Accountable Care Organizations: Transitioning from Independent Physician Practice to Interdependent Relationships

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1 November Volume 20, No.11 Accountable Care Organizations: Transitioning from Independent Physician Practice to Interdependent Relationships The days of free market, fee for service medical practice may soon be over. At a recent meeting in the Washington, DC CMS leadership celebrated 2010 as a turning point in the United States healthcare system not because of the passage of healthcare reform legislation but for the first time in history more than 50% of the nations practicing physicians are employed by healthcare systems. It has been clear from Congressional testimony, demonstration projects and recent legislation that the goal of policy makers is to have all practicing physicians salaried employees. If you are already an employed physician you may consider this to be relatively unimportant; however, there will soon be significant repercussions for all of us as the dynamic between private practice and salaried practice is eliminated. As they are implemented over the next three to four years, the components of the American Recovery Act (ARA) and the Patient Protection and Affordable Care Act (PPACA) will fit together like pieces of a puzzle to frame the new healthcare system. The provisions for the establishment of Accountable Care Organizations (ACOs) are a major step toward gathering the remaining independent physician practices under an administrative umbrella. This policy has been supported by MedPAC, the Congressional Budget Office, the Dartmouth Institute for Health Policy and the Brookings Institute. The goal of ACOs is to combine the care rendered under Medicare part A and B and redesign care processes to reduce the overall cost of care. The passage of the HITECH act was crucial to the success of this policy. The ACO will require significant data collection and analysis in order to make these organizations economically practical. A question recently asked is why Medicare doesn t use their current Medicare Advantage program to accomplish these goals? In the Medicare Advantage program, Medicare pays a lump sum to private insurers and holds them accountable for all the medical care the beneficiary needs. There are significant differences between the current Medicare Advantage program and the Accountable Care legislation with the accountability shifting from the The WASHINGTON WATCHLINE is published monthly and provides timely information to NAMDRC members on pending legislative and regulatory issues that impact directly on the practice of pulmonary medicine NAMDRC s primary mission is to improve access to quality care for patients with respiratory disease by removing regulatory and legislative barriers to appropriate treatment. INSIDE THIS ISSUE NAMDRC Leadership...3 NAMDRC 34th Annual Meeting Registration Info About NAMDRC... 5 NAMDRC Application... 5 NAMDRC 8618 Westwood Center Drive, Suite 210 Vienna, VA Phone: Fax: ExecOffice@namdrc.org "NAMDRC will directly affect your practice more than any other organization to which you belong."

2 insurer to the provider. Providers or provider groups, rather than insurance companies, will be evaluated and rewarded on the quality and efficiency of care. Medicare will contract directly with provider (accountable care) organizations without the reliance on a health plan intermediary. CMS is required to make the program operational by January 1, While the legislation establishes the general parameters of the program, many of the important details have been deferred to the Secretary of Health and Human Services (HHS). The Notice of Proposed Rulemaking should be available before the end of this year. What are the current requirements that an ACO will have to meet to participate? Basically, the statute specifies the following: 1) Have a formal legal structure. 2) Accept assignment of at least 5,000 Medicare beneficiaries. 2) Have a sufficient number of primary care professionals for the number of assigned beneficiaries. 3) Agree to participate in the program for not less than a 3-year period. As these programs get started, payment for service will continue to be made to the individual provider under the original Medicare fee-for-service program either parts A or B, in the same manner as they would otherwise be made. In each year of the agreement period, the ACO will be eligible to receive a payment for shared savings, if the estimated average per capita Medicare expenditures for the population assigned to the ACO meets or exceeds a benchmark set by CMS/ HHS. If the ACO meets the requirements a certain percent of the shared savings will be returned to the ACO to be divided internally as the ACO administration sees fit. HHS has been given significant authority under the legislation to establish limits on the total amount of shared savings that may be paid to an ACO. They are also required to establish a payment plan to an ACO that does not result in spending more than if the model were not implemented. Additional important details left up to CMS and which should be included in the Notice of Proposed Rulemaking would include: -The method to assign Medicare fee-for-service beneficiaries to an ACO; -The amount of savings required for an ACO to receive a bonus payment; -The appropriate percent of savings to be distributed to the ACO; -The measures to assess the quality of care furnished by the ACO; -The form and manner an ACO shall submit data; and -How to address current antitrust law and other legal barriers. The legislation states that there shall be no administrative or judicial review of any of the policies set or the decisions made by CMS regarding the details above. How these umbrella relationships among hospitals, physician groups, homecare providers and DME providers will evolve and who will have internal authority will be an interesting study. There are established examples in the private sector such as Kaiser Permanente and several commercial payers are aggressively exploring payer provider relationships within current legal boundaries. For example, United Healthcare has 20 years of clinical data that it has been analyzing, and sharing with its disease management subsidiary OptumHealth. In cooperation with Dartmouth Institute for Health Policy this entity has been exploring relationships with private healthcare systems. A health system subsidiary, Premier Consulting Solutions of Charlotte, North Carolina, estimates that there will be a significant push in the commercial sector to establish these types of organizations prior to January 1, Many hospitals in the United States will be looking to these relationships to help solve their evolving financial difficulties. A recent Moody's Investors Service report found that not-for-profit hospitals' admissions slightly declined from 2008 to 2009, the first year-over-year drop in Moody's nearly two decades of evaluating not-for-profit hospital medians. Many of these hospitals are reporting monthly admissions declines in 2010 ranging from 2% to as much as 15%. Moody's expects the "flat-to-declining" inpatient admissions trend to continue through 2010 and into 2011, and predicts that ongoing "variability" in admissions will complicate hospitals' financial planning and budgeting efforts. As a result, even the largest, most prestigious hospitals in the country operate on thin or nonexistent profit margins. In 2008, New York City hospitals collectively operated at a 6% loss, with significantly worse losses at some city

