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First Glimpse at ACO Results

A cornerstone of health policy arising from health care reform is the formation of Accountable Care Organizations.  The premise is that an organizational structure focused on improving patient care and satisfaction, in a coordinated fashion, would improve quality and thus, reduce cost. The policy implication is that on a shared incentive basis, organizations at-risk, would create savings sufficient to share between the government and the ACO. In June of 2011, I wrote a post regarding my analysis of the ACO rules and their impact on the post-acute environment (http://wp.me/ptUlY-8H ).  Today, our first glimpse of how effective ACOs are/may be in producing outcomes and netting savings is available via a study released and published today in Health Affairs.

The study involved a five-year forecast or simulation of an average population of 65-75 year old, type II diabetics.  Using a tool that simulates “what” would occur with this group participating in an average ACO with representative populations, costs, and processes, synthesized outcomes were produced and evaluated.  Important to note, the tool simulated the outcomes for the set of individuals correlated to the Medicare required performance measures (blood pressure, cholesterol, glucose levels, etc.). The choice of diabetes as a disease focus is related to an easy to quantify population where known application of certain best practices and care management techniques can have a readily qualified improvement. In short, the group is a large, at-risk population with enormous potential for adverse events when care is not properly managed.  Diabetes represents a focal area of care improvement per the ACO intent under the reform law.

A key element for the ACO formation under the reform law is known as the Shared Saving Program.  Under this program, CMS specifies four domains for performance measures: patient/caregiver experience, care coordination and safety, preventative health, and at-risk populations.  For diabetes, seven of the twelve measures in the “at-risk” domain are tracked although only the composite hemoglobin A1c and poor control measures are scored by CMS for calculating the shared savings. Each of these measures is given a score by CMS and then compared against a “threshold” and a “benchmark”.  While CMS has yet to specify the limits for thresholds and benchmarks, the law provides that attainment of one or the other triggers the “shared savings” payments. In the first three years of ACO roll-out, organizations can choose between two forms of shared savings.  The first option is the organization can elect to receive 50% of the savings if costs decrease but not be “at-risk” if costs increase.  The second option provides for a 60% share of savings with the possibility of a penalty if costs increase.  By year three, the first option expires and in the interim, savings must exceed 2% before any “sharing” kicks-in.

The results of the study are intriguing and supportive of my general conclusions that the ACO concept while a good-start, can’t be terribly viable without overall reforms to Medicare.  Simply, layering a different model over-the-top of the current system is like reupholstering a broken down couch – it only looks better.  The core results showed that even a 10% improvement in the core measures for this population, while preventing up to 4% of adverse outcomes, nets savings of less than 2% (1.2% to Parts A and B).  If the costs associated with drug therapy (Part D is excluded from the ACO model) are included, the net to Medicare is zero or perhaps, a modest cost increase. In short, the likelihood of “shared savings” returns to the ACO are minimal and compared against heavy start-up costs, on average $1.7 million, a disheartening risk-return proposition.

As I have been watching this developing element of the health care landscape carefully and working on a variety of network initiatives, my conclusions are pretty consistent with the study authors, namely;

  • CMS needs to look carefully at the weights assigned across the performance measures – now, equally calculated.  We know certain elements are more directly linked to savings.
  • Drugs need to be factored into the shared savings program – big gains or losses can be found here.
  • Thresholds and benchmarks are yet defined by CMS and they will need to look very carefully at these levels.
  • Payments via shared savings need to be re-evaluated by level and delivery.  ACO development is expensive and as demonstrated, the current shared savings program provides little return on investment.
  • ACOs will need to look at alternatives to produce higher volume savings and core operating efficiencies in order to make “real” money under the ACO model.
  • Lastly, CMS needs to figure a methodology for a two-part payment approach – an incentive per capita for high performing organizations and then a return payment for results equal to a savings share (a bonus if you will).  The success should drive the next period payment levels rather than a “one size” fits all approach.
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October 8, 2012 Posted by | Policy and Politics - Federal | , , , , , , , , | 3 Comments

Accountable Care Organizations: A Post-Acute Perspective

Suffice to say, I am behind in getting this post “out”.  My best intentions of a month or so ago were quickly dashed by other more pressing commitments. Nonetheless, I did read the proposed regulations as produced by the Department of Health and Human Services/CMS on April 7 and worked through a stack of research on the subject of Accountable Care Organizations; loosely coined by me, the Good, the Bad and the Ugly.

In the purest of definitions, easily lost within the DHHS/CMS proposed regulations, Accountable Care Organizations (ACO) are about improving patient care outcomes and satisfaction while reducing cost or expenditures for care.  At the core of the premise about “why” and “how” an ACO would work in achieving better care, higher satisfaction and lower costs are three key assumptions or “truisms”.

  1. Best practices via algorithms and care pathways exist in sufficient supply, tested and proven, to reduce the variability that drives higher cost and lower satisfaction for a large and growing number of common patient care issues.
  2. Satisfaction is directly correlated to increased patient knowledge and communication, reduced bureaucracy at the provider level (fewer redundant steps) and better outcomes, more directly delivered and/or attained.
  3. Providers, properly incentivized to focus on outcomes and satisfaction will gravitate toward any and all steps and measures that improve outcomes and satisfaction and resultingly, deliver better and cheaper (less costly) care.  The key is developing the right level of incentives that drive provider behavior in the desired direction.

