ACO Hurdles, Risks, Could Dampen Provider Enthusiasm

Under proposed rules set down by the federal government for accountable care organizations, providers won't know who their patients are until they're through the first year of the new care delivery model. In addition, those anonymous ACO patients may seek healthcare anywhere they want. If they run up a healthcare bill somewhere else, their ACO is still responsible for the cost.

And those downside risks could be considerable when ACOs enter the "two-sided model" in their third year of operations. A report from PricewaterhouseCoopers shows that two-sided ACOs with 5,000 beneficiaries could earn as much as $1.3 million for generating savings of 5%, but could also be penalized $420,000 for cost increases of 5%. For ACOs with 60,000 beneficiaries, that incentive payment for 5% savings would be around $15.6 million, while the penalty for a 5% increase in costs would be $5 million.   

With those kinds of numbers in play, some healthcare executives are openly skeptical about the benefits of joining a highly complex, untested, and potentially punitive healthcare model that prevents them from controlling – or even identifying – their patients.

"I think they are going to have to modify the rules. That's what we're hoping for," Dan Wolterman, president/CEO of Houston-based Memorial Hermann Healthcare System, told HealthLeaders Media. "Most entities out there in the U.S. are not a Mayo Clinic or Geisinger (Health System), where you have large groups and hospitals integrated for years. Most of them are like us, community hospitals, teaching hospitals, dealing with a lot of private practice physicians trying to move this thing forward."

Wolterman calls the proposed retrospective assignment of ACO beneficiaries "a difficult sell" that could discourage many providers from taking up the new model. "First and foremost they have to assign the Medicare beneficiaries ahead of time. You have to know who your patients are to be able to work with them to modify their lifestyle and manage their chronic diseases, and navigate that patient through the complex healthcare system," he said.

Wolterman says he was told that the federal government doesn't want to identify ACO beneficiaries ahead of time, because they don't want providers to skimp on care to keep costs down, a justification that he says doesn't hold water. "The whole concept that they aren't going to assign them to us because we are going to skimp on care -- that just says you don't trust the system," he says. "I don't believe that skimping will happen. You have these people for three years. If you skimp in the first or second year on a hypertensive patient they may come back with a stroke or a (myocardial infarction)and cost a lot more the third year."

Benjamin Isgur, director of PwC's Health Research Institute, told HealthLeaders Media that Wolterman and other healthcare executives are raising legitimate concerns. "That's why we're saying don't underestimate the infrastructure that is going to be required for a successful ACO model," he says. "If you look at the rules, if you aren't already a fairly integrated organization, there are some pretty daunting things there. You have to have EMR working well so you can analyze the data. You are going to have to meet more quality requirements than any other CMS program. You have to manage a population that might be difficult to manage because you might not know exactly who is in your ACO until after the first full year. There are a lot of infrastructure and sophistication issues that organizations should not underestimate."

Isgur identified several "huge barriers" for many fledgling ACOs. In addition to not knowing who their beneficiaries are until after the first year, ACOs also are not closed networks, and beneficiaries are free to seek treatment wherever they'd like. When beneficiaries get care out of network, that accrued cost is assigned to the ACO, even though they didn't provide the care, and probably had no say in the decision making. "You wake up one morning and a significant portion of your population is in Florida for the winter," he says. "When you are dealing with a Medicare population, especially in the upper incomes, you are dealing with a retiree population that may be living in more than one geographic place in one year."

Finally, Isgur says, demonstration projects have shown that Medicare beneficiary populations have significant "churn" -- about 25% turnover each year, further straining an ACO's ability to control costs. 

Isgur says he would not be surprised to see "substantial changes" to the final ACO rules after the comment period ends on June 6. "Most people looking at these draft rules believe there are going to be at least some attempt to alleviate some of the burden," he says. "To be frank, there is negativity in the market place. When these were released, there were 500 pages of rules a lot of organizations threw up their hands and said 'we aren't ready to tackle this.' The government is going to have to revisit these and we can expect to see some change."

Because the federal government is pushing patient choice, Isgur says any change in the rules to help ACOs would more likely involve "a more prospective understanding of the beneficiary population so you can have more accuracy in beginning to manage that population off the bat." That could include some contingencies for ACOs whose patients get a certain percentage of care from outside the service area, perhaps not accruing those costs toward the ACOs average costs.

Wolterman says that even though the risk is capped in the two-sided model, healthcare providers are still on the hook for significant costs. "And the ability to collect that money from private physicians -- and they are proposing to do that with a 25% withhold off their current fee for service -- that is a pretty hard sell to doctors," he says. "Hopefully, they will come out with some more well thought out final regulations this summer. Right now there is a lot of pause out there. We may be willing to take the risk and use it as a three-year teaching demonstration project for our doctors and our system, or we may not if our doctors aren't happy with the terms."

If the federal government wants to grow the ACO model, Wolterman says it will have to return the concept to a shared savings program for all three years and reconfigure other financial incentives and risks. "Those who are far enough along and want to go at risk for three years, fine, let them. I have no problem with that. But allow the rest of America to use this as an opportunity to begin the change of working with their doctors. That is what this was supposed to be," he says.

See Also:
ACOs Shine Spotlight on Physician Employment
Leaders Respond to CMS' Proposed ACO Regulations
The Leap to Accountable Care Organizations