Building a Fully Integrated ACO The Nuts & Bolts
According to Center for Medicaid and Medicare’s (CMS) Agency for Healthcare Research and Quality, half of the population spends little or nothing on health care, while 5 percent of the population spends almost half of the total amount. And chances are real good that that 5 percent is going to increase as the Boomer swell begins retirement.
A picture is worth 1,000 words.
These two graphs multiplied together were why Barack Obama termed healthcare a “Fiscal Armageddon” and made reform his top priority. Federal Reserve Chairmen who are less political and more numbers oriented have been talking entitlement reform for decades.
So in addition to distributing risk more evenly, as insurance is supposed to, the Affordable Care Act (ACA) also made moves to contain the growth of expenditures by the users in that 5 percent.
With plans to connect payment to quality of care, measure the effectiveness of inputs, share savings from efficiencies with providers, and provide quality care in less costly and more comfortable settings, CMS lays the groundwork so the cost curve won’t shoot off the graph – multiply that $15,000 with 80 million people and there won’t be anything left to outsource to India.
The idea behind the ACA’s Accountable Care Organizations (ACO) and other cost control initiatives is simple: If physicians and hospitals work together to prevent readmissions, duplicate tests and other unnecessary costs, healthcare will be less expensive and safer.
And by building these ACOs right the first time, health providers can lay the groundwork to strengthen themselves in the process.
In a recent Webinar, Deloitte defined hospitals and physicians as “Service Providers” while Integrated Delivery Systems (IDS) of connected providers, often including subacute and disease management companies were “Innovators.” Physician leaders who choose to see the ACO door as an opportunity to develop those Innovator teams may continue as the core but can now share true ownership of the process with other providers.
Physician leaders who decide to create a fully integrated ACO need to identify a neutral third party to act as the Change Agent/Agency and gather the participating providers and other actors. A neutral third party, which may be a Managed Care Organization, part of a foundation, or its own entity, will be legally necessary in order to manage and distribute the shared savings as well as orchestrate the development.
This ACO Agency will have multiple roles both in front of and behind the scenes. The following categories would overlap and break up into a multi-level timeline, depending on available resources and community pressures.
TASK: ACO Workgroup Formation
The neutral party Agency will first have to determine the current capacity for ACOs in the Metropolitan Statistical Area (MSA) based on the number of Medicare members. The Agency should then compare that with potential (and actual, if known) ACO development in the MSA to calculate the number and type of professionals that might be needed.
At the same time, the Agency should inventory the types of providers who physicians want to participate in the ACO. One national physician group Chief Operating Officer recently said he would only need to work with hospitals and Disease Management companies to prevent readmissions. This might especially be appropriate if the DM monitors the use of subacute care providers who may be in the ACO but are outside of the hospital group.
Physicians who initiate this construction should then order the list of potential members within each category according to their preferences. It would be the Agency’s responsibility to approach those agencies, determine expectations, and gain participation in the ACO formation through a Memo of Understanding or Joint Venture agreement. Organizations that agree to participate in the ACO formation should pay a subscription fee to the Agency and make their legal, financial, and other human resources available.
After the initial workgroup is formed, invitations must be extended to community public health and plan officials as appropriate to ensure standards are and needed infrastructure changes can be met. Please note, the Department of Health and Human Services (DHHS) is expected to modify Stark and other Anti-trust laws to accommodate ACO construction, assuming the results will be greater efficiencies and more valuable care – higher quality per dollar.
TASK: HIT/Data evaluation and design
To qualify, the ACO must have defined processes to promote evidence-based medicine, report data to evaluate quality and cost measures and coordinate care. The reimbursement methodology below alludes to values that can only be obtained through data about the patient.
Health Information Technology (HIT) plays a central role in ACO formation, as patient data from all levels of services will have to be used by the PCP or designated Care Manager to increase quality and generate cost savings. HIT can also provide links to Best Practices so that PCP’s can refer to them when making decisions about improving clinical pathways.
Several ACA initiatives including ACOs will only lead to revenue for organizations and providers that can prove efficiency and value through HIT data. While the federal government has yet to establish the benchmarks to be measured against, providers seeing the writing on the wall (or in explicitly in the ACA) can start to design an HIT overlay to generate that data now.
Keeping the ACO work as non-invasive to the healthcare process as possible, the ACO management Agency that facilitated the HIT overlay design should produce the data for PCP review, which will lead to stronger revenue streams. For example, the PCP will be able to see that ACO patients are frequently using the Emergency Room for routine or preventable care. The PCP can reduce those costly and stressful admissions by directing the patient to active Disease Management, Home Health Care visits, patient and family education, all while building a stronger relationship with the primary care team.
Savings like this can be documented, split with CMS, and used to strengthen ACO revenue streams. This care management should allow the ACO team to manage the care of patients more efficiently which will be increasingly necessary with the aging of the population.
