The picture above is not exactly on point, but who can resist a little boy “embracing” a bear.
Per the Centers for Medicare & Medicaid Services (CMS), Accountable Care Organizations (ACOs) are groups of doctors, hospitals, and other health care providers, who come together voluntarily to give coordinated high quality care to the Medicare patients they serve (and hopefully saves money in the process).
ACOs are a product of the Affordable Care Act of 2010 (ACA). The theory behind ACOs was based on the recognition that we have a fragmented healthcare system that contributes to poor quality and higher healthcare costs.
Hospital-based health systems aggressively jumped on the ACO bandwagon starting with the passage of the ACA and, in the process, established relationships with physicians, ancillary providers, long-term care organizations, etc. Many times these Health Systems acquired (especially physicians) rather than established collaborative agreements with these community providers.
As a result of these acquisitions and collaborations, the hospital-based ACO and, in turn, the parent health systems became an even greater force in their communities. They were also in a better position to negotiate with payers because of the increased leverage they had as a result of their enhanced local provider presence.
This also had a negative impact on health systems, since it did increase their fixed costs and made them less flexible to respond to competitors of different forms, especially in the outpatient and home setting.
Have ACOs lived up to their promise?
There have been many articles and research studies on the value of ACOs to determine if they have lived up to their promise of increased quality and cost-efficiencies. The consensus of research seems to be that ACOs have had a positive impact on quality, especially with regard to continuity of care for individuals with chronic diseases.
The jury is still out on the cost savings side, especially for hospital-based ACOs.
Recently CMS has required that hospital-based ACOs to take on both up-side and downside risk.
Historically, ACOs have had the ability to take on only upside risk (or rewards), but at a lower percentage of potential gain vs. what they would have received if they were also willing to take on downside risk.
As I have noted in prior blogs, I am believer in risk/value-based contracting with downside financial exposure for hospital systems. I support this approach, not in a vindictive way, but because I want hospitals to survive and prosper in this new world of healthcare.
I also believe that if we are to successfully evolve from a “sick-care” system to a true “health” system, hospitals need to enter into the appropriate payer contracts that reward them for keeping patients healthy, not just for providing additional services.
Breaking down the silos inside and outside the walls of the hospital
I have worked in the healthcare industry in a variety of sectors since the early 1980s and during that period of time, I constantly heard the refrain about the need to break down the silos of healthcare both inside and outside the walls of the hospital.
The fee-for-service payment methodologies that exist today “the more you do the more you make” creates no “real” incentives to break down these silos. ACOs that have downside risk exposure along with payment methodologies such at capitation and bundled payments have the real ability to break down these silos.
As long as the majority of payments from payers is based on the fee-for-service payment methodologies, hospitals will have no “real” incentives to break down the silos that prevent value-based care from being provided. It also does not provide any “real” incentives to keep people healthy.
Per the dictionary, “Accountability refers to an obligation or willingness to accept responsibility for one’s actions. … When roles are clear and people are held accountable, work is accomplished efficiently and effectively. Furthermore, constructive change and learning is possible when accountability is the norm.”
While this definition was not met for ACOs, it really does apply and was ultimately the goal of the original drafters of the ACO concept. ACOs must be held accountable, and only through downside risk along with appropriate rewards will that occur.
If we want to achieve our goals of a value-base healthcare system as well as an overall healthier society, we need to create the proper incentives in our payment methodologies. As I have stated repeatedly in past healthcare blogs, “a healthcare system is shaped by what you pay for and how you pay for it.” The “how you pay for it” gets to the heart of the “risk” linkage with regard to hospital-based ACOs.
All of this is not to say that physician-led ACOs should not have risk but, given their size, these independent practices are much more financially vulnerable. Payment models for physician-led ACOs need to recognize the current value they are bringing to the ACO world, and consider ways to gradually add a risk component.
Hospital-based ACOs are looking to exit (or walk away from) Medicare Shared Savings Programs if required to take on downside risk
Per a recent article (April 26, 2019), “Just over half of accountable care organizations (ACOs) said they would consider leaving (or walking away from) the Medicare Shared Savings Program (MSSP) if required to take on more downside risk, revealed a study published in Health Affairs.
Thirty-two percent of ACOs said they are extremely or very likely to leave, and 19 percent believe they are moderately likely to leave.
The results also showed that there were significant differences in responses from physician-based ACOs and hospital-based ACOs.
