ACO: Friend or Foe?
Accountable care organizations profess to offer efficiency gains and cost savings, but some see a Trojan horse containing capitated risk. This primer explains the essentials.
By Frank Celia, Contributing Editor
While politicians and pundits noisily attack the healthcare reform legislation in a likely futile attempt to repeal it, more pragmatic (some might say opportunistic) individuals are quietly laying the groundwork for its implementation. As early as next January, your practice could be subject to radical change if accountable care organizations—an unheralded but central part of the law—take off.
To anyone who worked in healthcare during the 1990s, the buzzwords and catchphrases of ACOs will ring disturbingly familiar: integrated systems, bundled payments, physician empowerment, shared cost savings, global risk, wellness... payment reform model.
If such terms transport you back to the Clinton years and the worst of managed care, welcome to the club. Feelings of déjà vu permeate today's medical reimbursement discussions. Even the concept of capitation, that long dead and buried scourge, has managed to stage a comeback. Incredibly, the once dreaded c-word now enjoys prominent enshrinement in US federal law.
Though the Patient Protection and Affordable Care Act (PPACA) of 2010 only sketches what ACOs should look like, this article attempts to examine the broad legislative contours of these potentially transformative provider organizations, and experts speculate on what ACOs could mean for medicine in general and ophthalmology in particular. Although some predict this sequel will flop as spectacularly as the original, there is a qualified case to be made that ophthalmology could stand to benefit, even if ACOs fail to achieve reformers' brightest hopes.
Sparse Detail
Considering how large a role ACOs will play in ongoing healthcare reform—they are, after all the primary engine by which government means to achieve higher quality care while simultaneously reducing costs—the PPACA devotes surprisingly little space to their delineation. The legislation wraps the whole thing up in seven pages, less than 1% of its total verbiage. “Only in America would they take an unproven concept and use it to reorganize 16% of the GDP,” says the Academy's Medical Director of Health Policy, William L. Rich, III, MD.
In fact it appears Congress meant for the PPACA to provide only a loose framework for ACO formation, and left the vast amount of remaining detail under the aegis of the secretary of Health and Human Services. The HHS was expected to unveil regulations that flesh out PPACA guidelines around the time this article went to press. Specifics cannot be far off, however, since the law calls for the HHS to have a finished program in place no later than Jan. 1, 2012.
Without HHS regulations in place, much of what can be said about ACOs amounts to speculation. But there can be little doubt regarding the goals policymakers hope to achieve. Highly placed healthcare economists have made no secret of their belief that that best way to reduce costs is through “integrated systems.” They look out at a nation of 700,000 physicians who operate largely as a cottage industry of solo practices and small groups, and they see waste, duplication of services, lack of communication and squandered economies of scale. For years, federal regulatory policy has explicitly sought to push physician groups into large, homogenized organizations that would then work in better synchronization with hospitals and healthcare centers. ACOs embody the latest effort. Come what may, it is difficult to refute the notion that governments can wield immense pressure pursuing these goals. In the near future, cautions an American Medical Association white paper, “Smaller practices will likely be at a disadvantage in almost everything, from reimbursement, to cost, to capital, to hiring.”1
No Downside... Yet
Section 3022 of the PPACA, known as the Medicare Shared Savings Program, defines ACOs and establishes the criteria for their creation. An ACO is a group of health care providers that agrees to take responsibility for the treatment quality, cost and overall care of no less than 5,000 traditional fee-for-service Medicare beneficiaries. A broad range of organizations can qualify, including: (1) physicians and other professionals in group practices, (2) physicians and other professionals in networks of practices, (3) partnerships or joint venture arrangements between hospitals and physicians, and (4) hospitals employing physicians or medical professionals. Finally, as if those parameters were insufficiently broad, the law gives the HHS power to designate as an ACO any other organizational structure it chooses.
1. ACOs, CO-Ops and Other Options: A “How-To” Manual for Physicians Navigating a Post Health Reform World. Dec. 15, 2010, AMA.
Among other requirements, would-be ACOs must: (1) have a formal legal structure to receive and distribute funds, (2) agree to participate in the program for a minimum of three years, (3) have a leadership and management structure that includes clinical and administrative systems, (4) have a process in place to evaluate and report on treatment quality and cost measures, and (5) demonstrate that it meets “patient-centeredness criteria,” a concept to be defined by the HHS secretary.
Each ACO's benchmarks will be based on the most recent three years of per-patient expenditures for Medicare Parts A and B services for the beneficiaries assigned to the ACO. Benchmarks may be adjusted on a case-by-case basis depending on beneficiary characteristics or any other factor deemed appropriate by the HHS secretary.
However, legislators built an escape hatch. Near the end of the 906-page PPACA, Congress inserted an amendment allowing the HHS secretary to pay an ACO via a “partial capitation model.” Under such a model, the law states, “an ACO is at financial risk for some, but not all, of the items and services covered under parts A and B, such as at risk for some or all physicians' services or all items and services under part B.” The amendment continues, “The [HHS] Secretary may limit a partial capitation model to ACOs that are highly integrated systems of care and to ACOs capable of bearing risk, as determined to be appropriate by the Secretary.” It further states the partial capitation model “shall be established in a manner that does not result in spending more for such ACO for such beneficiaries than would otherwise be expended for such ACO for such beneficiaries for such year if the model were not implemented, as estimated by the Secretary.”
Confused? If so, you've got company. The language has legal scholars scratching their heads.
In any event, the very presence of a capitation option has caused many healthcare industry insiders to view shared savings as a Trojan horse concealing imminent 1990s-style capitated risk. “To succeed in controlling costs, an ACO must find a way to move beyond fee-for-service. One way is to move into a capitation system where the provider bears the risk for high utilization,” says ophthalmic consultant Kevin Corcoran of San Bernardino, Calif. “At the outset, the ACOs will soft-pedal their cost containment mission, but in the end I believe we will see a resurgence of historical managed care themes such as capitation.”
