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Alternatives to ACO Strategies Emerge

By Doug Desjardins  
   June 12, 2014

While joining an ACO can be the right decision for some physicians practices, the cost savings under this model are still being tested. Some doctors are banding together as independent physician associations, which improves their ability to practice independently, but still nets them better insurer reimbursement rates.

This article appears in the June 2014 issue of Managed Care Contracting and Reimbursement Advisor.

Physicians are hearing a lot of talk about accountable care organizations as the wave of the future, with many being recruited to join and others trying to make themselves appealing with extensive metrics detailing their quality and efficiency. But what if an ACO is not right for you?

Well, you're not alone. About 60% of physicians are not committing to an ACO, according to recent research in the journal Health Services Research. There are alternatives to ACOs that can be a better choice for some physician practices, says Monica Kaden, MBA, ASA, principal with Fischer Barr & Wissinger, a ­leading accounting firm in New Jersey, and an expert in valuing medical practices.

It is not necessarily in the best interest of a group of physicians to join a hospital or ACO, or to merge with another group, if they already have good contracts with insurance companies, operate efficiently, and are profitable, she says.

"We have a client, a large medical group, that is independent, highly efficient and profitable, and has excellent insurance contracts," Kaden notes, "There is no incentive for them to join another large medical group."

All physicians, whether independent or in a group, must keep up with the demands of regulation, such as having electronic health records and meeting HIPAA requirements, Kaden says. The onus is on the physicians to make sure they are keeping up with these requirements, but if they can, she says there is no urgency to merge with others.

Many specialists, especially in New Jersey, have maintained their independence, Kaden notes—by purchasing the necessary electronic health records and making the conversion themselves.

Compliance a Concern
Many practices have a staff member who is knowledgeable about the privacy laws, HIPAA requirements, and other concerns and can ensure the practice is compliant. Having this kind of resource can make it easier for a practice to avoid ACOs or other collaborations, Kaden says.

"As long as the practice has someone or a few people whose job it is to remain current with the regulatory demands, a practice can remain independent," she says. "Many physicians would prefer to remain independent and in charge of their practices as compared to being employed."

Kaden notes that joining an ACO can be the right decision for some practices, but she cautions that the cost savings under this model are still being tested.

"The jury is still out whether the ACO model will remain in the future," she says. "Though the healthcare industry is changing permanently in many respects, we are still far from socialized medicine. Many physicians still have the opportunity to remain independent and viable, though it requires increased effort and investment on the part of the physicians."

Doctors Expanding Services
Some physicians are changing their practices to specialty care that seems to offer a more promising revenue stream, says Bill Bithoney, MD, a board-certified pediatrician and a managing director at BDO International, the fifth largest accountancy network in the world. Bithoney formerly served as CEO, CCO, and CMO at Sisters of Providence Health System in Springfield, MA, where he developed a model ACO. Many of these physicians are specializing in weight loss programs.

"They're looking for other ways to make money rather than relying on the typical care they have provided in the past. A lot of dermatologists are learning to give injections because that can be profitable even in the new healthcare arena," Bithoney says.

"It is similar to what happened 10 years ago when we saw physicians banding together to start physician-owned hospitals. They were looking for a way to stay profitable."

Physicians also are banding together as independent physician associations (IPAs), which improves their ability to practice independently but still nets them better insurer reimbursement rates, Bithoney notes. Partnering with a hospital can also up physicians' negotiating positions, he says.

"Anything you can do to gather together as a group of physicians is going to be helpful. You will always have more negotiating power and more security than if you are on your own."

Micro Practices Emerging
Concierge practice groups can be attractive, Bithoney says, particularly because physicians can remain profitable while providing more personal care to fewer patients. A practice that has only 600 patients and charges them $1,000 a year for concierge medicine is already earning $600,000 per year and can still charge for reimbursement, he notes. Not a bad deal.

A newer concept is the "micro practice." There are only about 100 operating in the country so far, Bithoney says. The premise is that the practice dramatically cuts its overhead costs by caring for a smaller number of patients and booking fewer appointments each day, he explains. Typically the micro practice is a single physician working with an assistant and no one else.

"It's a practice with essentially no overhead," Bithoney says. "Instead of seeing 50 patients a day, they see maybe 12 or 15. They're still able to bill insurance, but by eliminating all the overhead physicians can do fairly well with this model."

A micro practice requires good software to make streamlined staffing possible, so that cost has to be factored in, he says. The practice must be highly efficient to work. As part of concierge care within the micro practice model, some physicians are also negotiating with insurers to pay for Skype and FaceTime visits, Bithoney notes.

Choose What's Right for You
What path to choose? It often comes down to personal preferences and priorities, Bithoney says, adding that the lifestyle questions are as important as the hard numbers. An ACO or hospital employment may relieve some leadership pressure, for instance, but concierge service will mean being on call 24 hours a day and not having your patients covered by another doctor.

