Incentives, Motivations Clash Under ACOs

My colleagues and I spend a lot of time and effort trying to understand the forces that are acting upon healthcare leaders these days. If it seems the level of transformation being asked of healthcare leaders is without precedent, it is, at least since the debut of Medicare.

I can think of no other industry where the stated goal of reform is to shrink its overall size and influence on the economy. Yet healthcare is asked to do this.

In many ways, healthcare leaders must balance that priority with the even greater priority of growing their healthcare systems and keeping them financially healthy. If they're participating in ACOs (in some cases, they have no choice), their incentives and their motivations are at cross purposes.

A body cannot serve two masters—except—some contend, in healthcare. Whether or not it is possible is to be determined.

Some recent research brings numbers and statistics to bear upon the predicament. MedeAnalytics, a healthcare performance management company, has identified metrics used in a variety of ACO constructs.

Guess what? They're not standardized.

Until many of the incentives are, it will be difficult—if not impossible—for CEOs to lead their organizations into standard practice protocols for the same reason: It is difficult to serve two masters. One might reward an activity while the other may punish it. Most of the incentives aren't diametrically opposed, but the fact that they are different makes this work exponentially more difficult.

The research report (registration required) doesn't answer the question of how senior leaders can be expected to grow their organization, its revenues, and its profits while at the same time decreasing the cost of care. It does provide some hard evidence that in some cases, healthcare leaders must serve not only two, but many masters.

Of course, I'm talking about the different ACO constructions that are proliferating. One of the conclusions of the research is that commercial ACOs place greater focus on the areas of cost reduction and ambulatory process, while Medicare ACOs emphasize quality outcomes.

These findings get at what I've been questioning for some time as a fundamental problem with the ACO structure at the operational level. It's paralysis not by analysis, but by rules. How can you have one process that would be optimal for one payer at the expense of the other payers with which you have ACO contracts?

If the answer is you can't, then how do you prioritize?

For some answers, I talked with Ken Perez, a MedeAnalytics' senior vice president and director of healthcare policy. He says the reality is that senior executives are making a choice here. Largely, they're choosing to serve only one master at a time, at least until they feel they've got this value-based purchasing challenge figured out with one payer.

"If you're a rational decision maker, you figure out your Medicare share, and whether it's below average," Perez says. "If it's 20% of your business, you care about it, but maybe not as much."

In other words, maybe in that example, you're not interested in an ACO construct from CMS.

"If you're in central Florida, with 90% of patients on Medicare, you're not multipayer," he says. In other words, commercial ACOs hold no appeal for you. "It all comes down to where your bread is buttered."

The point of the new research, Perez says, is that it gives you the rules of the game at a high level. For example, commercial ACOs place greater focus, not surprisingly, on areas of cost reduction and the ambulatory process, while Medicare ACOs emphasize quality outcomes.

The metrics overlap to some degree, but participation in more than one ACO means you either have to implement different standards and protocols for each patient population, or you have to be willing to lose out on some metrics to better meet others, and to keep from driving your clinicians crazy. That depends on your payer mix, of course, as well as your ability to leverage data.

But what if some of the incentives are diametrically opposed—that is, what if they work directly against one another?

Try not to worry about that at first, Perez cautions, when I push on that question. For example, he says, if you do decide to go multipayer in your ACO strategy, there is tremendous overlap in areas such as breast cancer and colorectal screening. Those are no-brainers. But the overlap continues into other high-revenue areas, such as cancer treatment and diabetes.

"If you're going to really focus on something that has an impact, those are common across Medicare and commercial ACOs," Perez says. "Disease-focus areas are really very important."

Once you figure out your strategies and how incentives overlap, if you are considering developing a multipayer ACO, data is going to be critical. You need to have a performance management system, Perez says.

"You need to know how the entity is doing, because if you don't have midstream connections, you'll wake up at the end of the year and [you'll have] missed all these targets," he says, referencing the performance targets that commercial and government payers require ACOs to meet in order to share in financial rewards.

"You have these gainshares, but if you don't meet them, you're hosed," he says. "The way to dispel that is to put in place the machinery for the weekly or bi-monthly reporting on how you're doing."

The bottom line:

• "You can't nail all 33 measures," says Perez, referencing the CMS ACO quality measures. "Focus on 10 or less, depending on their share of your business, and that have the most impact for your business."
• Don't be schizophrenic—there rules are not massively different (between commercial and Medicare ACOs). Leverage your technology capabilities across the entire patient base. "Clinicians have to feel you're not schizophrenic," says Perez.
• Focus on operational integrity and unity, because margin pressures are only going to increase.

That's the way to balance priorities and manage through the "two masters" problem.