Health Care Reform: Understanding ACOs–
Preparing For An Accountable Care Organization Environment
In an effort to improve coordination of care and to lower Medicare costs, the Department of Health and Human Services released on March 31, 2011, its proposed rules for Accountable Care Organizations (ACOs), a new health care delivery system conceived through the Affordable Care Act to create incentives for providers to work together and treat patients across care settings. The related Medicare Shared Savings Program will reward ACOs that lower the growth in health-care costs, as long as they meet performance standards for quality of care. While certainly complicated, this new system is an exciting opportunity for providers—regardless of size—and will change the nature of post-acute/sub-acute care as we have known it.
Two important things about ACOs must be kept in mind, according to Kathleen Griffin, President and CEO of Valley Consultants, Inc. of Scottsdale, Arizona, and a consultant with Health Dimensions Group in Minneapolis, Minnesota.
The rules proposed in March will likely undergo significant changes, based on input from providers, other caregivers. and consumers.
The proposed rules were not well received by potential participants for several reasons, including the fairly significant cost of meeting the requirements to become an ACO—estimated by the Centers for Medicare & Medicaid Services (CMS) at about $1.75 million, excluding electronic health and medical records setup. That is a rather onerous threshold for smaller organizations, considering an ROI of only 50-60% of shared savings.
According to current law, ACOs are scheduled to begin on January 1, 2012. To meet that date, CMS would need final rules in place by sometime in August in order to provide enough time for organizations to prepare applications. If the rules are not finalized that quickly, which is likely, applications for the three-year ACO contract might be accepted on a rolling schedule in 2012.
Who can become an ACO participant?
According to the proposed rules, an ACO participant may be any of the following:
•A hospital or health-care system that employs an adequate group of physicians, nurse practitioners, and physician assistants;
•A critical access hospital that, by arrangement with its physician partners, does all the billing for both the physicians and the hospital services;
•Physicians in a group practice arrangement;
•A network of physician practices, many of which have been put together by hospitals; or
•A partnership or joint-venture arrangement between the professionals (whether a group practice or a network) and a hospital or multiple hospitals.
The ACO must be a legal structure authorized by the state, with a taxpayer identification number and enough primary-care providers to be able to provide primary care to a group of at least 5,000 Medicare fee-for-service beneficiaries that become attributable to the ACO. The ACO is responsible for all Medicare Part A and Part B costs for all Medicare beneficiaries attributable to it over the three-year contract period with CMS; the ACO also shares any cost-savings with all the participants and contractors included in the ACO structure. Contractors may be anyone (other than participants) that provides post-acute services to the Medicare beneficiaries attributable to the ACO.
Identifying attributable beneficiaries
In rural areas, 5,000 attributable Medicare beneficiaries may be all that can be reasonably drawn from a geographic area. In a metropolitan area, however, it is expected that closer to 50,000 attributable beneficiaries will be required for financial viability. Patient variability, ranging from very ill to very healthy, becomes statistically unreliable with a smaller number of members, Griffin pointed out.
Medicare beneficiaries become attributable to an ACO only after the first year of service. If most of a person’s health-care services were provided by one of the ACO’s primary-care physicians, then that individual will, retrospectively, be considered attributable to the ACO. “CMS wants a retrospective attribution to ensure that the hospital, physician group, and ACO will treat all Medicare patients alike and will not try to provide excellent care only to a handful of individuals that they think will become members of their ACO,” she explained.
Also, CMS wants to share savings only if it knows for sure that the ACO was truly responsible for driving down costs (i.e., reducing Medicare payments). Therefore, a cost-savings threshold must be reached before shared savings occur. CMS will project, based on the prior three years’ experience and expected inflationary increases, the average Medicare payment per beneficiary in a particular market. For example: If CMS expects a metropolitan area with 200,000 Medicare fee-for-service beneficiaries in its marketplace to receive $9,200 in payments per Medicare beneficiary in 2012 and the ACO has the minimum of 5,000 attributed members, its cost-savings threshold for 2012 would be 3.9% ($359) below $9,200 per beneficiary; its average per-beneficiary cost would have to come in at $8,841 or less to achieve any shared savings. A larger ACO may have a threshold as low as 2%, or $184; so its average per-beneficiary cost would have to be $9,026 or less to achieve shared savings. Volume matters.
