Is There an ACO In Your Future?

December 3, 2010

While the ACO concept gained momentum as a result of the healthcare reform legislation, the idea is nothing new. The Clinton health initiative included similar networks of providers, Accountable Health Partnerships, a proposal that went nowhere. So why should we worry about the current ACO model?

For more on this topic, listen to a question-and-answer session with Greg Mertz that delves deeper into this thoughts below, as well as inquiries from practice administrators, physicians, and others on what ACOs might mean for them.

It is likely that you will be hearing much more about Accountable Care Organizations (ACOs) in the near future as they join the alphabet soup of healthcare acronyms along with PPOs, HMOs, RACs, and others. The basic idea is that insurers like Medicare will contract with organized networks of care that include hospitals, physicians, and ancillary services to care for members of a defined population.

Sound like capitation? It is - on steroids. While the 1980s HMO capitation allowed some physicians to share in savings that might come from lower use of specialists or hospitals, the ACO approach lumps all the dollars in a single pot and the ACO decides how much to pay its provider members. Obviously it is important to understand who will control the ACO because they might get the best deal.

While the ACO concept gained momentum as a result of the healthcare reform legislation (the law mandates that Medicare contract with these organizations starting in 2012), the idea is nothing new. The Clinton health initiative included similar networks of providers, Accountable Health Partnerships, a proposal that went nowhere. So why should we worry about the current ACO model?

Physicians should be concerned for a number of reasons: Perhaps the single largest driving force behind ACOs is the fact that the current fee-for-service model in Medicare is unsustainable. Unless per capita costs are dramatically reduced, Medicare as we know it will fail. Second, the healthcare reform bill is now law, and the public is expecting something in return. Even if the law is modified or repealed, the majority of the public thinks the healthcare system is flawed and our elected officials are not likely to ignore that concern.

If ACOs are inevitable, then what do physicians need to know about them? First and perhaps most critical is that primary-care physicians will be charged with coordinating the care of patients assigned to them. They will decide where the referrals go, be the repository of all patient-related data, and be an active partner in helping patients achieve healthy lifestyles. Unfortunately we really don't have enough primary-care physicians now - expand their roles and we are really in trouble.

Another issue is that payers will negotiate a price for bundles of services based on historic experience for patient populations (a minimum of 5,000 people). Physicians and hospitals will need to work together to discover how to treat patients in a more efficient manner while maintaining or improving quality of care. If the patients are treated at a cost that is less than the allotted amount, the health plan (government) and the ACO split the savings.

The key element in this approach is that large numbers of patients are "locked in" to ACOs, and providers that are not part of the network could see patient volumes drop. Unfortunately, just getting some physicians and a hospital or two together and deciding that they're an ACO isn't enough. Successful management of a patient population requires sophisticated, integrated data systems, a management structure that includes both physicians and hospital leaders, the economic strength to create necessary infrastructure before there are any patients to enroll, and the ability to collect bundled payments from carriers and distribute those dollars to providers. The old WRVU-based physician compensation plans will need to change, and initially, physicians and hospitals will need to function in the schizophrenic environment of both fee-for-service and bundled payments.

2012 seems a long way off and many physicians and hospitals will choose a "wait and see" approach, but when you think of where you are and where you need to be in a couple of years, there is hardly enough time to get ready. You really can't afford to take the chance that this whole thing will just go away.

Prestigious care systems like Mayo, Marshfield, and Intermountain have shown that truly integrated systems can produce impressive clinical outcomes at costs below those seen in non-integrated environments. The major difference? The role of the physicians. To succeed in the ACO world paradigms will need to change dramatically, and physicians will need to learn the skills long practiced by institutional leadership while, at the same time, having a mind open to new clinical approaches and the possible adoption of "cookbook" medicine.

The next few years will see dramatic changes in how patient care is reimbursed and how hospitals and physicians will work together. The ACO is merely one catalyst for these changes. However, ignoring the development of ACOs is unwise. Before you start the journey to become part of an ACO be sure to inventory your current strengths and weaknesses. This will tell you how far you need to go.

Greg Mertz, MBA, FACMPE, is a managing director with consulting firm The Horizon Group. He can be reached at gjm@thehorizongroup.com.