Safe Harbors
Anti-trust conflicts might prove harder to bypass. Manufacturers and their industry associations have voiced concern that the enhanced negotiating power of ACOs will constitute price fixing, thus undermining free competition in the healthcare marketplace. Public statements from officials at the Federal Trade Commission and the Department of Justice have stressed their willingness to develop “safe harbors” in which ACOs could operate without violating anti-trust laws, but how this will unfold in real-world scenarios remains uncertain. If the shared savings program encounters a stumbling block in the legal system, experts predict it will most likely occur over anti-trust issues.
Finally, ACOs that involve combining non-profit organizations (some hospitals) with for-profit ones (physician practices) risk running afoul of federal and state tax law. Not only could tax challenges scuttle nascent ACO formation, they might also substantially increase startup fees.
Millions Strong
The PPACA itself is tersely enigmatic on this point: “The Secretary shall determine an appropriate method to assign Medicare fee-for-service beneficiaries to an ACO based on their utilization of primary care services provided under this title by an ACO professional [i.e., a physician].”
How patients will be “assigned” to an ACO rates as perhaps the most eagerly awaited detail of the forthcoming HHS regulations. Legal experts find it difficult to envision a scenario in which patients remain both unaware of the program and free to visit any doctor they choose at all times. “I can't imagine patients will have unfettered discretion to move around from ACO to ACO, because savings cannot possibility be achieved that way,” says Jeffrey Ruggiero, JD, of the law firm Arnold & Porter LLP, and a partner in the FDA Healthcare Group. “You can't impose any sort of utilization standards on a patient when they have complete freedom to do what they want. So there is going to have to be some kind of discipline imposed on the beneficiaries as well.”
In addition to its potential to upset a portion of the population not known for accepting bad news stoically, patient “assignment” could represent the strongest theoretical argument in favor of physicians joining an ACO. Though nothing in the PPACA compels physicians to form or join ACOs, those that refrain from doing so may in coming years find themselves losing access to Medicare patients who are “assigned” to other practices.
Should You Join One?
Not yet—and if you do, never sign an exclusive contract. Signing an exclusive contract would preclude your participation in other ACOs that enter the local market. As they did with physician hospital organizations (PHO) 20 years ago, hospitals are plunging into ACO formation with a zeal some call reckless. Well ahead of established HHS regulations, many hospital-centered ACOs already boast legal structures and contracts. Hospitals are also hiring physicians and purchasing practices at a pace that defies historic precedent. Last year, 40% of all recently graduated medical school residents across all disciplines were hired by hospitals, according to Dr. Rich. Forty-five percent all of all practicing cardiologists now work for a hospital, he adds.
Vision care entities remain consistently absent from hospitals' shopping lists, Dr. Rich notes, because ophthalmology books few in-patient procedures and those it does tend to offer lower reimbursement fees. When hospitals buy practices and hire physicians, they pursue fields that can provide high numbers of referrals or big-ticket fees, or both.
This trend may work in ophthalmology's favor, Dr. Rich says. While hospitals busy themselves hiring cardiologists and spinal surgeons, and signing practices to exclusive contracts, ophthalmologists should continue to stand aloof. If the ACO model proves successful, the profession will be in a strong bargaining position to provide necessary services to these up-and-running concerns. After all, Medicare patients cannot be fully serviced without access to eyecare.
On the other hand, if ACOs prove to be a disaster, ophthalmology will have avoided going down with a sinking ship. “I think the practices that are being bought and signing exclusive contracts are in for big financial trouble by 2015 or 2016,” he says.
Like PHOs before them, if ACOs fail they might simply be discarded. The PPACA calls for pilot programs for several other cost-saving strategies such as bundled payments, medical homes and hospital-based value purchasing, not to mention whatever methodologies the newly created “CMS Innovation Center” dreams up.
Should ACOs fall by the wayside, regulators might simply shift their focus into other areas, notes Dr. Rich. “I don't think ACOs will be where the action is in the coming years,” he concludes. “Instead of sharing savings, they may well end up sharing a lot of risk.”
The Countervailing Case
Others see in ACOs an opportunity for physicians to unite and forge a stronger bargaining position in their relationships with hospitals and the government itself. Mr. Ruggiero points out that ACOs do not have to be centered around hospitals. “If you look at the statute, four of the five criteria for forming an ACO eligibility are physician driven. This law could put physicians in charge as gatekeepers in a meaningful way. I don't see much of a downside for physicians in at least considering being involved in these initiatives.”
Substantial savings can be achieved by consolidating practices, he says. He too is skeptical of ACOs but says they are probably worth exploring for this reason. If the start-up costs are low, physicians have little to lose by joining a doctor-centered ACO, and a lot of potential gain. “If the buy-in was something like $5,000, I would do it in a heartbeat. But if it were $25,000, I might think twice,” Mr. Tinsley says.
The general consensus seems to be that ophthalmologists should avoid signing exclusive ACO contracts but otherwise keep their options open. Above all, physicians are being urged to stay informed. Even those most critical of the ACO concept agree that life will soon become much more difficult for small or solo practices and that ophthalmologists should start exploring ways to stand together. Says Mr. Corcoran, “The most potent advice I can give to doctors in this healthcare reform environment is to form alliances—your continued success will depend on who your friends are. As the saying goes: there are big ships and small ships, but the best ship of all is friendship.” OM
Reference
1. ACOs, CO-Ops and Other Options: A “How-To” Manual for Physicians Navigating a Post Health Reform World. Dec. 15, 2010, AMA.