For years, I’ve written and lectured repeatedly that bending the cost curve or lowering the overall costs of health care in the U.S. system must first begin at the core of the issue; the system of reward.  A simple economic axiom defines this best; “what gets rewarded gets done”.  Fundamentally, the U.S. health system has rewarded in the form of payment, procedures, pills, tests, and surgical (or surgical-like) interventions at the expense of prevention and wellness/care management.  In spite of an enormous and growing body of evidence that much of the escalation of costs (steepening of the “curve”) in the U.S. is driven by chronic conditions poorly managed and lacking in early detection and prevention strategies, funding has remained skewed toward treatment practices that are technical and predominantly surgical or interventional in nature.  The result is poor to minimal access for Type II diabetics (as an example) to integrated chronic care programs designed to stave-off emergency room visits, loss of limbs, peripheral vascular disease, loss of vision, etc. while access to the latest imaging technology, interventional cardiac programs and surgery ranges from good to stellar and even drastically redundant in some markets.

Knowing the above and understanding that a fluid and flourishing economy has been built around this system, the belief or premise that one can design and make work effectively, a paradigm shift such as is intended with ACOs is curious at best.  Suffice to say that while I know such a premise makes sense (Accountable Care Organizations), I’m less than certain from my read of the proposed regulations and knowledge of the current system, how incentive realignment will work to first, bend the “cost” curve and second, create a necessary body of invested, at-risk stakeholders willing to place their economic futures (such that they are) in the hands of a governmental half-and-half, moving payment system.  Moreover, the initial investment capital is clearly all provider capital placed at first dollar risk and the shared-savings return proposed, provides a poor return on the capital invested.  This is particularly true for the post-acute elements critical in the formation of a truly functional ACO.

For an ACO at is primordial core to work (achieve the desired outcomes), hospital utilization and the most expensive clinical utilization must be diminished.  Diminution of such care is achieved primarily, via three methods/interventions/actions.

  1. Primary care available and accessible enough to create consistent early detection and provide low-cost interventions that arrest a progressing disease-state prior to an acute event that ordinarily would cause hospitalization.  In the case of Type II diabetics for example, education and monitoring of insulin levels and Ha1c to create optimal therapy and patient knowledge and disease management efficacy that delays and avoids, hospitalization and interventions on a crisis basis.  By simply deferring and/or avoiding, undetected and untreated peripheral leg and foot ulcers, thousands upon thousands of days of hospitalizations for amputations and/or intravenous therapy for infections can be avoided – annually.
  2. Delivering care in lower-cost settings or alternative settings, non-hospital based, nets enormous savings.  As payment today is skewed toward hospitalization and hospital-based care, patients disproportionately receive care, tests, procedures in hospital settings.  A primary example of how skewed the system has been is the artificial and unnecessary three-day prior hospital stay qualifier in order to receive Medicare coverage in a nursing home.  Equally as non-sensical are the present Part B outpatient therapy caps for any non-hospital based and provided therapy.  I could literally list hundreds of payment and care provision inequities but my point is made.
  3. True integration and data sharing among providers must occur and each provider must bear an incremental reward benefit and/or downside risk.  If providers cannot access data fluidly on a patient population and share best practices encompassing steerage to the most cost-effective,  best-outcome sources for care without fear of system reprisal, holes and gaps to effective care delivery at the best price/cost will remain too plentiful.

Taking the above into account, two major obstacles still remain in terms of successful development of an ACO.  The first is patients, now indoctrinated into a system where pills, brands, certain tests, and other non-proven care modalities are expected, nay demanded.  Simultaneous, this same group is famous for varying elements of non-compliance born out of a belief (though untrue) that most anything has a “medical fix” component.  All the best practices and lower-cost alternative settings can’t overcome patient behavior unless and until, patients are part of the risk-benefit system.

The second obstacle, touched on earlier, is the system of reward or the model of risk-benefit.  The ACO core model is one of risk-sharing; gains in the form of varying levels of saving returned to the providers willing to bear “risk” in the form of higher than desired utilization, costs, etc., or outcomes including satisfaction that are below certain pre-determined and desirable levels.  The inherent fallacy within this concept is multifaceted to say the least.

