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California’s Hospital Systems Try To Be Accountable

Comparing spotting an accountable care organization to hunting a unicorn may be growing passé.

Besides, waiting for officials to even define an ACO these days feels like waiting for Godot.

After months of delays, Secretary Kathleen Sebelius has now promised that HHS will formally propose its ACO model by the end of March. The government’s ACO definition is important — it will not only outline how providers can tap into new payment incentives, but also provide key legal guidance for organizations as they construct partnerships that brush up against antitrust laws.

Sebelius has repeatedly hinted that ACOs don’t need to be led by giant hospitals — or include hospitals at all, for that matter.

Yet three of the California’s largest hospital systems are steaming ahead with transformations intended to help them seize new opportunities — or avoid rising challenges — in the post-reform landscape.

Golden State Providers Well-Placed To Capitalize on Reform

The federal health law encourages new reimbursement schemes, such as bundled payments that hospitals and physicians will be expected to split, while pushing providers to be better aligned on patient quality and care. “In some ways, California hospitals are well prepared” for these changes, according to Scripps Health CEO Chris Van Gorder.

The state’s health systems already have significant experience with capitated payments, which can be viewed as a rough precursor to the coming payment bundles. Capitation took hold in California several decades ago and persisted even as providers around the nation abandoned the model. Many Golden State hospitals learned how to operate under capitated payments to coordinate with physicians and enhance revenue.

However, some consumer advocates fear that ACOs could resurrect “profit-enhancing schemes” that appeared under capitation, such as efforts to ban newborns and their mothers from overnight hospital stays in order to curb costs. Others worry that ACOs will give hospital systems more leverage to hike payment rates for insurers, employers and patients, as premiums and prices already spiral ever higher.

Sutter Health: Making Changes but Girding for Cuts

One system, Sacramento-based Sutter Health, already has attracted scrutiny from consumer advocates. The 24-hospital organization — which already is the state’s priciest health system — has aggressively invested in accountable-care era acquisitions and “is further ahead of many competitors in fashioning itself” into an ACO, Kaiser Health News noted in November.

Even before the reform bill was signed into law, Sutter had invested heavily in electronic health records, which could position the organization to capitalize on the meaningful use incentives included in broader health reform efforts. Sutter also has ramped up its physician operations, having recently added an 800-doctor group in San Francisco that treats more than 330,000 patients and merged four other medical groups to form a single multispecialty practice treating 500,000 patients.

However, Sutter isn’t preparing for a new market reality by just sprucing up its wardrobe — officials are tightening their belts too. CEO Pat Fry last month sent a letter to about 50,000 employees outlining a three-year plan to reduce the system’s costs by about $700 million.

Citing the shifting payment model contained in the federal health reform law, Fry said Sutter is preparing for deep government reimbursement cuts “along with demands that doctors and hospitals deliver more care for less money.”

Sharp HealthCare: Teaming Up With a Major Payer

Sharp HealthCare also is working toward an ACO — but unlike many would-be ACOs across the nation, where hospitals have tended to team with physician networks, the San Diego-based integrated delivery system is partnering with Anthem Blue Cross.

Under the collaboration, which was announced this week, two Sharp medical groups will pilot an ACO focused on serving Anthem’s San Diego-based PPO members. Anthem recently began similar pilots with two other hospital systems — SSM Health Care in St. Louis and New Hampshire-based Dartmouth-Hitchcock Health.

Sharp has long worked to position itself to become an ACO, according to Dr. John Jenrette, who heads the Sharp Community Medical Group. Jenrette said last year that SCMG’s years-long expertise coordinating care for an HMO population helped ensure that the organization’s path to become an ACO is” straightforward and well under way.”

Scripps Health: Reform Catalyzes Major Changes

Compared to Sutter and Sharp, Scripps Health has tacked in a very different direction: The San Diego-based organization announced a radical restructuring across its five hospitals and 19 outpatient centers.

While many traditional vertical reporting structures remain intact — with individual hospital leaders still responsible for day-to-day care delivery — Scripps also introduced a new horizontal co-management model intended to better standardize performance, cut costs and preserve jobs.

Under the model, the system has been divided into four separately managed operational divisions, and a new batch of horizontal managers is working to identify and reduce fragmentation and variation across the system. Scripps is targeting more than $50 million in performance improvement within the first year of the redesign.

The organization also has continued its long-running efforts to align with physicians, setting the stage for a potential ACO. Scripps’ 10-year-old Physician Leadership Cabinet — which includes the heads of all of the affiliated medical groups — is a monthly forum between elected physician leaders and hospital administrators. The cabinet allows Scripps administrators and physicians to broach and fix issues before they can become organizational problems.

While reform “probably didn’t change the direction our organization was going … it increased the speed of the changes we wanted to put in place,” Van Gorder says. “It became a catalyst to align our physicians and our managers under what were radical changes we needed to make in our structure and organization.”

