combination of true shared savings and a penalty on poor performers. Under this scheme, ACOs with high cost and low quality scores would lose their withhold payment and in effect receive lower Medicare payment rates. 25

26 A Closer Look at the Proposed Medicare ACO Currently, in the absence of ACOs, Medicare keeps all the savings from favorable random variation. Unless Medicare s share of true savings from ACOs efforts to reduce spending exceeds the cost of bonuses paid due to random variation, Medicare spending will not be reduced. In part for this reason, under a voluntary bonus-only model, FFS Medicare payment rates likely will have to be constrained. 26

27 Agenda: Overview of ACOs Impact on Physicians Practices Strategic Planning Considerations 27

28 Impact on Physicians Practices So, isn t this managed care? Again? Similarity, overlap - and complementary to - other alternative models of care delivery and reimbursement (e.g.: Medical Home model). Managed Care Capitation One mechanism to incentivize shifts in care delivery. ACOs Shared Savings, Bundled Payments Emerging mechanisms to incentivize shifts in care delivery. ( More on this later). 28

29 Impact on Physicians Practices Good news: Lots of opportunity for experimentation Centers for Medicare & Medicaid Services (CMS) Medicare ACO model: Shared Savings Program proposed rules to be released Fall CMS also has 3 Medical Home models in development: Multi-payer Advanced Primary Care Practice Demonstration Federally Qualified Health Center Advanced Primary Care Practice Demonstration Medicare Medical Home Demonstration 29

30 Impact on Physicians Practices Good news: Lots of opportunity for experimentation Shortell & Casalino: suggest 5 different models: Multispecialty group practice Hospital medical staff organization Physician-hospital organization (PHO) Interdependent physician organization Health plan provider organization or network Health Care Reform Requires Accountable Care Systems. JAMA, 2008;300(1):

31 Impact on Physicians Practices Bad news: Lots of opportunity for experimentation Limited time and resources. Realistically, may only be able to participate in one or two models, depending on resource availability and commitments. Essential to have a clear understanding upfront as to the resource commitments and risks involved in participation. Will your practice even be offered an opportunity to participate? 31

32 Impact on Physicians Practices Washington State ACO pilots Washington is acknowledged nationally for achieving high quality scores and lower costs in delivering care. The Milliman Medical Index for 2009 (www.milliman.com), in studying geographic variations in health care costs across 14 major US cities, listed Seattle as the second lowest (just above Phoenix) with annual costs of $15,564, or 92.8% of the national average of $16,771. Miami was highest at $20,282 or 120.9% 32

33 Impact on Physicians Practices Washington State ACO pilots Substitute Senate Bill 6522, passed during the 2010 session, directed state agencies to convene a work group by January 2011 to support the development of at least two ACO pilot projects to be implemented no later than January The work group would report to the health committees of the legislature by January 2013, with recommendations and information on the progress of ACOs in the state. 33

34 Impact on Physicians Practices Washington State ACO pilots June the Washington State Health Care Authority (HCA) released a Request for Information (RFI) to learn more about innovative payment and practice reforms. HCA will collaborate with a lead organization to support two distinct ACO pilot projects: at least one integrated health care delivery system, and one network of non-integrated community health care providers. 34

35 Impact on Physicians Practices Washington State ACO pilots The lead organization must be able to support the costs of its work without recourse to state funding. However, the lead organization may seek federal funds or other sources of funding. For information on the RFI, go to then select Accountable Care Organization Pilot Projects for all related documents. 35

36 Impact on Physicians Practices Washington State ACO pilots The HCA would be required to contract with recognized experts in the development and implementation of ACOs and related payment systems. The ACOs must abide by principles of local accountability, appropriate payment models, and performance measurement. The state s work group must research other opportunities to establish ACOs, and coordinate with current medical home projects in this state. Currently, Washington state health agencies lead two medical home pilot projects with 33 participating primary care practitioners. 36

37 Impact on Physicians Practices Washington State ACO pilots In the ACO pilots, physicians and hospitals might be paid a lump sum for all services to a patient in an episode of care, such as a period of hospitalization; hospital care plus a period of post acute care; a stretch of care for a chronic condition; or even all inpatient or outpatient care. So-called bundled payments, where payments to physicians and the hospital are lumped together, could replace paying for a particular procedure. 37