  1. As indicated, patients are a true wild-card; both in terms of behavior and health status.  As the patient remains effectively detached from the risk-benefit equation, behavior is left to chance.  Additionally, health status going into the population on behalf of patients is effectively unknown.  In short, a “ticking coronary time-bomb” may be present (or similarly present) creating a cost and outcome explosion that defeats the opportunity of an ACO to truly deliver effective savings.  The inability in the present regulations to set a path for securitizing against this risk and for truly integrating patients into the risk-reward equation (some element of cost-share broader than present) makes the attainment of long-term savings at a significant level, illusory.
  2. For many providers (or perhaps all) the up-front investments in terms of technology and service accessibility are steep.  This is dramatically so for post-acute providers as the Federal Government refuses to offer any resources for technology investment – not the case with physicians and hospitals.  This is fundamentally illogical as a major element to delivering true savings is via the full use of alternative care settings – lower cost options for care such as therapy/rehabilitation, chronic disease clinics, etc.  What occurs as a result of this enormous “up front” investment is a return on investment profile that is marginal to poor; in most cases (and in all that I have analyzed) below the organization’s cost of capital.  Additionally, the prospective savings return is not fluid or rapid leaving providers with a self-funding equation of producing results, subsidization of investment and cash flow, netting a return that is below any other reasonable and readily available alternatives.
  3. The sharing of incentives is impractically aligned such that the largest sources of current costs stand to lose the most while the post-acute elements stand to gain the least, though as the above occurs, the distribution is far from quid-pro-quo.  Briefly: ACOs begin fundamentally with physician groups and hospitals.  To fully achieve functionality and to meet the objective of better care provided cheaper, other providers core to the care continuum must be brought into the ACO.  Hospitals primarily have invested heavily in the current system of fee-for-service reimbursement, building environments that return the most on investment when heavily utilized on an in-patient and procedural basis.  It is illogical to assume that for most hospitals, voluntarily steering utilization elsewhere to lower cost settings or abating certain levels of utilization altogether in exchange for “shared savings” spread across the ACO players is a winning proposition.  On a similar plane, the same is true for physician specialists.  Interventional cardiologists will be hard-pressed to forego any elements of business financially and in honest reflection, Medicare-age patients are a major (if not the primary) source of patients.  For post-acute providers, utilization should likely increase as their services are more cost-effective but as established, these providers are bit players in the ACO game and while perhaps the most effective element in controlling costs and utilization, not proportionately rewarded.  Their participation for example, is all down-streamed through the ACO.

Forming a post-acute synopsis of the current ACO landscape is as simple as this: Play at your own risk.  There is little for most post-acute providers to gain within the present ACO framework, financially.  All gains are more market and patient-flow related.  The investments in terms of technology are steep and unsupported via government funding.  Similarly, the net margin attainable via an ACO that is at “risk” or participating in shared savings is less than adequate to support a return on capital investment scenario that justifies the up-front costs.  Personally, I would treat ACO participation at this stage as exploratory only; a devotion of only a small investment on-par and an expectation that minimal financial gain will occur, if any.

It stands to reason that some provider elements within the post-acute industry will stand to benefit better than others if for no other reason that they are already aligned from a business perspective to do so. LTACHs could reap significant market share if they can pose as legitimate first-admit options to an acute hospital.  SNFs that are and have been, operating as true transitional care providers with in-house, integrated services could become major partner players within the ACO landscape.  Key however to an SNF’s viability is some reform from three-day prior hospitalization requirements and relaxation/elimination of the Part B therapy caps.  Home health agencies that already have an infrastructure for electronic charting, referrals and a strong physician partnerships and hospital referral/discharge relationships are the most logical post-acute, ACO partners. The ability of a home health agency to manage a more complicated patient directly discharged from a hospital as well as bring into the home, core chronic disease management services adjunct to physician care is an ACO necessity.  As today and for the foreseeable future, ACO realization or not, Hospice will remain only a bit player, if that.  While Hospice is an effective alternative to more costly inpatient care when continued inpatient care and/or other procedural steps are unwarranted, getting patients, their families/significant others, and the physician community in general to openly embrace Hospice early and frequently is not going to occur simply because of an ACO.  Hospice, as I have written before, is a niche’ in the post-acute continuum and nothing within current trends suggest to me that the U.S. health system and patient expectations are moving to a deeper appreciation for or understanding of, the role hospice can and should play.

June 6, 2011 Posted by | Home Health, Hospice, Policy and Politics - Federal, Skilled Nursing | , , , , , , , , , , , , , , , , | 2 Comments

CMS, Proposed ACO Regulations and a Post-Acute Analysis

Late last week, CMS (Centers for Medicare and Medicaid Services) issued the proposed regulations for Accountable Care Organizations (ACOs). As is typical with CMS and all things PPACA related, the document is nearly 500 pages. I have read and begun to digest (creating of course, indigestion) the entirety of the document. As I have prepared copious notes and questions more than answers, it will take me another day or so to formulate a coherent analysis, particularly as the information pertains to post-acute providers. Given my workload at the moment, I will endeavor to have a post up by Friday at the latest.

Hearing also from lots of sources continued questions on RUGs IV, questions regarding new hospice requirements, and of course, questions regarding the latest budget release from House Republicans and implications for Medicare, Medicaid, and the PPACA, I have more than a bunch to sift through and ultimately, post thoughts on and hopefully, some guidance. Suffice to say, these are interesting times for health care providers and the sands are shifting constantly. A significant shift toward a faster death for the PPACA will undoubtedly reform what we “think” we know today about ACOs, Medicaid and even Medicare. Stay tuned and feel free as many of you do, to drop me a note regarding a topic, your insights, or a question that I may be able to answer or steer you to an answer/resource.

April 6, 2011 Posted by | Uncategorized | , , , , | Leave a comment