3 EXECUTIVE COMMITTEE AND BOARD OF DIRECTORS OFFICERS Steve G. Peters, MD President Lynn T. Tanoue, MD President-Elect Dennis E. Doherty, MD Secretary/Treasurer Peter C. Gay, MD Past President BOARD OF DIRECTORS Charles W. Atwood, MD Albee Budnitz, MD Michael L. Cohen, MD Nicholas S. Hill, MD Philip Marcus, MD, MPH James M. Parish, MD Jonathan Raskin, MD Maida V. Soghikian, MD Eric S. Yeager, MD PRESIDENT S COUNCIL George G. Burton, MD John Lore, MD Louis W. Burgher, MD, Ph.D. Alan L. Plummer, MD E. Neil Schachter, MD Joel M. Seidman, MD Frederick A. Oldenburg, Jr., MD Paul A. Selecky, MD Neil R. MacIntyre, MD Steven M. Zimmet, MD Joseph W. Sokolowski, MD Peter C. Gay, MD EXECUTIVE DIRECTOR Phillip Porte ASSOCIATE EXECUTIVE DIRECTOR Karen Lui, RN, MS DIRECTOR MEMBER SERVICES Vickie Parshall hospitals. Hospitals are now viewing the ACO and medical home model as a critical cornerstone to shore up their financial position. That strategy means building a relationship and constructing a mutually beneficial contract with primary care practices, many of whom are experiencing erosion of their own financial position. There are significant legal barriers that must be overcome. Current anti-kickback, antitrust, civil monetary penalty and physician self-referral regulations must be addressed in contracts promoting clinical integration. Under the current legal restraints, the most straightforward way for hospitals to support medical homes, is through physician employment. When physicians are employed, the hospitals or ACO administration will have fairly free rein to support practice transformation by providing access to clinical practice extenders, clinical information technology, and overall practice management support. Hospitals can also design physician compensation and incentives to reward medical homerelated activities and patient outcomes. With a combined Part A and Part B reimbursement plan, hospitals may be able to develop incentives around reducing unnecessary admissions to offset some of the costs of supporting the medical home and hospital volume reductions. Once a population of Medicare beneficiaries has been assigned to an ACO, there will be two types of risk for the entity as the shift from fee for service to accountable payments occurs; performance risk associated with acute episodes and utilization risk associated with the total cost of care for a defined population. The ACO administration will have to focus on incentive alignment with admitting medical and surgical specialists, creating rewards within employment contracts, gain sharing arrangements or comanagement agreements that lower inpatient costs and create a financial and strategic foundation for more wide-scale improvement. Population management will be the most ambitious clinical leap within accountable care and the primary care medical home will become very important. The focus of primary care will shift from feeder of admissions and procedures to prevention of acute episodes of illness through chronic disease management and proactive outreach. Current physician manpower in primary care is probably inadequate to accomplish this goal and a team of non-physician providers to deliver the additional patient education, communication, and care will be required. Several Questions arise as we await the Notice of Proposed Rulemaking. Will patient s choice of provider suffer? The legislation states that it will not but once assigned to an ACO it is hard to imagine that choice will not be limited. Will smaller ACOs have to contract with larger ones for costly services? It is difficult to believe that all ACOs will be uniformly consistent in services provided. Will procedural oriented specialists be treated differently in contracts than primary care and the more cognitive specialties? Building effective contracts could be very complicated. Medicare spends considerable resources on beneficiaries with chronic care conditions. The Congressional Budget Office has estimated that the most expensive 25 percent of Medicare beneficiaries accounted for 85 percent of total Medicare spending and that more than 75 percent of these high-cost beneficiaries had one or more of seven majororganizations is to bend the cost curve, the CMS Office of the Actuary estimates that implementation of this provision will be budget neutral. The CBO has projected that it will reduce Medicare spending by at most $5 billion over the next ten years, a minor shift in the face of anticipated spending. Once these programs are in place the financial restraints will have to be tightened to achieve the Medicare goals.

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5 NAMDRC MEMBERSHIP BENEFITS AT A GLANCE... Monthly publication of the Washington Watchline, providing timely information for practicing physicians; Publication of Current Controversies focusing on one specific Pulmonary/Critical Care Issue in each publication; Regulatory updates; Discounted Annual Meeting registration fees; The Executive Office Staff as a resource on a wide range of clinical and management issues; and The knowledge that NAMDRC is an advocate for you and your profession. One of NAMDRC s primary reasons for existence is to provide both clinicians and patients with the most up-to-date information regarding pulmonary medicine. Bookmark this page! The complexity of our nation s health care system in general, and Medicare in particular, create a true challenge for physicians and their office staffs. One of NAMDRC s key strengths is to offer assistance on a myriad of coding, coverage and payment issues. In fact, NAMDRC members indicate that their #1 reason for belonging to and continuing membership in the Association is its voice before regulatory agencies and legislators. That effective voice is translated into providing members with timely information, identifying important Federal Register announcements, pertinent statements and notices by the Centers for Medicare and Medicaid Services, the Durable Medical Equipment Regional Carriers, and local medical review policies. ABOUT NAMDRC: Established over three decades ago, the National Association for Medical Direction of Respiratory Care (NAMDRC) is a national organization of physicians whose mission is to educate its members and address regulatory, legislative and payment issues that relate to the delivery of healthcare to patients with respiratory disorders. NAMDRC members, all physicians, work in close to 2,000 hospitals nationwide, primarily in respiratory care departments and critical/intensive care units. They also have responsibilities for sleep labs, management of blood gas laboratories, pulmonary rehabilitation services, and other respiratory related services.