38 Impact on Physicians Practices Washington State ACO pilots An ACO offers provider organizations e.g., a medical home or a primary care practice - the opportunity to share savings from payers through such practices as care coordination, wellness services, chronic care management, effective referral patterns, and other approaches that achieve quality outcomes at lower expense. The concept attempts to shift the organization s emphasis from volume and intensity of services to incentives for efficiency and quality. 38

39 Impact on Physicians Practices AMA and ACOs In its Medicare reform principles, the American Medical Association has said that new payment models such as ACOs should be strictly voluntary for physicians and should not be dominated by hospitals. The AMA also has argued that all such models should be tested thoroughly in a variety of practice settings, geographic locations, and among different specialties and payment populations. 39

40 Impact on Physicians Practices AMA and ACOs The ACO model will need to be tested by Medicare, but it also will be cultivated by medical practices, health systems and insurers outside the Medicare program. The AMA engaged Harold D. Miller, executive director of the Center for Healthcare Quality and Payment Reform, to prepare a white paper on payment reform, ACOs and their role in care delivery. The complete document (for AMA members only) and an executive summary (viewable by non-members) are posted on the AMA s website: 40

41 Impact on Physicians Practices AMA and ACOs Goals and Incentives (t)he heart of the concept of an Accountable Care Organization is not a structure, or even a process, but an outcome reducing or controlling the costs of health care for a population of individuals while maintaining, or preferably improving, the quality of that care. A number of different types of provider or organizational structures could serve as an ACO. (Harold D. Miller) 41

42 Impact on Physicians Practices AMA and ACOs Goals and Incentives As long as primary care physicians and specialists have a good working relationship, it is not necessary that they be part of the same organization. The goal of the ACO is to take responsibility for managing the costs and quality of healthcare for a population of patients, not necessarily to deliver every healthcare service itself. (Harold D. Miller) 42

43 Impact on Physicians Practices AMA and ACOs A comprehensive care payment (CCP) is one method of paying for all care for a condition. An ACO would seek to reduce expenditures for hospitalizations and readmissions, and thereby would free up dollars for more appropriate primary and specialty care. The payor (insurer or government) would remit the CCP to the ACO, not to the members of the ACO. (Harold D. Miller) 43

44 Impact on Physicians Practices AMA and ACOs The traditional fee-for-service model arguably rewards poor treatment outcomes -- the longer and more intensive the intervention, the greater the revenue generated. One proposal for modifying that unproductive result is to reimburse ACOs for episodes of care rather than for per service events. (Harold D. Miller) 44

45 Impact on Physicians Practices AMA and ACOs The episodes of care model considers two or more encounters as components of the same care event, such as three office visits to treat a urinary tract infection being considered one episode. Other payment models could co-exist with and complement the CCP and episodes of care models. (Harold D. Miller) 45

46 Impact on Physicians Practices AMA and ACOs Services and Payment Models Simple low-intensity stand-alone services, such as health screenings and minor injuries, could be paid by fee-forservice payments. A surgery could be considered an episode of care and be paid with an episode of care payment. Management of chronic conditions could be paid by a Comprehensive Care Payment (CCP) only. A combination of CCP plus episode of care payment could pay for care of a chronic illness that resulted in subsequent surgical intervention. (Harold D. Miller) 46

47 Impact on Physicians Practices AMA and ACOs Risk models These payment models are not bearing insurance risk health plans continue in that role. These payment models are performance risk. Achieving cost-effective primary care frees up dollars from other sectors to underwrite that care. (Harold D. Miller) 47

48 Impact on Physicians Practices AMA and ACOs Accountability models The accountability of the ACO model engages: patients for better care outcomes, partner entities in the ACO arrangement, purchasers and health insurers for the revenue stream. (Harold D. Miller) 48

49 Agenda: Overview of ACOs Impact on Physicians Practices Strategic Planning Considerations 49

50 Strategic Planning Considerations Factors Internal to the Practice 1. Understanding the ACO model under consideration, and the expectations imposed on the practitioners and the practice. 2. Understanding the operational requirements to satisfy those expectations. 3. Understanding the risks and the resources that will be required to participate successfully. 50

