Large Healthcare Purchaser Takes Risky Leap Into ACOs

Almost a year ago, the California Public Employees' Retirement System (CalPERS) approved a pilot program—essentially an accountable care organization (ACO)—for state retirees in the Sacramento area that planned to reduce costs while improving healthcare quality and service.

The ACO, which began operations on Jan. 1 with more than 41,000 members, now has three months under its belt. And in that time it has provided insights and lessons on what challenges ACOs could face in the post-healthcare reform landscape.

CalPERS, the nation's second largest public purchaser of healthcare services, agreed to proceed with the initiative led by Blue Shield of California, Hill Physicians Medical Group, and Catholic Healthcare West, which operates the local Mercy hospitals in a three-county area around California's state capital.

The idea was that CalPERS members in the Sacramento area, for a reduced premium, could use this "virtual integrated model" in which each of the three entities will share patient data and coordinate patient care.

The idea was that this ACO also would serve as a demonstration to see if it was possible to take unnecessary costs out of the healthcare system by using shared savings as an incentive. Beginning in January, all three organizations agreed with CalPERS to maintain healthcare costs for the ACO at rates at or below 2009 levels in the Sacramento area.

If they deliver care in 2010 at rates less than 2009 levels, they will keep that difference—sharing in the savings; however, if costs climb above 2009 levels, they would be responsible for paying the difference.

Here's what they've learned from these three months.

While the pilot ACO is up and running, it has run into challenges along the way—some anticipated, others unexpected surprises, according to Juan Davila, senior vice president of network management with Blue Shield of California.

One of the larger difficulties occurred in the area of health information technology (IT) and transferring data among the entities. "Part of it is all of us have a different platforms. Ours [Blue Shield] is ancient. Connectivity to that platform is actually very difficult," Davila says.

Making sure they had connectivity and access to the same data "actually proved to be much harder than we thought," he adds. "While we had to bring people in, we're now we're at a point where much of [the data] is able to be seen by everyone."

Efforts are now being made to revamp all of their systems. "There's certainly a ways to go . . . but I'm optimistic that in the next couple of years, we'll be in a much better spot."

However, merging different healthcare cultures and enhancing communications among the organizations proved to be easier than initially anticipated. "It's kind of ironic. I expected IT to be easy but it hasn't been. I expected the kind of change management of the culture in hospitals to be harder, but it's proven to not be as bad as I expected," Davila says.

"The key has been that all three organizations—"from top level down to mid-level management"—have been there to help drive solutions. Subteams—ranging from clinical to financial—continually meet to address problems and find answers. "The neat thing is that's going quite well," he says.

In terms of providing quality care while holding down costs, Davila says it appears the pilot is moving in that direction. He notes that the three organizations do "have skin in the game to make sure" they deliver quality care while holding costs. "We've moved a long way toward that," he says. They are now looking at a "ballpark of over $10 million" in savings—by the end of the year getting interventions in motion that will reduce costs while maintaining quality.

This includes focusing on areas where to provide quality care such as with high risk OB cases or joint or hip replacement. It includes avoiding multiple, repetitive lab tests. And, it also includes repatriation when a plan member is admitted to a hospital outside the plan—a high-cost problem.

"What happens many times is that members go to a non-CHW hospital—and historically no one at CHW was watching that or paying attention if someone was five miles away at a different hospital," he says. Now, a process has been put in place to repatriate individuals when they are medically stable back into the system "as quickly as possible."

The biggest change, though, has been doing business with providers. "Instead, of being in silos and separate, we are all now in a room from the medium levels to the highest levels of the organization—working together to better deliver service, higher quality and get costs out of the system," Davila says.

"It's one thing to talk about [ACOs]. It's a totally different deal when you're doing it," he says. Working together, the entities need to realize they have to get rid of past hurts—what may have occurred to them even 15 years ago—which does come up.

"The neatest thing is the dynamics between ourselves. It's different. I think that's what a system needs—you need to get out of [arguing]" and about who wins and who loses. "I could win or you could lose, and vice versa and none of us should care. Now we care. In fact, it's important that nobody loses. It's the patients or clients who gain," he says.

The biggest lesson so far from this arrangement is that it is important to build trust between the providers themselves and the health plans, says Davila.

"This only happens when you lay all the cards out on the table and start to take a risk. We took a risk of including all these cards on the table [which] could have been used against us—if they chose not to participate," Davila says. "To build trust you've got to take a bit of a risk, but I would say it's sure been worth the effort."

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