Beyond the ACO, this HIT system and data is fundamental to other providers. It will continue to establish a value-based purchasing program in Medicare to pay hospitals based on performance on quality measures, develop plans to implement value-based purchasing programs for skilled nursing facilities, home health agencies, and ambulatory surgical centers.
So to start, the Agency must take an HIT inventory from the ACO members, identify the fields that the PCP’s and Care Managers will need, and contract with a software engineer to design the HIT overlay. While this needs to be started right away, the software must be flexible enough to link with NIH databases about the comparative effectiveness (and comparative costs) of technology and drugs, as this will lead to more shared savings.
Long Run Data Uses
In the long run, data can be used via the Agent to compare actual trends with external “Best Practices” and establish the best care pathways for individual ACOs and ACO networks. Improvements in outcomes will be rewarded financially and this will provide increased leverage for the providers. In sum, the data can help ACOs do more and better with less. And Administrative Services Only customers will be watching.
TASK: Reimbursement and Aligning Incentives
A spectrum of reimbursement possibilities are floating around, spanning the range from pure Fee for Service (FFS) with Shared Savings Bonuses to Hybrids of FFS/Pay for Performance to Episodes of Care reimbursement to Pure Capitation. While DHHS has not released specs yet, providers do know that they will receive a significant share of the savings they generate.
The sample methodology below includes a FFS process for PCP’s and specialists who insist on it and assumes that the individual ACO will join a network to better manage costs and gain leverage. The percentages of each section will depend on negotiations and then practice patterns. These revenues would be distributed through the Agency.
Other healthcare players have been merging into “chains” and “networks” for decades but as one hospital CEO pointed out recently, hospitals and doctors just want to take care of their towns.
Forming an ACO network, partially owned by those providers will level the playing field and can lead to more efficiencies. And again, it is the physicians who can truly generate increases in efficiency and quality.
This reimbursement methodology will be “alive” as many variables in the formula depend on data-illustrated utilization patterns that will pay providers to “use smarter” not just “use more.”
SAMPLE: CMS Risk Adjusted Global Capitation Revenue = ACO per Patient Revenue =
Shared ACO Costs + Appropriate Acute Care bucket (ex: accidental injury) + Medical Group Formula (PCP diminishing FFS or PMPM + Shared Savings bonus + ACO vestment + ACO Network vestment/dividends + Specialist FFS or PMPM) + Hospital (Hospital PMPM + Shared Savings bonus) + ACO Management/ Marketing + ACO Network Management/Marketing
Shared ACO Costs include liability insurance, reinsurance, supplies, will decrease as the network size increases, and should be managed an ACO Network Agency. The Shared Savings bonus will also include attainment of agreed-upon quality markers.
TASK: Funding the ACO and Infrastructure
If Plans are going to benefit from the shared savings in terms of their prices and dividends, then they should contribute significantly for the necessary infrastructure changes. The Agency can project those savings, including expected costs of the status quo, and present these analyses to the Plan during negotiations. If the ACO is going to contract directly with CMS then the split savings or capitation margin can be considered revenue in exchange for private investment.
If the ACOs are more efficient, the shared savings or global capitation mean that revenues are created for working smarter, and the necessary technology and infrastructure will yield dividends.
Private investors are interested in putting their money into solid healthcare ventures. ACOs will become revenue producers and grow stronger via network growth after the initial infrastructure changes. Remember, CMS ultimately wants 40-75% of Medicare members enrolled in ACOs, and the population is aging.
So the Agency should also produce and present the business case needed to approach private investors who want to fund the infrastructure changes (HIT, payment and delivery) in exchange for a share of the Medicare and other ACO revenues (Medigap, HIT software, ACO network development, etc.).
Success Breeds Success
Integrated Provider-owned plans with a committed patient audience can create stronger disease management and HIT programs that both save money for payers, improve patient lives, and create stronger revenues for PCP’s and other providers.
This will be a paradigm shift, but if it works, Success will breed Success and more patients will partake. CMS wants 40-75% of Medicare patients in these ACOs – please refer to graphs at the beginning of this article.
ACO formation continued: IDS Component; Coverage; Member/ Provider Enrollment; Regulatory Changes; Implementation and Initiation; ACO Network development, ownership, and management.
About The Author
Health Economist Jennifer Zaft (firstname.lastname@example.org) understands the dysfunction of the current industry and the promise behind the Affordable Care Act. Currently she is Principal and Founder of The JAZ Group, LLC, a design, management, and HIT consulting company that builds and assists teams of physicians and other providers so they can best meet current and upcoming challenges. Her consulting group includes experts who have successfully started or added to healthcare businesses using Care Pathway Data, Hospital and Physician Liaisons, Finance, HIT, Change Management, as well as Program/Product Development.