ACOs – A Swing and a Miss

Proposed ACO regulations were issued at the end of March amid much fanfare.  The industry has had a few weeks to digest it, and it appears we need go back to the drawing board.

First, a Review
ACOs, or Accountable Care Organizations, were introduced as part of healthcare reform as a tool to make providers and hospitals coordinate care and reward outcomes and quality.  ACOs are a reaction to many of the biggest issues in our healthcare system: lack of communication and coordination, duplicated tests, incentive systems that reward overuse of care, and lack of follow up and unnecessary readmissions.  While ACOs will initially be put to use for the Medicare system, private insurers are eyeing the concept hungrily and are expected to follow suit once the Centers for Medicare and Medicaid (CMS) sorts out the details.

As we’ve discussed, becoming an ACO requires organizations to get their ducks in a row. Organizations preparing to go down this path are focused on developing a number of different competencies:

  • Physician Integration
  • Care Coordination
  • Cost Management
  • Information Systems Sophistication
  • Balanced Service Distribution
  • Payer Relationships/Contracts
  • Financial/Capital Capacity
  • Scale/Essentiality

A Challenging Rule to Craft
Pulling the preliminary rules together was incredibly complex mainly because of the large number of government agencies involved (CMS, OIG, FTC, DOJ and the IRS).  Certainly CMS makes sense, but the other agencies introduce some less obvious issues.
The rule needs to provide the right mix of incentives for these organizations to operate. But it also must set appropriate requirements for new ACOs to qualify. And it needs to set appropriate restraints to prevent this new system from being abused.

Under existing laws, the specific types of collaboration on which ACOs are based are illegal.  If physicians were to sit down with hospitals to discuss prices and negotiate how healthcare dollars would be divided between them, they would be violating STARK laws and other antitrust statutes.  While the Federal government needs to allow this coordination to occur to make ACOs possible, they also don’t want to allow players to lock up their local markets in an anti-competitive way.

The agencies involved have made a choice to set the bar high.  This will likely restrict ACOs, at least initially, to a relatively small number.  Organizations wishing to become ACOs will need to be completely dedicated to the concept.  Those wavering on the fence, looking to dabble in ACO-hood won’t become ACOs in this initial round.

This is clearly an intentional move from the regulators.  The desire is to start by establishing new healthcare structures and not allow early failures that result from doing an ACO half-way.  While everyone involved clearly believes ACOs can succeed, if they’re going to fail, they want that failure to represent a failure of the model.

The Problem
The proposed rule has many organizations up in arms with concerns spanning a wide range of issues.  In an interview with Healthleaders Media, Nick Turkal, MD, the CEO of Aurora Health Care in Milwaukee introduces the sources of anxiety:

  • Anti-monopoly provisions are problematic for many providers, but particularly those with a presence in rural communities where they may be the only providers for certain services
  • The rule moves very quickly to cost capitation which doesn’t allow time for provider organizations or patients to adapt
  • The proposal sets an inflexible approach to quality, efficiency and reporting that place a very heavy burden on these new organizations
  • Retrospective attribution, a process in which ACOs won’t know which patients are covered until after the fact, makes it impossible to proactively address care and cost concerns
  • In the end, the startup costs look to be much higher than expected

This last point is highlighted in a recent article in the New England Journal of Medicine titled The ACO Model — A Three-Year Financial Loss? The article suggests that the startup costs are now estimated to be 10 times what was originally envisioned when the legislation was drafted. And to recoup that in the 3-year period CMS has suggested will require a 20% operating margin – a level unheard of in healthcare organizations today.

Another critique includes a letter from the American Medical Group Association, an organization representing some of the presumed early movers into the ACO space such as Mayo Clinic, Cleveland Clinic, and Intermountain Healthcare.

Many organizations are question if the current proposal represents even a valid starting point for negotiations.  This has caused a group of Republican Senators to suggest that the ACO Proposal be withdrawn.

Pitch Number Two
While CMS has given no indication that it intends to pull the ACO regulation, CMS Director, Don Berwick, MD, has already begun to present ways that the agency intends to ease ACO adoption.  It’s unclear if these new measures represent a sufficient carrot to get the healthcare establishment on board.

Nevertheless, while we still don’t know what the details will look like, the principals involved will eventually become a part of the way that healthcare works in this country.  Smart organizations recognize that  a great deal must be done to prepare for this. They simply can’t wait for regulatory agreement to occur before beginning that work.

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This entry was posted in Health Reform, Industry Trends by Ben Dillon. Bookmark the permalink.
Ben Dillon

About Ben Dillon

Ben’s a big picture type of guy. He loves sharing new ideas in digital marketing, keeping a watchful eye on healthcare industry trends and seeing how it all intersects. A sought-after speaker, writer, blogger and current SHSMD board member, Ben’s an influential voice in healthcare marketing, helping organizations across the country embrace online strategies to engage health consumers. Combine his industry savvy with his background in software development and you can see why he’s also an important member of Geonetric’s software team, ensuring our content management system stays a step ahead of market needs. Ben holds a master’s degree in eBusiness and strategic management from the University of Iowa and a bachelor’s degree in computer engineering from the University of Michigan. When he’s not traveling and evangelizing, Ben enjoys cooking with his family and playing the Big House with the University of Michigan Alumni marching band.

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