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Regional 'Super-ACOs' May Relieve Small ACO Risk Problem

Analysis  |  By Philip Betbeze  
   May 17, 2018

Minimum patient thresholds and high investment levels can be hurdles for most regional health systems to participate in ACOs, but a new collaborative ACO could overcome those challenges.

Managing an ACO is tough.

Even in Medicare Shared Savings ACOs with no downside risk, providers who follow care protocols, ensure patients have yearly wellness visits, and effectively manage metrics to decrease spending on Medicare beneficiaries may learn that their ACO didn't meet benchmarks, and they don't qualify for a shared savings check.

Frustratingly, the reverse is also true.

Those who joined the program and made no substantive changes managing their patients sometimes meet targets and get the check.

What gives?

Small ACOs, huge risk

In large part, says Rachelle Schultz, president and CEO of Winona (Minnesota) Health, it's because of the variable risk component for ACOs with relatively small numbers of attributed lives.

Winona Health's current ACO, even with five rural partners around the state, consists of about 12,000 people.

"The data over the past few years suggests the size that's needed is in the 100,000 range," Schultz says. "[The ACO] is something we all want to continue and even though it's not the end-all and be-all, it's the right pathway to transformation, and at least moves that work forward in the most positive way and removes that risk component."

Winona Health is forming a new, larger, collaborative ACO with other health systems using the administrative services and regulatory expertise of Caravan Health.

Caravan Health was founded by community hospital CEOs and physicians to administer and provide operating advice to smaller hospitals and health systems that want to participate in value-based reimbursement programs.

"When you look at the little ACOs, you have significant variation, which means you could have one really positive year and one really negative year," Schultz says. "At about 100,000, the statistical variance gets addressed so you don't have those random huge swings."

No rhyme or reason

Lynn Barr, Caravan's CEO, says the idea for "super-ACOs" came about when the company discovered that some of the 38 ACOs for which it collects and reports data were inconsistently performing.

But Caravan couldn't nail down a reason for the inconsistency. In fact, savings and losses swung wildly from quarter to quarter and year to year. Since Caravan tracks progress made in transformation of care protocols along with statistics, there should have been a pattern.

There wasn't.

"We track effort, and we know who should be having savings and who’s doing the work and who's not, and there was no correlation with anything," Barr says. "We finally hired actuaries to examine the data in 2016, and they found that in the aggregate, the data is consistent but individually it’s not."

Caravan's solution? Combine the smaller ACOs into one or two big ones. The company took the idea to its ACOs and made the pitch to build two ACOs out of the dozens ready to renew for 2019.  

"Instead of having 23 ACOs, we should have two: one ready for risk and one that isn’t," she says, adding that she's stunned by how well the company's clients understood the reasoning and bought into the collaborative ACO idea.

"Size matters, and insurance companies know this," she says. "Government is saying it's going to make providers the payer and, fundamentally, you have to pool your lives and your risk. If not, you’re randomly going to win or lose."

Collaborative ACO mechanics

Caravan ensures the health systems involved in the ACOs each have their own steering committee, and the individual hospitals or health systems are rewarded based on how they perform on leading indicators, individually.

"They don’t get paid on how much they save, because we can’t tell that," she says. "If they don’t meet the benchmarks, they go into remediation and, if that's not successful, they leave. Every community has one vote in the ACO."

Caravan is urging participants that are ready to take risk to move forward because it's potentially more lucrative.

"We’re aggregating all these participants under one umbrella, so they can get reliable performance. But the bigger thing is that CMS is giving great rewards to those who are willing to take risk."

The collaborative ACO with one-sided risk that Winona Health will be joining won't be its first foray into Shared Savings.

Its current ACO is in the third year of its three-year contract; the new ACO should have six in-state partners. Schultz says to get to 100,000 lives, the new ACO may add organizations in neighboring states.

"It's a virtual model, so it doesn't particularly matter if they're all in the state. It's not a requirement," she says.

Related: Cleveland Clinic Tackles Downside Risk in ACO

The application with CMS is due in July to begin a contract in January 2019.

Beyond the collaborative ACO model, Schultz is hopeful the health system's demonstrated success in Medicare ACOs has the potential to jump-start value-based negotiations with commercial payers.

"We have changed the standard of care and we've been doing it across the board—prevention, wellness, management of chronic conditions—so now we have results we can show the rest of our payers. We've found the needles in the haystack."

Philip Betbeze is the senior leadership editor at HealthLeaders.

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