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ACOs Seen As Tough Sell, Despite Concessions

 |  By John Commins  
   October 24, 2011

Even with approving nods for the changes announced last week in the final rules for Medicare accountable care organizations, observers who spoke with HealthLeaders Media say the program will remain a tough sell for most healthcare providers.

"I'm still not optimistic we are going to see a rush to the ACO door," said Michael Regier, general counsel and senior vice president of legal and corporate affairs for VHA Inc., the hospital purchasing group. "For organizations that today are not quite far along the clinical integration route there is still an enormous investment required in infrastructure. Even with the improvement in rules, I don't know that the opportunity for return of capital is going to be sufficient enough to entice folks into this care model."


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Nathan Kaufman, managing director of San Diego, CA-based Kaufman Strategic Advisors, LLC, is blunt. "My advice is to be a fast follower. Let somebody else do this," he says. "If they figure out how to make it work, these people will quit their jobs and become consultants and you can learn quickly from them how to do it."

On Thursday, the Centers for Medicare & Medicaid Services issued the long-awaited final rule for ACOs under the Medicare Shared Savings Program. After facing a barrage of criticism last spring when the proposed rules were made public, CMS backed down on several key points in the final product.

For example, CMS reduced from 65 to 33 the number of performance measures that providers would have to meet, removed the electronic health records requirement, eliminated financial risk for some providers, and switched from retrospective to prospective identification of the ACO patient population.  

John Kelly, MD, managing director of Chicago-based Huron Healthcare, says that still won't be enough to lure many providers off the sidelines.

"They made a number of changes. They made a number of modifications. But nonetheless, the overall governance and reporting structure, the participation requirements, those remain largely unchanged," Kelly says. "As a result, for a hospital or system to put together an organization that would meet those requirements where the potential return would be greater than the cost, we think many will do the calculation and determine that, at least for now, this is not the direction they want to go down."


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Even with the concessions, Kaufman says ACOs remain fundamentally flawed because patients have "no skin in the game," and are free to go to other healthcare providers, which could bust an ACO's budget because they're held accountable for containing costs.

"The history of HMOs is if the patients don't have skin in the game, even though they know they are a member of the HMO and their primary care gatekeeper is a member of the HMO, if they don't have penalties for leaving the network, 20% to 30% of their care seems to get provided by out-of-network providers," he said.

In addition, he noted, hospitals that try to establish ACOs could risk alienating their specialists, who stand to lose when ACOs succeed in reducing hospital admissions.

"My advice to my clients is the best thing that could happen to them would be that their competitors do an ACO," he said. "Because the upfront investment in infrastructure will deplete their capital and then the political capital that they will have to invest to convince their specialists to participate in a program that potentially could reduce the specialists' revenue is going to drive the competitor's specialists to your hospitals."

Another problem, many observers say, is the sheer number of healthcare reform initiatives already underway, or soon to be launched. These include bundled payments, ICD-10, meaningful use, and value-based purchasing. All of this change is coming during a weak economy, with gridlock in Washington, DC, and with the possibility that the Affordable Care Act could be repealed if a Republican wins the White House in 2012.

Chris Van Gorder, CEO and president of San Diego's Scripps Health, says attempting to launch something as complicated as an ACO in such uncertain times is going to intimidate a lot of healthcare executives "who already have a lot on their plate."

"Don Berwick and CMS talked about eight new programs they just rolled out in the last few weeks, with more coming. They are very excited about it. From my perspective I'm saying 'Good God. Let us absorb some of this,'" Van Gorder said.

"Every time they come out with a new program we have to take the resources to analyze it, figure out how they interface with each other, which ones we want to participate in, he added. "While I applaud their innovation and creativity, it is actually calling a lot of administrative stress and cost as we are sitting there trying to analyze which direction we should take our healthcare system."

With so much to contemplate, Kaufman says ACOs will fall to the bottom of the priority list for a lot of providers.

"I sent a letter to CMS and told them 'You are inundating us with innovation,'" he says. "The same hospitals that are contemplating this are implementing meaningful use IT systems, for both inpatient and outpatient, and having to prepare for ICD-10, and having to prepare miracles and cure people, all at the same time. You have to pick and chose which one of these is going to have legs over the long term and which has the greatest potential for downside, and I think the ACO is that."

Not everyone is down on the prospects for ACOs. David Spahlinger, MD, an internist and senior associate dean at the University of Michigan Medical School, called removing the downside risk in the final rule "a game changer" that should be well received by physicians.

"My first selling point is there is a non-risk option for you to gain some experience without significant downside," he says. "Yes, you might have to make some significant investments. But the world is heading in this direction and we are going to be more accountable for the quality and the cost of the care we deliver."

"Here they are saying 'we will look at your current costs and if you can improve on them you will get some shared savings back. And by the way we will even do it in a non-risk fashion. Over three years if you get more savings you get 50% of that back," he said.

As for alienating specialists, Spahlinger says that the push to keep people out of the hospital is going to go forward with or without ACOs. "CMS is going to pull a bunch of levers over the next five years to try to reduce readmissions and inappropriate care and they are going to micromanage it even if you don't go into this ACO model," he says. "This model allows you to say what our current costs are, we improve upon it and we get 50% of it back."

See Also:
Medicare ACOs Move Closer to Commercial Model Under Final Rule
ACO Final Rules Ease Requirements, Reduce Risk
Two-Tiered U.S. Healthcare System Looming

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John Commins is a content specialist and online news editor for HealthLeaders, a Simplify Compliance brand.

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