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Think Tank

How Will ACOs Share Liability Risk?

One of the key concepts in the formation of — and probably the success of — accountable care organizations is shared risk. A pivotal part of the Affordable Care Act’s plan to reform an expensive health care system, ACOs are networks of doctors, hospitals and other providers that coordinate care and share responsibility and financial risk.

Like their predecessors in health care’s parade of acronyms — HMOs and MCOs — ACOs will need to balance quality patient care with saving money. When that balance is questioned by consumers and inevitably by the courts, how, exactly, will the risk be shared?

The question is posed in a July 10 Viewpoint article in the Journal of the American Medical Association by H. Benjamin Harvey, a physician and attorney at Massachusetts General Hospital, and Glenn Cohen, an attorney at Harvard Law School. The authors point out that managed care organizations have some liability protection from the Employee Retirement Income Security Act, but ACOs will not have the same level of protection.

Harvey and Cohen conclude their essay, “The Looming Threat of Liability for Accountable Care Organizations and What to Do About It,” with the suggestion that “innovation may be stymied by the threat of an uncertain liability environment.”

We asked stakeholders what could or should be done at policy-making levels — ranging from congressional and state legislatures to ACO leadership — to encourage innovation while balancing quality of care and cost-effectiveness in ACOs.

Done Right, ACOs Can Fuel Innovation

ACOs represent an innovative model with the potential to improve care by offering a global payment for a population of patients in return for accountability for cost and quality outcomes. The Medicare ACO program has given a boost to the development of ACOs, and they are proliferating among private health plans and provider groups. If done right, ACOs can fuel innovation in care delivery, and if done wrong, ACOs wind up as just a new way to pay for “business as usual.”

If done right, ACOs can accelerate investments in innovations proven to boost quality and reduce cost, such as primary care medical homes and care coordination for the sickest patients. When delivery systems are paid based on cost and quality for a population, capital flows to investments which generate returns in cost and quality. When delivery systems are paid based on volume — as they are in the fee-for-service system — capital flows to investments which generate more volume, whether it serves the purpose of the larger community or not. One danger we face is that ACOs only change payment without really changing care. If health plans accepting ACO payments don’t, in turn, change how providers are paid, providers won’t innovate. The worst examples are plans which charge purchasers a fee for “ACO” products, with no accountability for either improvements in cost trend or quality over time.

The best ACOs are promising zero increase in premiums as hospitals, provider groups and health plans collaborate to remove waste from the system.  And, at the same time, they are able to demonstrate improvement in patient satisfaction and clinical quality. Public and private purchasers must also require collection, reporting and effective use of cost and quality data to ensure that the new models of care deliver better outcomes, including on patient-centered measures such as patient reported outcomes.

Furthermore, ACOs should be accountable for these outcomes, with incentives to achieve superior performance results.

At the end of the day, ACOs need to be truly “accountable” to improve patient care by changing how care is delivered; they should not be just another way to pay for usual care.  That’s the bottom line.

Courts Can Be Avoided

I was struck by a sense of déjà vu reading the July 10 Viewpoint essay by Harvey and Cohen in JAMA about the threat of liability for ACOs. It conjured up memories of countless hours spent in depositions and court cases during the late 90s and early 2000s, part of my earlier professional life as a health plan executive. These cases involved medical decision making by providers within the construct of managed care organizations acting as “agents” for the health plan, consistent with the relationship we can expect ACOs will have with health plans in the future. 

The authors express concerns that ACOs will invariably become subject to the same liability MCOs experienced in the prior era of managed care. This is undoubtedly true; however, it is the health plans, not the ACOs, that should be most concerned. In my prior experience, MCOs were not the targets of the trial attorneys; rather, the litigators aggressively pursued the health plans and their large balance sheets.  In fact, the MCOs, lacking the legal and financial stature to fight these cases, quickly lent their cooperation to the plaintiffs and in return avoided liability. 

In my view, the prospect of liability, with whomever it sits, is not the central issue. Rather, the key policy and regulatory concern should be with striking the proper balance between cost containment, quality of care and consumer preferences in the first place. This requires balancing the conflicting and dynamic expectations of consumers, providers and health plans.