A primary-care physician may join only one ACO due to the retrospective attribution formula, but a contractor providing post-acute services may contract with multiple ACOs—perhaps two or three large metropolitan, suburban, and/or regional hospital or health-care system ACOs.
“Most likely, ACOs will initially look for post-acute providers that can provide both quality service and good outcomes in a very cost-effective manner,” said Griffin. “That’s because hospitals that become ACOs (or part of an ACO) will be hit additionally and concurrently by other penalties and value-based initiatives that make them very much at risk for what happens 30 to 90 days after any hospitalization: Readmission penalties are scheduled to begin on October 1, 2012; bundled payments for certain conditions—a voluntary pilot program—will start on January 1, 2013; and a proposed value-based purchasing efficiency metric (the amount Medicare had to pay for that beneficiary for 90 days after the hospitalization) is set to begin on October 1, 2013.
With the bundled-payment program, the hospital will be responsible for and will receive one bulk payment to cover all hospital costs and physician fees during the in-hospital episode and any necessary rehospitalization, physician visits, post-acute care, and outpatient care for 30 days afterward. “If the patient needs to be rehospitalized or goes to a long-term acute-care facility (LTAC), the hospital will probably lose money on that bundle,” Griffin observed.
At the moment, many hospitals already have a relationship with an LTAC, and about 25% have their own rehab unit; but hospitals don’t know much about skilled-nursing and sub-acute programs, according to Griffin. “That’s why we see so much interest right now in creating partnerships with quality providers that will be able to care for high-acuity patients,” she said. “Hospitals are looking to create a care pathway where no patients are dropped in the transition from acute to sub-acute care and from sub-acute to home care.” That pathway also includes interoperable electronic medical or health records that allow the various caregivers to access information from one setting to another.
Griffin has itemized five initiatives that organizations interested in preferred ACO partnerships should undertake:
Make sure that your facility is able to manage high-acuity patients via 24/7 access to physicians and regular follow-up by nurse practitioners.
Begin to create care pathways from acute to sub-acute to home health, particularly if your organization owns or operates a home health-care agency.
Improve IT interoperability; cloud computing may be the best way for various systems to talk to one another.
Set up or improve communication channels between the physicians following patients in sub-acute care and the patient’s own primary-care physician until information can be seamlessly transferred electronically.
Try to reduce any issues that may occur in a transition from acute to sub-acute to home through medication reconciliation, better and quicker transfer of information to the next level of care, and a patient/family engagement so everyone understands the circumstances and can advocate for the patient’s care.
ACOs and long-term care
Under the proposed rules, Medicare fee-for-service beneficiaries residing in long-term care facilities and assisted living can become attributable to an ACO if their primary-care physician or the long-term care facility is part of an ACO. For skilled-nursing facilities, the motivation to contract with an ACO is increased occupancy. The facility will be more likely to get a larger share of short-stay non-Medicaid patients. Perhaps more importantly, organizations can provide care to a broader group of Medicare beneficiaries attributable to the ACO through other services added to the continuum, such as home health care, hospice, adult day care, geriatric care-management house calls, and so forth.
“We’ll begin to see a much more robust focus on good primary care throughout long-term care and assisted living facilities,” said Griffin, “because ACOs won’t want to see rehospitalizations or worsening of a condition that causes an ER visit.” As a result, more accountability will be expected from front-line staff—the nursing staff in the long-term care facility and the universal-care workers in an assisted living facility—and more attention will be paid to daily patient observations and reports.
“Initially, that will require an investment of resources,” she continued, “but the payoff is that the organization will become the one that every ACO, every health-care system, and every physician group will want in its network. And again, a contractor can participate in more than one ACO.”
