The accountable care organization might be the Department of Health and Human Services’ healthcare reform darling, but some industry players are urging healthcare providers to be wary.
Startup costs to join an ACO—large networks of hospitals, physicians groups, specialists, and ancillary healthcare providers—are likely too high for many healthcare providers to overcome in the near term, according to a report authored by executives from group purchasing organization VHA that was published on the New England Journal of Medicine website.
The authors are joining a growing chorus of constituents that are concerned about the potentially anticompetitive forces that ACOs might wield on the market—from acquiring supplies and equipment to entering insurance contracts.
In the article, Drs. Trent Haywood and Keith Kosel write that HHS is underestimating the anticipated three-year period that it will take providers to recoup the average $1.7 million investment (startup costs and first-year operating expenses as estimated by the Government Accountability Office) in an ACO. For many, even the best-equipped provider groups, it could take seven years or more before they achieve any financial benefit.
Their conclusions are based on the Centers for Medicare & Medicaid Services’ Physician Group Practice Demonstration, conducted between 2005 and 2010, which used a hybrid Medicare fee-for-service and shared-savings bonus payment model to compensate 10 large, fiscally healthy physician groups.
Only two of the 10 participants received shared savings payments in the first year, with only half qualifying for the bonus by year three. The report concludes that groups investing $1.7 million would need a 20 percent margin to recoup their investment within three years.
The authors insisted they’re not discouraging hospitals from exploring ACOs, but are suggesting that flaws, including investment costs, must be addressed or it simply won’t make sense for most physician groups to participate.
“We published the article to make certain that executives fully weigh the risks before becoming swept up in the moment, said Trent Haywood, VHA’s chief medical officer and co-author of the article. He adding that they even took a very conservative approach to their analysis by considering physician groups’ operating expenses for the first year alone.
Because ACOs have yet to prove success, the authors recommend that CMS modify the current model by limiting participation to only the largest and strongest hospitals and physicians groups that could absorb the early losses. Or CMS could change the payment design from an annual model to a cumulative one—allowing for shared savings in which the regulator would assess the aggregated performance of a healthcare provider over several years and reduce the payment threshold for shared saving accordingly.
“We know that CMS successfully implemented a bundled-payment pilot in the past and that it improved quality, generated shared savings and did not pose the financial risks that are embedded in the ACO model,” said Haywood, formerly the deputy chief medical officer with CMS.
Haywood is optimistic that groups such as VHA still have CMS’ ear before it soon decides on ACO participation requirements. CMS has until Jan. 1, 2012 to establish the driving force behind ACOs—the Medicare Shared Savings Program--according to regulations published in the Accountable Care Act.