And how can we accomplish this?

First, as the authors suggest, we must link ACO performance in clinical quality and patient experience with utilization and costs. Unlike MCOs of the earlier managed care era, ACOs expect to be held to specific quality standards. 

Second, ACOs must be required to earn the right to make medical coverage decisions by virtue of their performance, before they are given this responsibility.

Third, health plans must offer early stage alternatives to litigation such as rapid turnaround on medical decisions and grievances, mediation and arbitration.

And finally, state regulators must enforce rules and play referee to assure that ACOs, health plans and consumers have an opportunity to sort out their differences. If these provisions are effectively implemented, we can avoid the courts — except as a last resort.

How ACOs Can Promote Innovation

The rapid movement toward accountable care organizations, with their focus on shared risk and cost control, has raised concerns about the fate of innovation in these new care models. What should be done at policy-making levels to ensure access to new therapies and technologies while balancing quality of care and cost-effectiveness in ACOs?

Over the past year, NEHI, a national health policy institute, has convened health care leaders and policymakers in a series of ACO Innovation Summits across the country. Through these expert convenings, a number of new opportunities have emerged that would promote innovation in the era of accountable care, including: 

Targeting innovations and services to high risk/high cost patients: Nationally, 50% of health care costs result from 5% of the population. These high risk/high cost patients are not new—consisting of those who have multiple chronic illnesses, the frail elderly, the dual eligibles, the mentally ill, and the homeless. The difference today is that providers in an ACO environment now have skin in the game and thus the financial incentive to invest in innovations and services that were previously under-reimbursed or not reimbursed at all, and can lower the total medical expense for patients.

One strategy ACO leaders can employ is to target prevention and wellness services, chronic disease management programs, and behavioral and mental health services to high-risk patients, given that these investments pale in comparison to the financial penalties from both Medicare and private payers. 

Investing in innovations to enhance patient engagement: ACO leadership should consider investing in innovations that can bridge the communication gap between patients and providers outside of the doctor’s office or the hospital room. Even relatively simple and convenient approaches to care that include cellphones, home telemonitoring, virtual visits, non-clinically licensed care coordinators, retail clinics and electronically supported referral processes can often help lower the total medical expense for patients while serving their needs.  

Despite these opportunities, it would be naïve to think that the market is not moving toward stricter adherence to evidence-based medicine and clinical guidelines. In fact, many ACOs have created review boards to assess the evidence and ultimately decide if and when current and new drugs, devices, and procedures should be used and for which patients.

However, our research has also shown that ACOs have created new opportunities for innovation that may prove to be equally fruitful and less risky for providers. ACO leadership should consider pursuing these avenues.

ACOs May Be Learning Tool for Providers

Complex medical care transactions involving multiple parties invariably raise the potential of liability among parties to a business agreement. ACO sponsors should not be dissuaded by such potential legal liability, assuming prudent steps are taken in relation to governance structure, safe harbor issues, and quality provisions.

However, sponsors and participants should be very concerned about the level of investment made in order to become an ACO. In that regard, there is a very real danger of “financial liability” in terms of the level of investment that provider organizations need to make. The return on investment is not likely to be significant in the short term.

At the same time, sponsors should view return on investment within the context of moving their organization along the continuum of risk arrangements over a period of years. Delivery organizations will be held more and more “accountable” by employers, insurers and government payers aiming to base payment on medical outcomes and workplace productivity rather than on volume of procedures.

The bigger picture is that ACOs may serve as a way station for providers to learn how to be far more efficient in care delivery and more effective in care collaboration. This is a decidedly new landscape for organizations and clinicians used to fee for service, and not being held accountable for quality except for periodic accreditation purposes.

To the extent that accountable care arrangements (and ACOs) encourage delivery systems to provide better care for less cost, they will serve a useful purpose. The issue of “liability” is more a question of whether the organization can marshal sufficient internal support for cost and quality accountability, and stay the course for doing so over the next 5 to 10 years.