Skip to main content

Can Medicaid be a Model for ACO Innovation?

 |  By Philip Betbeze  
   July 26, 2013

Many hospitals and health systems have experimented with the ACOs concept by working on small population groups such as their own employees, but they don't have the scale to bring the science and technology to the equation. That's where Medicaid might be an ideal proving ground.

ACOs have been with us for a couple of years now, but most hospitals and health systems, if they have experience in them at all, are most familiar with the Medicare Shared Savings and Pioneer programs.

More recently, commercial payer-provider partnerships have become more common, as big-brand health plans are partnering with physician practices and several hospitals in a regional array to construct accountable care organizations that seek to lower healthcare costs and eliminate waste.

Medicaid has been left out of many of the innovations toward accountable care. But perhaps, as the Bible passage says, what was last may be first.

Part of that Medicaid experimentation stems from the fact that providers, including hospitals and physician practices, are cautious. Where things can and will go wrong is in linkages in monitoring patients, especially the highest cost patients who account for the majority of healthcare spending.

"There's a whole revolution going on in that space," says Tom Enders, senior managing director at Manatt Health Solutions. "Those changes [in care protocols] have to be made in advance of the payment model changing."

Because of that, systems that are conservative want to leverage a partner's capability to get into the business without putting themselves all in without a payment model that supports it, Enders says. Aetna and United are most into this, but they have their own prescriptions for how to build commercial ACOs. Most of them involve the health plan doing a lot of the medical management work.

"The philosophy behind them can be described as a tug of war," says Enders. "Providers feel like they should do the medical management," he says.

Where you see innovation in business strategies, structure, and payment methodologies surrounding accountable care organizations, Enders is usually right in the thick of it, especially as it concerns governance and contractual structure.

His firm has been engaged by many in setting up the structures behind these entities, which often can take the form of joint ventures or contractual agreements. But the big difference between what he and his team are setting up and Medicare Shared Savings, for example, is that they are often full risk.

This is a contrast to Medicare shared savings, and more akin to the CMS Pioneer ACO program, which several organizations recently dropped, presumably because they couldn't make the numbers work. But further examination of the Pioneer "dropouts" will reveal the fact that providers have a tough time stratifying their patients, which is the hinge on which shared risk pivots.

"There's certainly a perspective that payers have spent years developing the claims-based system, and that gives them the ability to stratify patients," he says. "Patient stratification requires algorithms that are able to draw on a large data set and provide predictive modeling. Payers have that and providers don't. So providers who are rapidly transforming themselves into systems of care realize they don't have the ability to manage risk or manage care from stratification of patients."

Part of that is because of scale. While many hospitals and health systems have dipped their toes in the water surrounding ACOs by working on small population groups such as their own employees, they don't have the scale to bring the science and technology to the equation.

That's where Medicaid might be an ideal proving ground, says Enders.

Much of the thinking behind Medicaid population health management experimentation shows that hospitals and health systems, as well as state Medicaid payers, are leaning toward a prepayment model.

Otherwise known as capitation, it would require providers to manage toward a certain per-member-per month pay scheme, not unlike many structures that have been attempted in the past. But with today's greater IT capability, Enders says managing toward a number that will be profitable for providers and reduce cost for payers is more achievable, without restricting care.

The prepayment model is "not a big issue if you have 5,000 in your medical home, but if you have 100,000 or 200,000 it's a big deal to stratify those patients who require more or less assistance and it's expensive to build," he says.

"It requires access to lab, pharmacy, and claims data, and linking all that data together around the patient, that investment can range anywhere from $50 million to $200 million. Most don't have that kind of money and can only get it through partnership or contract."

Most of Enders' work is related to one or more of the groups involved in this tug of war, as he provides guidance in provider strategy, system development and formation, JVs, and linkages between institutions.

What will determine success?

All parties in these relationships have to produce a value proposition in terms of lowering the cost trend.

"With a commercial ACO, you have to create an affordable product that employers will buy," he says. "That includes a limited network footprint.

But this evolution is not entirely commercial.

"The Medicaid space is where a lot of this is going on," he says, particularly because Medicaid is going to be disrupted by the entrance of the insurance exchanges. To what degree is still unknown, but Medicaid is already a poor payer in the eyes of providers, so if there's any way to better manage the dollars that are available, it makes sense to start there.

"Providers want to draw out fee-for-service on the commercial side, so they're going slowly," Enders says. "A lot of my clients are still high-cost so they are cautious, but they're moving much more rapidly on the Medicaid side. They are in large part the Medicaid providers already."

He cites one project in Alabama being piloted with the help of the American Hospital Association. It's a Medicaid reform program that is set up around regional care organizations. These multi-stakeholder organizations would contract directly with the state on a prepaid basis to cover Medicaid beneficiaries in the designated territory.

Legislation to implement the program has passed, and Enders says the regional organizations are now in the process of working through details in how to implement them and the regions will be announced in the fall.

"That's a concept for Medicaid that is very innovative," says Enders. "Oregon has done a very similar thing and it's transferable for other states. In effect they're Medicaid ACOs."

Deciding when and how to enter an ACO of any kind is putting unique pressure on leaders of hospitals and health systems, Enders says, but that breeds dynamism of action as many of these structures ramp up.

"Many feel there is a window of opportunity to line up their team," he says. "In a lot of markets, everyone's talking to everyone, so if I'm not forming or participating in an ACO, that could materially affect my future chances."

One thing is clear: Reimbursements from Medicaid and Medicare will go down, and commercial reimbursement will also go down to reach the level of inflation, Enders says.

"It's a time of very significant change," Enders adds. "Many of these CEOs realize they need to prep for an alternative model and need to test and organize within their organizations."

Philip Betbeze is the senior leadership editor at HealthLeaders.

Tagged Under:


Get the latest on healthcare leadership in your inbox.