ACOs: Impacting the Past, Present and Future State of Healthcare

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1 ACOs: Impacting the Past, Present and Future State of Healthcare Article By Alan Cudney, RN, CPHQ, PMP, FACHE, Executive Consultant October 2012 What are Accountable Care Organizations? Can they help us move toward the change we need? What are ACOs? Accountable Care Organizations (ACOs) are a healthcare concept that has been gaining support ever since appearing in the Patient Protection and Affordable Care Act (PPACA) in March, The PPACA defines an ACO as a group of health care providers who offer coordinated care and chronic disease management, and thereby improve the quality of care patients get. The organization s payment is tied to achieving health care quality goals and outcomes that result in cost savings. A significant business shift for most hospitals and physicians, ACOs replace volume incentives with value propositions. Members of the ACO assume joint accountability for a defined patient population and are charged with providing quality care and reducing overall costs associated with this care. ACOs have three main goals: 1. Better care for individuals. 2. Better health for populations. 3. Lower growth in expenditures Present: HillaryCare became RomneyCare, which has become PPACA ( ObamaCare ) 2009: Capitation or bundle payments come back as ACOs The question is: are ACOs just another business shift that will come and go as others have before, or do they have real potential to help bring about the change we need? To answer this question, it s helpful to look back at the Institute for Healthcare Improvement s triple aim, proclaimed by Don Berwick in The first two principles are essentially transposed and restated in the Three-Part Aim of ACOs, per the CMS Shared Service Program. The third is very similar. Institute for Healthcare Improvement Triple Aim (2007) Improve health of the population Enhance patient experience of care (including quality, access, and reliability) Reduce, or at least control, per capita cost of care Shared Savings Program Three-Part Aim (2011) What is the history leading up to this model? ACOs are the latest in a long line of government initiatives intended to improve the nation s healthcare system. U.S. healthcare has been a series of pendulum swings, or business shifts, going back several decades: 1965: Titles XVIII and XIX created Medicare and Medicaid 1982: Fee-for-service became prospective payment systems like DRGs and APGs Better care for individuals Better health for populations Lower growth in expenditures As these ideas continue to resonate throughout policy and now regulatory statements, the hope is that we will get closer to realizing the vision. 1 10/12

2 Can ACOs help us move toward a healthy future? Clearly, maintaining good health among patient populations is key to providing the best possible care while also keeping costs down. Unfortunately, our existing system tends to focus on healthcare as a reactive response to illness rather than a proactive prevention of illness. As a result, many patients fall through the cracks and we re left with a national situation in which costs are rising at unsustainable rates while the population becomes increasingly unhealthy. Because ACOs make primary care a priority, many are hopeful that they can create the kind of lasting, positive change we need. In recent years, primary care has been the least valued of all physician specialties, in terms of the amount of third party payor reimbursement. ACOs have the potential to help us to achieve a renewed focus on primary care by placing a heavy emphasis on prevention, early diagnosis and chronic disease management, among other things. What are the elements of an ACO and how do they work together? Done well, an ACO is like a symphony played for an audience of patients. All of the parts come together to create something bigger. In the ACO symphony, the instruments include Government regulations and pay structures, and a governing board. The players in this symphony include: ACO professionals in group practice arrangements Networks of individual practices of ACO professionals Partnerships or joint venture arrangements between hospitals and ACO professionals Hospitals employing ACO professionals Critical access hospitals Rural health clinics Federally Qualified Health Centers The audience for this ACO symphony is made up of patients or beneficiaries. Government regulations and pay structures Section 3022 of the Affordable Care Act requires CMS to establish a Shared Savings Program to facilitate coordination and cooperation among providers in order to improve the quality of care for Medicare Fee-For-Service (FFS) beneficiaries and reduce unnecessary costs. The goal of the Shared Savings Program is to improve beneficiary outcomes and increase the value of care by promoting accountability for the care of Medicare FFS beneficiaries, requiring coordinated care for all services provided under Medicare FFS, and encouraging investment in infrastructure and redesigned care processes. Governing board: rules and requirements Each ACO must have a governing board responsible for oversight and strategic direction, and for holding ACO management accountable for the activities described in the regulations. It must have transparent governance processes and demonstrate a fiduciary duty to the ACO and its patients. The board must be separate and unique to the ACO, since participants likely come from multiple disparate entities. In addition, the governing body must include a Medicare beneficiary representative served by the ACO who does not have a conflict of interest. ACO participants must control 75% of the ACO s governing body. If not, the ACO must describe why not, and how the organization will involve the participants in governance or provide meaningful representation by Medicare beneficiaries. The rules also state that ACOs will be held accountable for the quality, cost and overall care of assigned Medicare FFS beneficiaries. CMS has proposed 33 measures under four domains to determine an ACO s success. CMS will establish a method to calculate the ACO s quality performance score, which will evaluate how well the ACO meets CMS established quality performance standards. Finally, under these regulations, an ACO does not need to be newly formed. Participants can use an existing entity as long as it meets all the eligibility requirements: It must be a legal entity separate from those represented by the participants It must have a management structure that includes clinical and administrative systems that align with Shared Savings Program goals 2

