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To Be An ACO, Or Not To Be

 |  By kminich-pourshadi@healthleadersmedia.com  
   April 04, 2011

After much anticipation, the public comment period on the proposed Accountable Care Organization regulations from the Centers for Medicare & Medicaid Services began last week. The release of the proposed regs prompts me to ask: Are the potential cost savings worth the effort to establish an ACO, and if so, is now the time to set one up?

These aren’t simple questions to answer.

Donald Berwick, MD, the CMS administrator said in a March 31 perspective published in theNew England Journal of Medicine that the purpose of ACOs is to foster changes in patient care so as to accelerate progress toward:

  • Better care for individuals
  • Better health for populations
  • Slower growth in costs through improvements in care

Should your facility jump on the bandwagon? The answer is likely yes, but you may want to do so with optimistic trepidation. Here are few areas to keep in mind:

Details of an ACO

An ACO is an organization whose primary care providers are accountable for coordinating care for at least 5,000 Medicare beneficiaries. CMS will grant groups of Medicare providers the ability to share in cost savings if they create an ACO.

CMS will require ACOs to report metrics on their clinical processes and outcomes, patient experience, utilization, and costs - - all of which will be calculated to create a per-member cost for treatment in a given timeframe. This figure would be compared to benchmarks the government will establish based on rolling averages of per-beneficiary costs for the ACO, plus an adjustment to account for national expenditure growth.

Now, if the ACO meets the quality and patient perspective benchmarks, and manages to exceed a minimum savings threshold (also set by CMS), then the participating hospitals or health systems will be able to share savings with Medicare. How the money will be distributed among the participants of the ACO is based on the patient’s utilization of services within the ACO. Currently, the proposed regulations do not specify how much the incentives for providers will be.

Participation Concerns

Though there will be some cost savings afforded to ACOs, the overall financial benefit to participants of an ACO is still cloudy. Financial leaders don’t do well with “cloudy” when it comes to numbers, which is why many healthcare leaders haven’t been quick to support this initiative. Nevertheless, under the heading of “he who hesitates,” it may be time to look into participating in an ACO, so you don’t miss out on future market share opportunities.

In another New England Journal of Medicine article, researchers remark that the power struggle between physicians and hospitals will only heat up as ACOs come online. The article’s authors suggest that those who make the first move will control ACOs in a local market for many years into the future.

The authors write, “If physicians come to dominate, hospitals’ census will decline, and their revenue will fall, with little compensatory growth in outpatient services, since physicians are likely to self-refer. This decline will, in turn, lower hospitals’ bond ratings, making it harder for them to borrow money and expand. As hospitals’ financial activity and employment decline, their influence in their local communities will also wane. And it will be hard for them to recover from this diminished role.

“Conversely, if hospitals come to dominate ACOs, they will accrue more of the savings from the new delivery system, and physicians’ incomes and status as independent professionals will decline. Once relegated to the position of employees and contractors, physicians will have difficulty regaining income, status, the ability to raise capital, and the influence necessary to control health care institutions. Therefore, the actor who moves first effectively is likely to assume the momentum and dominate the local market.”

While the thought of losing market share is often enough to stir healthcare leaders into action, there’s a very important challenge to also consider—the legal, antitrust ramifications of ACOs. The new ACO antitrust guidelines indicate that CMS, the Federal Trade Commission, and the Anti-Trust Division of the Department of Justice will all be closely monitoring these organizations. Just getting approval by CMS to launch an ACO may be very time consuming, and may make it more trouble than it’s worth for some hospitals and health systems.

You see, the government realized preemptively that ACOs were a possible avenue for antitrust issues. CMS recognized that healthcare providers would be more likely to integrate their care delivery for Medicare beneficiaries through ACOs if they could also use the same ACO for commercial insurance. This would likely lead to a new delivery and payment system with commercial payers, which might also inspire some unsavory results, such as price fixing and market allocation agreements among competing healthcare providers. All of which would drive up the cost of consumer care.

“The agencies recognize that not all such ACOs are likely to benefit consumers, and under certain conditions ACOs could reduce competition and harm consumers through higher prices and lower quality of care. Thus, the antitrust analysis of ACO applicants to the Shared Savings Program must ensure that ACOs have an opportunity to achieve substantial efficiency yet the analysis must remain sufficiently rigorous to protect both Medicare beneficiaries and commercially insured patients from potential anticompetitive harm,” CMS wrote in the document.

If you are considering partnering with one of your competitors to set up an ACO, the proposed regulations may make it challenging depending on the size and location of your organization. Then again, not attempting to establish an ACO in your area could prove to be a market share blunder, if the authors of the NEJM are correct.

Which brings me back to my original question: Are the potential cost savings worth the effort to establish an ACO, and if so, is now the time to act? The true answer is that every healthcare organization must carefully decide for itself. The best guidance anyone can offer is to be sure to complete your due diligence before deciding to pursue or disregard this initiative. 

Karen Minich-Pourshadi is a Senior Editor with HealthLeaders Media.
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