For 32 health care provider organizations, Jan. 1 marked the start of a new relationship with Medicare. Those 32 organizations — called Pioneer Accountable Care Organizations — will work to coordinate care for a defined population of Medicare beneficiaries. If they succeed in lowering the total cost of those patients’ care, they’ll share significantly in the resulting Medicare savings.

Primary care physicians are at the core of the Pioneer ACO Model and a related initiative under the Affordable Care Act, the Medicare Shared Savings Program, that both aim to improve the quality of care and hold down costs. In many cases, physician groups have joined forces with hospitals and other provider organizations to create ACOs. In other cases, physician groups have founded ACOs alone and plan to contract with hospitals and other providers for necessary services.

CMS has required Pioneer ACOs to notify patients that their providers are participating in the model. Following orders, Pioneer ACOs across the country have been sending letters to patients explaining the new initiative and detailing its implications.

Unfortunately, some patients received entirely the wrong message.

The Ventura County Star reported earlier this month that Heritage Provider Network, a physician group serving 700,000 patients in Southern California, issued notices to patients across the county; however, not all of those patients’ care providers were formally affiliated with the Heritage Pioneer ACO. For instance, one physician quoted in the article does only occasional business with Heritage when he sees patients in the hospital — but his patients, too, received the notice.

This wasn’t an isolated instance. One executive at a Southern California hospital (who asked that her name be withheld) said that within 48 hours of Healthcare Partners’ designation as a Pioneer ACO, that organization sent letters to patients across the county, not all of whose physicians were affiliated with Healthcare Partners.

How did she know? “My mom received that letter,” she told California Healthline. “It threw my mom off and it threw me off; I had to read it twice. … It made it look like the only available option.”

Unintended Effects?

In the Star story, Jonathan Gluck, senior executive at Heritage Provider Network, described the mass mailing as a kink that needed to be resolved. However, the structure of the model suggests that this “kink” actually might benefit Pioneer ACOs in the long run.

Initially, Pioneer ACOs are paid on a fee-for-service basis; their incentives take the form of shared savings and losses, to be apportioned at the end of the year based on their performance against cost and quality benchmarks. As a result, Pioneer ACOs will attempt to broaden their patient populations as much as possible, to diffuse the risk of high-cost patients.

In year three of the program, the structure shifts to a partial population-based payment, which intensifies Pioneer ACOs’ risk and the accompanying need to serve a large, diverse population of patients.

In sending notification letters broadly, Pioneer ACOs — however inadvertently — may have recruited new patients.

The Competition Heats Up

With six Pioneer ACOs, California has the most participants of any state. Massachusetts has five; Michigan and Minnesota each have three.

In addition, several California providers have announced risk-based payment arrangements with private health plans, giving them the same incentive to secure their own sufficiently large patient populations.

This migration to risk-based payment models has catalyzed intense competition in many markets across the country, including several in California, as physician groups and hospitals compete to align with physicians (and, by extension, their patients). If Heritage or Healthcare Partners succeeded in broadening patient bases by sending out those letters, they did so at the expense of their competitors.

The Greater Los Angeles market is especially competitive, with three Pioneer ACOs within about an hour’s drive. Moreover, according to an executive of a Pioneer ACO outside the region, the Pioneer ACOs in Los Angeles did not require their specialist physicians to sign on exclusively with one ACO.

In other words, some Los Angeles specialists may be participating in more than one Pioneer ACO, making the market for patients who see those physicians even more in flux. In a case where specialists have more than one option for where to send their patients, alienating a physician is tantamount to losing valuable business.

Disrupting the Market

With the Pioneer program under way and the Medicare Shared Savings Program just a few months from beginning, providers planning to be Medicare ACOs in the short term have already made arrangements. Among them are many physician groups, and they aren’t waiting for hospitals to take the first step.

The Southern California hospital executive told California Healthline that in the wake of Healthcare Partners’ letter, many hospitals in the area suddenly felt compelled to align with the group.

Indeed, between Heritage Provider Network, Healthcare Partners and Sharp Health System’s Sharp Community Medical Group, physician groups are at the helm of many of California’s ACOs. As more physician groups found ACOs, the window of opportunity for hospitals to found their own ACOs narrows.

This trend has hospitals concerned: Their roles in physician group-founded ACOs would be quite different than their roles as ACO founders. At their most involved in a physician group-founded ACO, hospitals might be considered ACO Partners, sharing any savings or losses with the physician group.

But based on early examples, the more likely scenario is that hospitals are simply participants in the physician group’s ACO, seeing the ACO’s patients in need of tertiary care but not sharing savings with the ACO.