“Approximately two-thirds of physician-based ACO respondents reported that they were likely to remain in the program if required to accept downside risk, compared with only about one-third of hospital-based ACOs,” the team said.
“This reflects the fact that physician-based ACOs have performed better, and a higher proportion of these ACOs have earned shared savings, than hospital-based ACOs. Physician-based ACOs have generated substantial savings by reducing spending for both inpatient and outpatient hospital services, which has not been true for hospital-based ACOs.”
Hospital based ACOs and well as hospital systems in general are doing themselves “no favors” by not accepting risk.
By entering into “risk-based” contracts, hospital systems will create the appropriate incentives to address their supply-chain costs. Hospitals would also find it easier to engage physicians in addressing the cost side of the equation if physicians also understood and embraced the risk-based payment methodologies.
Under risk arrangements, hospitals would also have even more motivation to develop strategic relations with their vendors (medical device, etc.), such as what the auto industry does with their suppliers.
These risk arrangements will also allow hospital systems to be better prepared for the new world of healthcare. In this new world there will be winners and losers and different types of competitors, especially in the outpatient and home setting.
As we have also noted in prior blogs, hospital inpatient admissions are decreasing and patients have a higher acuity. Hospital inpatient care has been evolving to some form of a center of excellence. As hospitals look to find ways to expand their revenue opportunities they should be looking to bundle services for prospective patients and employers. These bundled services would and should have a risk-component tied to them.
Accepting risk-based contractual arrangements with payers is also better than competing in the retail marketplace where hospitals are much more vulnerable to lower priced regional and national competitors, especially as the result of the increased push for transparency.
Payers: Medicaid Managed Care, Medicare Advantage, Commercial Carriers, Self-insured employers should be pushing risk contracts.
As noted in this article in Health Affairs, there are two ways employers should push ACO arrangements to evolve:
“As experts jest, if ACO providers don’t take on the financial risk of caring for their population of patients (for example, only shared savings), it is like “vegan barbeque…or gin and tonic without the gin.” Payers’ ability to change provider behavior is likely to be negligible if they only reward providers with small bonuses for effective care a year after the fact. Greater financial accountability would encourage providers to promote preventive care and look for ways to cut waste.
In fact, without downside risk, health systems may take advantage of the ACO model. Experts argue that health systems may take on the practice of “ACO squatting” (that is, they form ACOs, take on patients, but avoid looking for ways to cut waste, reduce total cost of care, and improve quality) and that “a migration to two-sided risk for ACOs…after a certain number of years, so that there is a cost [downside financial risk]…would help to address this issue.”
Alignment of Patient Incentives
“Providers would be loath to assume financial risk for a patient population without the ability to manage their care. Commercial payers can modify patients’ out-of-pocket spending to encourage them to seek care only within the ACO. For example, by treating the ACO as a narrow network, the payer could pair it with a benefit design that offers lower premiums and minimal out-of-pocket spending for care from an ACO provider but little to no coverage for care sought outside of the ACO.
If the vast majority of patient visits occur within the ACO, it might be more likely to stay within budget because those providers can coordinate care and reduce redundancies. In addition, the ACO leadership can communicate with ACO providers about the cost and quality implications of their care decisions.”
If Medicare Advantage and Medicaid Managed Care Plans are not pushing for risk arrangements with Hospital-based ACOs or health systems, and these Plans continue to rely on some form of fee-for-service, then the true payers, Medicare and the individual states, should be reevaluating their own payment formulas with these entities. The payment formulas maybe too rich and do not provide enough incentives for these Plans to enter into risk arrangements with the above providers.
If you have been a reader of my blogs, you know I like sprinkling in health economic concepts into them. It is natural for individuals and other entities to make decisions based on their own self-interest.By not embracing risk in a manageable, but continuous fashion, hospital-based ACOs as well as hospital systems are sacrificing their long-term self-interest for immediate gain.
Active purchasers of healthcare services will continue to demand value in the marketplace, and for hospital-based ACOs and hospital system to meet this demand they need to break down the silos which can only be done effectively by embracing risk-based contracting tied to appropriate rewards.
Finally, we, as a society, are recognizing the need to focus our attention on population health, not only because it is the right thing to do, but because it also represents the best uses of our resources. We will not be able to achieve our goal of population health unless hospitals fully embrace it. One true way to expedite the transition to population health is for hospitals and ACOs payment methodologies to incorporate in their reimbursement contracts the appropriate risk/rewards that incent them to keep people healthy both inside and outside the walls of the hospital.