California Healthline will check back in with the systems as they continue to shift strategy and adjust to the new health law. Meanwhile, here’s a look at what else is making news in health reform.

Administration Actions

  • The Obama administration is uncertain what it will do after the expiration of one-year waivers it issued to exempt organizations from a provision in the federal health reform law barring limited health plans for workers. HHS Secretary Kathleen Sebelius said the administration is working on a plan despite the lack of existing information about the limited health plans. She said, “Part of the waiver issue is also for companies to submit data on where they are, what the plans look like” (Millman, “Healthwatch,” The Hill, 3/13).
  • At a conference last week, CMS Administrator Donald Berwick told members of America’s Health Insurance Plans that a long-awaited rule on accountable care organizations is forthcoming but that it should not be rushed. The federal health reform law authorizes the creation of ACOs, which would allow doctors, hospitals and other care providers to coordinate closely on patient care. Berwick said that the rule governing the formation of ACOs is still delayed but is coming “very soon,” without specifying a date. He added, “Everyone wants to get this right” (Norman, CQ HealthBeat, 3/8).

On the Hill

  • Republicans on the House Committee on Oversight and Government Reform have launched an investigation into waivers granted by HHS that exempt organizations from a provision in the federal health reform law barring limited health plans for workers. Last week, the committee wrote to HHS, “The current lack of transparency lends credence to the perception that bureaucrats are picking winners and losers in a politicized environment where the winners are favored constituencies of the administration.” The oversight committee is the second panel — following the House Energy and Commerce Committee — to investigate the waivers (Millman, The Hill, 3/9).
  • Business owners testifying in front of the House Education and Workforce Committee’s Subcommittee on Health last week disagreed over whether the federal health reform law would help employers. The Lockton Benefit Group — an insurance brokerage firm with 9,000 employer clients — testified that by 2014, businesses with 50 or more full-time employees will be required to pay 44% to cover their workers under the law than if they dropped them and paid a penalty (Pecquet, “Healthwatch,” The Hill, 3/10).

Analyzing the Overhaul

  • Last week, the Congressional Budget Office released an analysis finding that blocking implementation funding for the federal health reform law would cut the deficit by $1.4 billion for the rest of the fiscal year but would add $5.7 billion over the course of 10 years. CBO said its analysis includes figures that are “highly uncertain” because they depend on how the Obama administration would interpret defunding provisions in the fiscal 2011 spending bill (Millman, “Healthwatch,” The Hill, 3/10).
  • Last week, hospital advocates warned CMS that the agency would violate the federal health reform law and lay groundwork for a court challenge if it added new measures to its value-based purchasing proposal through sub-regulatory guidance. In the proposal, CMS says it will circumvent the normal rulemaking process to add provisions to its value-based purchasing plan once it has been posted for at least one year on the Hospital Compare website. The American Hospital Association and Premier health care alliance were among the groups that took issue with CMS’ plan (Inside Health Policy, 3/8).

Eye on Massachusetts’ Reform Law

  • Eighty-four percent of surveyed Massachusetts residents say they are satisfied with the state’s health coverage law, which requires most adults to have health insurance and resembles the federal health reform law, according to a poll released by the Massachusetts Health Connector. The poll also found that low-income individuals used the emergency department roughly the same amount as other residents (Gralla, Reuters, 3/10).
  • In related news, the individual mandate in Massachusetts’ 2006 health reform law has not significantly curtailed the state’s rising rate of medical bankruptcies, a problem that also could surface for the federal health reform law, according to a study published in the American Journal of Medicine. The study’s authors — public health researchers David Himmelstein and Steffie Woolhandler — said that medical bankruptcies continue to be a problem for Massachusetts because its health reform law ensured the availability of health insurance for more people, but provided weak coverage (Millman, “Healthwatch,” The Hill, 3/8).

In Public Opinion

  • Just over half of U.S. residents favor repealing the federal health reform law, according to a poll conducted by Republican pollster Bill McInturff on behalf of Revere America. The poll of 800 registered voters found that 51% favored repeal, while 41% opposed it. The poll also found that 74% of respondents cited the law’s cuts to some Medicaid programs as a reason for repeal, while 84% of respondents said coverage of people with pre-existing conditions was a reason to keep the law (Roarty, National Journal, 3/8).
  • In related news, 78% of U.S. residents believe palliative care and end-of-life treatment should be part of public discourse, and nearly 93% said they should be top priorities in the U.S. health care system, according to a survey released by the Regence Foundation and National Journal. The issue of end-of-life care became complicated in 2009 when opponents of the federal health reform law labeled a provision in the overhaul that would have provided coverage for end-of-life counseling from physicians as “death panels.” Although that claim has been proved untrue, the survey found that there still is confusion among U.S. residents regarding palliative and end-of-life care (DoBias, National Journal, 3/8).

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