51 Strategic Planning Considerations Factors Between the Practice and ACO Partners 1. Cost-effective and high quality care, with care management and coordination. 2. Revenue models and Incentives: Alignment across ACO Partners. 3. Data (clinical & non-clinical) management and exchange. 4. Governance, Organizational structure, Legal issues 5. Transition strategies - moving in an incremental fashion toward the ACO model - to prevent large scale disruptions in care delivery. 51

52 Impact on Physicians Practices Issues to be resolved How can incentives at the individual physician, group, or combined physician and hospital ACO be coordinated to obtain best outcomes and value? Physicians may be reluctant to be held responsible for outcomes that are not completely in their control. However, making a group, rather than an individual, the locus of responsibility may dilute individuals financial incentives to improve their performance. Provider organizations vary, further complicating the coordination of measures and incentives at different levels. 52

53 Impact on Physicians Practices Issues to be resolved Can payment design accommodate small groups of physicians, particularly with imperfect risk adjustment and acceptance of risk? Will measures of quality and resource use have sufficient statistical significance for small groups of patients? 53

54 Impact on Physicians Practices Issues to be resolved What responsibilities will patients have? Should cost sharing be designed to motivate patients to use certain physicians? To what degree should patients be locked into seeking care from a group of physicians? What information would help patients make better choices, and how can that be made available? 54

55 Strategic Planning Considerations Actions to Consider Begin to identify like-minded individuals and organizations interested in exploring the ACO option as a venture. Would you be joining an existing ACO or a start-up? Differing risks under each. Sketch the design of how you see the ACO working. Compare to materials in the following Resources. 55

56 Strategic Planning Considerations Actions to Consider Data management and exchange will be time-consuming, labor intensive, and of considerable expense. Projections of labor and costs will be essential. Integrated delivery systems will have mechanisms to share those data, at least within their respective organizations. Physicians in smaller practices can participate in an ACO, yet will be challenged by the need to aggregate and share information; Independent Practice Associations (IPAs) could fill that role. 56

57 Strategic Planning Considerations Actions to Consider Data management and exchange will be time-consuming, labor intensive, and of considerable expense. Projections of labor and costs will be essential. Integrated delivery systems will have mechanisms to share those data, at least within their respective organizations. Physicians in smaller practices can participate in an ACO, yet will be challenged by the need to aggregate and share information; Independent Practice Associations (IPAs) could fill that role. 57

58 Accountable Care Organizations (ACOs) Resources: American Medical Association Payment Model Resources White Paper: Payment Pathways American Medical Group Association ACO Resource Center Center for Healthcare Quality & Payment Reform - CHQPR 58

59 Accountable Care Organizations (ACOs) Resources (continued): Medical Group Management Association Health Care Reform Resource Center - Medicare Payment Advisory Commission (MedPAC) June 2009 Report to Congress June 2010 Report to Congress 59

60 Accountable Care Organizations (ACOs) SUMMARY There is a growing body of information on the emerging ACO model. However, there are few, if any, firm standards on how an ACO should be optimally configured. Each ACO likely will reflect the philosophies of care delivery and business operations of its dominant partners, or a balanced compromise of philosophies. Potential partners in an ACO venture will need to thoroughly address their respective roles and responsibilities. 60

61 Accountable Care Organizations (ACOs) SUMMARY (continued) Consider carefully the internal and external factors, including: 1. Cost-effective and high quality care, with care management and coordination. 2. Revenue models and Incentives: Alignment across ACO Partners. 3. Data (clinical & non-clinical) management and exchange. 4. Governance, Organizational structure, Legal issues. 5. Transition strategies - moving in an incremental fashion toward the ACO model - to prevent large scale disruptions in care delivery. 61

62 Accountable Care Organizations (ACOs) SUMMARY (continued) Conduct ample due diligence in traversing these requirements, seeking knowledgable counsel and consulting expertise where indicated. The WSMA will continue to provide guidance and assistance to its members and their staff as these evolving care delivery and business models come into being. 62

63 Thank you.

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