To prepare for an ACO setting, long-term care providers are advised to start setting metrics now, including:
•The current hospital readmission rate from the sub-acute unit and from the long-term care facility, particularly in the three categories (heart failure, heart attacks, pneumonia) for which hospitals will be penalized starting October 1, 2012;
•The number of Medicare Part A patients that return home, which is an important indicator of the facility’s ability to provide effective sub-acute services;
•Nursing staff capacity and capabilities to assure that the facility can effectively take care of higher acuity patients without returning them to the ER; and
•The ability of the integrated physician staff and nurse practitioners to manage patient medical needs on a more frequent—basically, a 24/7—basis.
Once metrics are set up so data can be collected, the provider can pick a health-care system or, in some cases, the physician group that will be the likely winner in an ACO or integrated delivery system environment and then present a meaningful, value-based proposition during a C-suite level discussion. Comparable data becomes a tactical way to create trust between and among the hospital, the physicians, and the sub-acute provider and to begin to develop care pathways, interoperable information exchanges, and joint operating committees to review processes that aren’t working between hospital discharge and the sub-acute facility or between discharge from the sub-acute facility and returning home—with or without home health care.
“A lot of internal work must be done before rushing to meet with a hospital,” Griffin cautioned. “The sub-acute care organization has nothing to offer until it has data, has set goals for reducing hospital admissions and patient declines, and has put the procedures in place to be able to reach those goals. That’s when you have a value-based proposition to present to the hospital.”
Spectrum Health—a likely ACO
As a huge integrated delivery network operating throughout much of western Michigan, Spectrum Health, based in Grand Rapids, Michigan, is a prime example of a likely ACO. Spectrum Health has nine hospitals, a 650,000-member HMO, nearly 600 employed physicians (Spectrum Health Medical Group), and an integrated post-acute subsidiary (Spectrum Health Continuing Care) that includes 650 long-term care beds in five locations, an LTAC, six adult foster-care facilities, two home health-care companies, hospice and palliative care services, home medical equipment services, a home infusion pharmacy, and a rehabilitation unit.
Our employed physician model is a multispecialty model, according to Jeffery Lemon, President of Spectrum Health Continuing Care. “We’ve got primary-care doctors, pediatricians, and many other kinds of in-house specialists. We’re also a heart-transplant center (and soon will be doing lungs) and a Level 1 trauma center, as well; so we’re a fairly complex medical environment.”
While Spectrum Health already owns what many other organizations looking to become an ACO would have to obtain contractually, is experienced in managing risk by virtue of having an HMO, and has some of the necessary infrastructure already in place from a technology/IT standpoint, the dilemma lies in calculating the number of attributable lives necessary in order to make an ACO economically viable. The government will not mandate participation in an ACO; people will have the right to choose whether to affiliate with a particular ACO, or not.
From an individual’s perspective, the benefit of joining an ACO is part of the value proposition that’s yet to be defined. “One could assume that an ACO would provide a more integrated platform of care delivery,” Lemon suggested, “one that’s more focused on migrating patients through a continuum of care in the most expeditious and error-free manner in order to generate the kind of quality clinical outcomes that will be measured as a result of provisions in the Accountable Care Act.”
That, of course, is the presumption on which the ACO concept is based—an integrated network with the promise of future gain sharing, based on increased productivity, achievable outcomes, and reductions in rehospitalizations and avoidable emergency room visits. “The fundamental principles seem to be the economies of scale and the benefits of an integrated model of care,” Lemon said.
If a person’s congestive heart disease is poorly controlled as a result of poor diet or noncompliance with medication, for example, a visit to the ER might occur several times a year with subsequent admittance to the hospital and a cost of perhaps $40,000 per hospitalization. Spectrum Health already has a program conducted through the Visiting Nurse Association (VNA) for patients identified as “frequent flyers through the ER.” Once enrolled, with a telemonitor is placed in the home, someone from the VNA helps the person comply with medications, etc.—and, as a result, rehospitalizations are reduced. “The math is pretty simple,” said Lemon, “but the quality outcomes and patient satisfaction are where we’ve seen the real enhancement.”