"I think the doctors who have remained in private practice have an independent streak," he says. "That can still work for you if you are tremendously efficient and choose your practice style carefully. But for so many physicians, there is an appeal to joining forces with others."

IPAs are becoming more attractive to some physicians who don't want to go it alone, but are concerned about the costs required to join an ACO, says Andre L. Lee, DPA, FACHE, an adjunct faculty member at Kaplan University School of Health Sciences and a healthcare administrator with more than 35 years of experience, who has served as CEO of three hospitals. ACOs may not admit physicians who do not meet their standards for electronic health records and other technology, he notes, and physicians are skeptical about recouping their investment.

"An IPA or a similar group offers them the economy of scale without completely taking over how they practice medicine. They are still independent physicians in a sense, but they get some benefits from being with the group," Lee says.

He cautions that physicians sometimes drag out the decision-making process for too long because they are uncertain about the investments required for an ACO or the potential savings from it or other alternatives. In particular, he says, doctors can be too hesitant about committing to an electronic health record or other software system because they are afraid it will be outdated by the time they get it. It most likely will be, he says, but that is the nature of all software investments.

"Physicians are facing a challenge with these decisions, but you have to choose something," Lee says. "You can't go on the same as you did five or 10 years ago, so it's up to you to choose a model that works for you."

National Companies and Private Equity Options
When a hospital alignment does not seem to be the right choice, physician groups have their pick of several national companies to join as a smaller practice while reaping the benefits of a large organization, says Fred Davis, MD, founder of the physician practice management company ProCare Systems.

"There are some national companies that have practices in several states and allow those groups to have some sense of autonomy, but there is also corporate control, says Davis. "The centers are individually owned, but part of a larger group. They have to operate according to structured rules and regulations, and you are bound by contractual arrangements."

The ability to achieve a balance of centralized corporate and local decision-making will separate the losers and winners among these corporate entities, he predicts, noting that private equity also is breaking into the medical practice market. Many private equity deals are meant to occur for a certain number of years before a sale or going public. When that next iteration happens, there is a payout for physicians.

"The physicians give up a portion of control of their practices for the promise of a payout in the future," Davis says. "They have to subjugate their individual needs to the needs of a bigger company, and understand that the stronger and more successful the company is, the more individual value will be created for them in the long term.

Unclear How ACOs Will Split the Cost Savings
The big selling point for ACOs is that they will improve quality of care while also lowering costs, and the physicians can share in those savings. But just how much physicians will get is not yet clear.

Analysts from Johns Hopkins University in Baltimore suggest that the most successful of the first 360 ACOs not participating in Medicare's shared savings program will receive a bonus of $5.2 million each, according to an article in the Journal of the American Medical Association. Sharing that with member physicians means each individual participant will collect several thousand dollars, they say.

How the money is split will affect the success of the ACO movement, the authors suggest. Shared savings should be distributed according to dimensions that recognize performance, equality, systematic disadvantages, luck, and team contributions, they say.

"Distributional fairness is intrinsically important as an ethical matter," the authors write. "It is also instrumentally important. For example, if shared savings plans treat participating clinicians unfairly, those clinicians may be less likely to invest fully in the ACO's mission, undermining the likelihood of success.

Even if the division is fair, physicians shouldn't expect payment any time soon. The distribution question won't be germane until the ACOs actually show savings, and that may be a while, says Laura Beerman, director of customer segment analysis at Decision Resources Group, a consulting company in Burlington, MA. "Earning any meaningful amount of money in the first few years is unlikely, and even then it will be offset by the investment required by the member physicians, she explains.

Beerman's company, which monitors ACO activity, has data showing that 70% is a typical percentage of shared savings allocated for physicians. Primary care physicians receive the largest share, as much as 90% in some outlier cases. A 60% share for primary care is closer to the median, she says.

"There also is a portion of the shared savings that is usually put back into supporting or expanding the infrastructure of the ACO," Beerman explains. "We have seen some cases in which the ACO says that for the first year or two years, any and all of the shared savings will be put back into the infrastructure.

How much of a reward will make physicians feel their investment in technology and other ACO requirements was worthwhile? Beerman says that question is still open, but she encourages a healthy skepticism in doctors.

She understands physicians wondering if ACOs are just a dressed up version of HMOs, PPOs, and capitation. A few years from now the effort may not even be called accountable care, Berman says, depending on how successful ACOs are.

But the overall concept will stay, she believes. "Two years from now we may talking about ACOs or about value-based reimbursement in general, but that train is leaving the station," she says.

"There are so many commercial ACOs now, and you see a lot of payers dedicated to risk-based models with their physicians. Physicians are right to be skeptical, but be adaptable as well because value-based reimbursement is here."

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