3 It must be managed by an individual whose election and removal is controlled by the governing body Clinical management must be controlled by a senior level medical director who is a board certified and licensed physician of one of the ACO providers or suppliers The clinical manager must be physically present on a regular basis How do ACOs look from a patient s perspective? For patients, enrolling in an ACO is very different than joining an insurance plan. In fact, the ACO is essentially invisible to the Medicare FFS beneficiary. Patients are not required to see providers within the ACO, but they must be notified that their provider or supplier is participating in the ACO. The ACO must also inform beneficiaries of its ability to request claims data about them and give them opportunity to object. Patients are assigned ACOs in two ways: 1. If the patient receives the plurality of their primary care services from primary care physicians within the ACO, they are assigned an ACO 2. If the patient has not had a primary care service furnished by a primary care physician either inside or outside the ACO, they are assigned to an ACO if they receive most of their primary care services from specialist physicians and certain non-physician practitioners (nurse practitioners, clinical nurse specialists and physi cian assistants) within the ACO Can a change in incentives help cut costs and improve care? ACOs could promote development of new systems of care in two ways: 1. By changing provider culture and incentives from legacy fee-for-service fragmented care 2. By avoiding adverse effects on existing systems that already provide accountable care The ACO model aligns incentives by replacing volume incentives with outcome-based incentives. Under ACOs, members assume joint accountability for a defined patient population and are charged with providing quality care and reducing overall costs associated with this care. Reimbursements are bundled so that similar services are grouped together and compensated using a single or global payment. This change in method of payment could incent physicians to provide more effective, less expensive overall care by holding provider systems accountable for cost and quality of care for assigned patient populations. What are the challenges and how do we address them? The advent of ACOs brings great opportunities to healthcare providers. However, it also brings unique challenges, by fundamentally altering the rules of engagement under which they have always operated. The major challenges associated with ACOs are greater financial risk for members, and the need for change management. Greater financial risk, greater potential payoff ACOs require providers to bear greater population-based financial risk. However, with ACOs, when providers meet certain goals, they get to share the cost savings with CMS. At the same time, providers are still able to bill Medicare for FFS services provided, just as they do now. It s important to note that greater risk can lead to greater reward in the end. There are two risk models depending on providers needs and ability to deal with uncertainty. Losses in both models are capped. Historically, Medicare has reimbursed physicians on a FFS basis, whether or not they practiced in a hospital-sponsored or private setting. Conversely, Medicare has reimbursed hospitals on a prospective payment system (PPS) since the early 1980s using diagnostic-related groups. 3

4 Degree of Population Risk Transferred to Provider by Payment System: Low High Fee for Service Pay for Coordination Pay for Performance Episodic Payments Shared Savings Capitation Paid for each unit of service without constraint on spending Additional per capita payment based on ability to manage care Payments tied to objective measures of performance - Value-Based Purchasing/HAC - Readmit Policy Payment based on delivery of services within a given timeframe -Bundled Payment (ACE Demonstration) Shared savings from better care coordination and disease management - ACOs Providers share savings from better care coordination and disease management (HFMA, Healthcare The Dust Settles, April 13, 2010) Track One Track Two Shared savings for all three years Savings capped 50% shared savings, up to 10% of benchmark Share on first dollar once minimum savings rate has been achieved Higher shared savings rates if willing to share losses for all three years Savings and losses capped, with losses capped at an escalating rate from year one to year three 60% shared savings, up to 15% of benchmark Share on first dollar once minimum savings rate has been achieved how success will be defined. The governing board should also be clear about what it wants to manage and make sure it puts systems in place to measure success. ACOs a reason for hope? Despite the risks, there is generally a level of optimism about ACOs among the executives who responded to Beacon Partners ACO Readiness Survey conducted in the 3rd quarter of According to this survey, CEOs and CIOs are most optimistic about an ACO s potential impact on their organization. However, it is worth noting that clinical and financial executives saw ACOs as possibly having a negative impact. Even though those with a negative view of ACOs are a small minority, it does highlight some of the anxiety surrounding their potential impacts. Uncertainty or not, if we can manage to keep ACOs as a truly patient-centered system of care and reimbursement, there is a chance we can create lasting, positive change in American healthcare. Managing change, encouraging communication Another challenge associated with ACOs is the need to effectively managing change. The move to an ACO will require a true paradigm shift across involved organizations, the identification of necessary metrics and a plan to collect them, and an IT system that supports rather than complicates the goals of the ACO. It cannot be stated strongly enough: the best way to mitigate these risks is communication. Open discussion among ACO members from the start is the best way to prepare for the challenges to come. That being said, an ACO should have a charter that speaks to its unique goals and all participants should be onboard with the ACO s core mission and 4

5 About the Author Alan Cudney is an executive consultant with 29 years of experience in healthcare. In previous leadership roles Mr. Cudney improved the coordination, efficiency and effectiveness of patient care through process re-design, effective change management and appropriate utilization of clinical information technology. As a registered nurse, Mr. Cudney is thoroughly acquainted with the very heart of healthcare delivery and effectively leverages his graduate business and healthcare management degrees to provide proven, realistic solutions. Beacon Partners is one of the largest healthcare management consulting firms in North America. We focus on helping organizations improve operational, clinical and financial performance to deliver the highest level of patient care. For more than two decades, healthcare leaders have chosen Beacon Partners to optimize clinical productivity and financial performance, ultimately leading to improved quality, safety and patient outcomes. Our team of industry executives, physicians, nurses, administrators, allied healthcare professionals and analysts brings a unique, multi-disciplinary approach to the challenges healthcare organizations face today. For more information visit Beacon Partners.com, Connect with us on: BEACON BeaconPartners.com BOSTON CLEVELAND SAN FRANCISCO TORONTO 5

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