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ACOs Generate High Interest, But Is Bar Set Too High?

 |  By Philip Betbeze  
   April 22, 2011

Aric Sharp has more than 15 years of experience running large multispecialty physician groups in the Midwest, and though he and his physicians are excited about the possibility of becoming an accountable care organization, they are probably not going to undertake the time and investment necessary to achieve it.

Why not? Sharp says as the proposed rules are written now, making the jump to an ACO model as defined by The Centers for Medicare & Medicaid Services represents a bridge too far. "We have a strong interest in being a part of an ACO and yet with the way the rules were set, our interest is diminished," he says.

Let's look at this a little further, because if Quincy Medical Group, a 130-physician multispecialty clinic in Illinois isn't interested, the government might have a problem on its hands as it tries to reshape how healthcare is provided and paid for.

QMG, an American Medical Group Association member, seems a perfect candidate to implement an ACO. It is independent, has a catchment area of about 300,000 patients (at least 5,000 are required for ACO participation), and from Quincy--about two hours north of St. Louis--reaching anything other than a critical access hospital requires a couple hours' journey in any direction.

Sharp is QMG's CEO, and he admits to having read—skimmed in some places—all 429 pages of the regulations. I report on healthcare, and even I haven't yet made it all the way through.

 But Sharp was very interested in participating until he started thinking about risk and when his organization will be ready to take on that puzzling part of the ACO equation. That's what's giving him pause.

According to the initial regs, ACO hopefuls can apply to enter the program with downside risk immediately or after the second year. But Sharp says that unless an organization has a fair amount of experience designing and dealing with risk, that's a difficult sell because "the infrastructure for many markets won't be there by year three."

And what about that infrastructure? In many cases, it will be expensive, from software to hardware to significantly different labor profiles, ACO hopefuls can expect to spend more, at least initially, to keep up with the leading edge of healthcare administration.

A second point is the level of the payoff threshold for either of the two models starts with achieving from 2% to 3.9% savings over traditional fee-for-service costs for the group of patients enrolled in the ACO. "That seems very high," says Sharp. "Pay-for-performance demonstration groups have struggled to get to 2%," he says.

A little more on risk: ACOs with fewer beneficiaries will have to achieve a higher savings rate than those with more. That's a problem, says Sharp.

"If we're really focused on drawing much of the system into value-based reimbursement, it seems essential to have it level across all markets--at least in the beginning--evolving toward a sliding scale in the future."

Another thing is that the savings rate is between 50-60% lower than the CMS's Physician Group Practice demonstration project, he says, which ended in 2010 after five years.

"Most organizations will look at that and cast a careful eye on evaluating the costs on the infrastructure side," he says doubtfully. "Is that enough to attract me to at least be having an opportunity to get some sort of return on the investment?"

A ray of hope seems to lie in a proposed extension of the PGP demonstration project—at least for 10 physician groups that are petitioning CMS to revive the program for two years. Perhaps if the extension is granted, other practices will be allowed to use it as a tool to prepare for ACOs. The program would be modified to more closely align incentives for quality care and cost control to that used for ACOs.

The ACO rules are not yet final, of course. My guess is that the government wants to fill in lots of the gaps through the public comment period, which ends June 6. (Incidentally, I'll start the over/under line on total pages at 858 when final regs are released.)

If, however, some of the risk rules aren't modified, it will be clear that the government intends to start ACOs with a relatively small group of superstar organizations.

The initial regs were careful to note that CMS would likely not approve all applicants to the program. But if they want robust participation, maybe the folks at CMS should schedule a phone call with Aric Sharp or someone like him. I know he'd be happy to give them a few suggestions.

Philip Betbeze is the senior leadership editor at HealthLeaders.

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