For smaller organizations, the benefit of participating in an ACO is the referral stream. As a member of Aging Services of Michigan, Spectrum Health has been working with freestanding not-for-profits to encourage them to develop collaboratives or consortiums. A regional nursing facility consortium could create a management service organization, for example, and centralize some of the back-office systems and physician-management engagements so that every post-acute facility doesn’t replicate everything all the others are doing. “They can then speak with one voice,” Lemon explained.
“Hospitals across the country haven’t paid much attention to the post-acute arena,” he added. “They’re even uncertain about the type of evaluative criteria to use to begin to assess and measure performance. Getting skilled nursing facilities, home health-care organizations, and other potential contractors—and there are a lot of them—to monitor rehospitalizations in the same way as the ACO (e.g., a hospital), using the same clinical indicators and the same clinical definitions, is a monumental task.”
Most hospitals, in fact, don’t yet understand what they even need in a post-acute partner. Of the beds available in various post-acute facilities, which one is the high-quality provider? Which one has better-than-average rehospitalization rates and can handle the clinical complexity that patients increasingly require as hospitals migrate them out of acute care sooner and sooner? If rehospitalization occurs within 30 days, regardless of the setting, the ACO will be penalized. So for providers the opportunity becomes their ability to separate themselves from their competitors on the basis of clinical integrity, quality outcomes, integrated clinical dashboards, etc. and then to create relationships with the likely ACOs in the community or region.
Even Spectrum Health, as large and integrated as it is, will have to contract with other entities if/when it becomes an ACO due to patient choice. Also, for ACOs that cover a large geographic area, there may be regional holes in the service coverage. So Lemon’s advice is that, starting today, potential contractors ought to be looking at the equivalent of a morbidity and mortality review—and they ought to begin measuring themselves against national benchmarks for rehospitalizations. Every unplanned rehospitalization should be reviewed very thoroughly in cooperation with the medical director, chief clinical officer, director of nursing, or other appropriate senior-level person. And since those rehospitalizations are most likely to involve patients suffering with heart failure, COPD, diabetes, or asthma, the question then becomes: Does the potential contractor have the clinical capability to be able to maintain those patients in the home environment (defined to include independent living and assisted living)?
“Right now, rehospitalizations and ER avoidance are the low-hanging fruit,” he said. “That’s what hospitals will be interested in first—even before ACO formation.”
Therefore, CCRCs and other potential contractors should definitely begin to pursue opportunities for C-suite level interactions with hospitals and health systems. By building those relationships now, those institutions [the likely ACOs] will look in your direction when the time comes to find partners. But those interactions are not the role of a director of marketing or director of admissions looking to leverage some kind of contractual relationship, Lemon cautioned. It’s the CEO or president of the provider agency that needs to be talking with the CEO or president of the hospital or health system.
“I do fear for some of the small, unaffiliated skilled nursing providers that don’t have the ability to leverage economies of scale or networking opportunities,” he added. “Potentially, they could be looking at very difficult times ahead—which is why we are encouraging them to form alliances with other sub-acute providers. Otherwise, they’ll be left on their own. And if ACOs gain momentum and become very large, those small providers without contractor agreements in place could risk filling their resident or patient beds.”
From a governance standpoint, there’s also an essential need for providers to begin the process of educating their boards, as well as to look at board composition in order to ensure the right mix and be able to respond to the emerging changes expected in an ACO environment. Also, from a contracting entity perspective, a certain level of sophistication will be required of board members. The board of a small, single-site, not-for-profit provider—particularly one that is unaffiliated with a network or consortium of similar providers—may not have the wherewithal to participate in ACO contract development.
The ACO application deadline is currently January 1, 2012, although that may be pushed back several months for additional clarifying language to be incorporated into the rules. Interestingly, CMS has demonstrated a willingness—even a desire—to listen to providers and gain their input. It may be a struggle, though, to get the ACO program working well, as so much complexity is involved and there are a lot of moving parts. Lemon expects it actually may take the better part of a decade to begin to see the types of empirical evidence that will determine whether the formation of ACOs actually results in—if not lowering costs—at least bending the cost curve.
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