According to the Southern California hospital executive, this is exactly what is happening in her market. Physicians are forming ACOs and contracting with hospitals as service providers instead of fully bringing them under the ACO umbrella. In her words, “I don’t care what anyone says: We’re a vendor.”

Ongoing conversations with executives at ACOs across the country suggest that letter campaigns are just the beginning: ACOs are investing significant time and energy to generate interest and drive new business to their organizations.

We’ll be watching closely as ACOs continue to compete for patients and try to cultivate new loyalties. In the meantime, here’s a look at what else is making news in health reform.

Administration Actions

• Last week, the Obama administration announced $639 million in federal low-interest loans to seven organizations to launch health insurance cooperatives in eight states (Pecquet, “ Healthwatch,” The Hill, 2/21). The consumer-governed insurance plans were authorized by the federal health reform law (AP/USA Today, 2/21). The overhaul designated $6 billion for loans to the cooperatives, but Congress last year reduced that funding to $3.4 billion (Meyer, Kaiser Health News, 2/21).
• Last week, HHS granted nearly $230 million to 10 states to help them establish health insurance exchanges (Baker, “Healthwatch,” The Hill, 2/22). Seven of the 10 states already have adopted a plan for their exchange or made substantial progress, while two have not yet created a plan and one has said the federal government will take the lead on its exchange (AP/Washington Post, 2/22).

Eye on the Courts

• In briefs filed with the U.S. Supreme Court on Monday, the plaintiffs in the multistate health reform lawsuit — 26 states and the National Federation of Independent Business — argued that the Anti-Injunction Act should not apply to the case. If the justices do apply the tax law to the case, consideration of the legality of the health reform law would be delayed at least until 2014, when the individual mandate and a penalty for not obtaining health insurance take effect. Postponing the case would make the law a less significant campaign issue this year and give the Obama administration more time to implement it (Norman, CQ HealthBeat, 2/27).
• Last week, the U.S. Supreme Court announced that it has allotted an additional 30 minutes for debate on whether the Anti-Injunction Act should apply to the federal health reform law. In total, the court has scheduled six hours — over three days at the end of March — for oral arguments (Haberkorn, Politico, 2/21).
• In a brief filed with the U.S. Supreme Court last week, a coalition of six hospital and medical school interest groups urged the court to dismiss arguments against the federal health reform law’s Medicaid eligibility expansion. The plaintiffs in the multistate lawsuit before the court have argued that the scheduled expansion of Medicaid in 2014 is unconstitutionally “coercive” (Carlson, Modern Healthcare, 2/17).

In the States

• Over the weekend, many of the attendees at the National Governors Association‘s annual winter meeting in Washington, D.C., said they are hesitant to implement health insurance exchanges until the U.S. Supreme Court has ruled on the federal health reform law or until the November elections are over. They expressed concern about spending taxpayer dollars to establish the exchanges, which could be affected by the high court’s ruling or by the election of a Republican president, who might seek to overturn or repeal the law (Pear, New York Times, 2/27).
• The Texas Department of Insurance in April will close the Consumer Health Assistance Program, just 15 months after it was established. The state received a $2.8 million grant from the federal health reform law to establish the program, which helps uninsured residents obtain coverage and understand their rights and benefits. The federal government did not renew the grant and officials do not plan to seek other financing (Tan, Texas Tribune/New York Times, 2/23).

On the Hill

• Bipartisan legislation that would allow next month’s oral arguments before the U.S. Supreme Court on the federal health reform law to be televised has stalled and is unlikely to pass before arguments begin. Earlier this month, the Senate Judiciary Committee voted 11-7 to pass a bill (S 1945) to authorize the public broadcast of the court proceedings, but it has not been scheduled for a floor vote. Meanwhile, House Judiciary Committee Chair Lamar Alexander (R-Texas) has declined to comment on the prospects of a similar bill (HR 3572) by Rep. Gerry Connolly (D-Va.) (Pecquet, “Healthwatch,” The Hill, 2/28).
• On Wednesday, the House Energy and Commerce Subcommittee on Health will mark up a bill (HR 452) by Rep. Phil Roe (R-Tenn.) to repeal the controversial Medicare cost-control committee known as the Independent Payment Advisory Board, or IPAB. Sixteen Democrats are among the 224 co-sponsors of the bill, which is expected to advance quickly through the House (Pecquet, “Healthwatch,” The Hill, 2/25).

Public Opinion About Reform

• A recent USA Today/Gallup poll found that 32% of registered voters in 12 swing states “strongly favor” repealing the federal health reform law if a Republican president is elected this year. The poll of 1,137 registered voters also found that health care ranks just behind the economy and the deficit as one of the most critical issues facing the U.S. Voters under 30 are more likely to consider the overhaul “a good thing” but opposition increases among older age groups (Page, USA Today, 2/26).

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