SIP Creates Accountable Care Organization – Accountable Care Administration

There is nothing as constant as change and based upon seven pages of provisions (out of almost 3000 pages) in the new Health Reform Legislation (PPACA), our entire healthcare delivery system will begin to significantly change for Medicare patients between 1/1/2012 and 1/1/2014. These changes will not be due to the issues of mandated benefits and the possibility of the elimination of the current employer based system of providing benefits, but rather because of the legislation, which created Accountable Care Organizations (ACO). But is it really a change or more like the old philosopher, and great Yankee catcher says, “It’s déjà u all over again”? You be the judge after we more carefully examine ACO’s and how they are expected to work along with how your healthcare will be impacted. Now that Health and Human Services (HHS) has issued the final ACO regulations, we have much more clarity.

Under an ACO, groups of hospitals and providers are expected to band together for the purpose of improving the quality of patient care by accepting responsibility for improved patient outcomes and participating with Medicare in any financial savings. HHS anticipates that this approach will result in a reduction of unnecessary services and provider errors, and will result in fewer in-patient admissions, the most costly Medicare benefit. Medicare is in the process of establishing an enormous bureaucracy designed to evaluate ACO performance and has created the rules associated with what they refer to as their ”Shared Savings Program”. Generally speaking, any savings will be shared evenly between the ACO and Medicare, and eventually any higher costs are intended to be the responsibility of the ACO.

The ACO program is a “voluntary” program that will go into effect on 1/1/2012. Many hospitals and provider groups are currently banding together to form an ACO for 1/1/2012. However, the interim final regulations, issued 3/31/11, have created a scenario where Medicare reimbursements will be substantially reduced by 1/1/2014, and it’s hard for me to understand how providers, mostly hospitals, will be able to survive financially without participating in the ACO Shared Savings Program. Also, I believe that providers that bear the large expenses associated with formation of an ACO, and are successful in reducing costs and improving patient care, will ultimately market their product locally to the commercially insured employers. They may form partnerships with insurers, but because 75% of the ACO ownership must be provider based, I believe these insurer partnerships will be infrequent and that the ACO will aggressively market locally, mostly offering partially self insured plans either through partner TPA’s or through the creation of their own TPA. Whether the concept I learned in law school of “an attorney who defends himself, has a fool for a client” applies, only time will tell.

Some of the key provisions of the new ACO Regulations include the following:

  • The ACO program is generally a 3 year program, effective each 1/1.
  • An ACO may include the following types of providers:
    • Physicians and hospitals
    • Networks of individual practices
  • An ACO will be assigned beneficiaries based upon whether the beneficiary has received the majority of their primary health services from physicians within the ACO.
  • At least one Medicare beneficiary, receiving treatment within the ACO, has to be on the ACO Board.
  • No more than 25% of the ACO Board seats can be held by non-ACO participants, such as entrepreneurs.
  • The Shared Savings Programincludes two options for the ACO:
    • One Sided – An ACO that creates savings of at least two percent would receive 50% of the money above that threshold and Medicare would receive the other 50%. In this option, only for the first two years, the ACO would have no responsibility if their costs exceeded their target. In year three, all ACO’s have responsibility for losses.
    • Two Sided -An ACO would receive 60% of any savings, but would be responsible for any losses, even in the first two years.
  • ACO’s will be subject to a 25% withhold to be used to recover any future losses.
  • Population Health Managementrequirements:
    • Must promote evidence-based medicine.
    • Must have a patient survey tool available.
    • Must have tools to evaluate the health needs of the population it serves.
    • Must have tools to identify the highest risk component of the population they serve and be able to develop individual care plans.
  • Primary care providers can only participate in a single ACO, but hospitals and specialists can participate in more than one.
    • Physicians qualifying for primary care status include internists, general practice, family practice and geriatric practice. The regulations are silent regarding OB/GYN physicians.
  • At least 50% of the primary care physicians must have Electronic Health Record capability.
  • ACO data will be shared with CMS (Center for Medicare and Medicaid Services) unless the participant signs an opt-out form.
  • The core concept of the ACO model is to achieve better care for individuals, improved population health and slower growth of Medicare expenditures.

It’s hard to predict the impact of the ACO on patients, but in the near term you may notice some or all of the following:

  • More involvement from physician’s assistants for routine services.
  • An aggressive physician outreach program to help patient’s receive the right treatment, at the right time from the right physician. This type of “coaching” has existed for years in the private sector and insurance industry.
  • Strict adherence to medication protocol and an increased effort for patient screenings.

The time for public commentary on the proposed regulations ended on 6/6/11, and included considerable input from both the AMA and Hospital Association, along with other parties in interest. As a result, this partial list of regulations may change, perhaps significantly, but given the lead-time required, I expect that the final regulations will be published shortly, perhaps before this article is published.

For those of us that may be somewhat older, in many respects the ACO concept may seem familiar and a lot like the HMO movement included as a part of the emphasis on managed health care in the late 80’s. I remember it well. At the time, I had built the largest TPA in the country for the Travelers and we were paying out more than a billion dollars in claims per year, in late 80’s dollars, and had 18 offices nationally. My boss came to me to predict the demise of my TPA because Travelers had just purchased an HMO group and “why would anyone buy from a TPA when they could derive the benefits of managed care from our HMO”. After almost three years and millions of dollars of added investments, Travelers sold the HMO back to its management for $.01. To this day, I believe that their management overpaid. Except for small pockets of the country where HMO’s have thrived, HMO’s have failed as a delivery mechanism and with few exceptions, like Kaiser, the cost of the HMO plans are generally higher than PPO plans.

However, times are different today than they were in the late 80’s. Today, there is much more participant awareness of the benefits of wellness and prevention. Carrier’s and TPA’s have been involved in chronic disease management and population health management programs for years and participants are used to interacting with health care coaches and plans that reward healthy behavior. Many private sector employers have finally realized that real cost savings can only be achieved by reducing claim costs and helping their employee’s achieve a healthy lifestyle. So this may be the perfect time for the ACO business model, and it is the reason I believe that most will succeed, if managed correctly. I believe this so strongly, that I have created a new company, Accountable Care Administration LLC and have launched the ACA website at Although we have assembled all of the tools that Medicare will require of an ACO, I believe that the real long-term opportunity is in the private sector. If the ACO offers the lowest cost care in town, it obviates the need for PPO’s and perhaps the ease of establishing a partially self-funded plans will cause it to become the most cost effective delivery mechanism. Time will tell!

Learn more about Accountable Care Organizations (ACO) and view the Three Components of ACO Infrastructure at Accountable Care Administration.

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