The Calif. Pilot That Could Prove ACOs Work

After much anticipation: Accountable care organizations have arrived.

Or at least, researchers — armed with data that attempt to quantify ACOs’ impact — made their way to Washington, D.C., last week, drawn to a Health Affairs roundtable on payment reform.

Economist Austin Frakt discussed his study, conducted with UC-Berkeley researcher Rick Mayes, on how lessons from capitation have informed ACO development. Harvard University’s Joel Weissman presented a report that examined the design and implementation of shared savings formulas across various actual programs.

And Paul Markovich, the president and COO of Blue Shield of California, detailed the insurer’s successful partnership with providers that, beginning in 2010, saved CalPERS about $37 million over two years.

That partnership — with Dignity Health and Hill Physicians Medical Group, and serving CalPERS beneficiaries in the Sacramento area — was built around a pilot that shared both risks and savings. It targeted overutilization and unnecessary readmissions, which are common problems for most providers.

And setting a global budget worked, Markovich reported. Over a two-year period, the annual growth rate of the cost per member per month was about 3%, less than half the annual growth rate of premiums over the past 10 years.

It’s the kind of evidence that ACO supporters say demonstrates the model will rein in costs and boost quality. And even better: it’s replicable.

Coming to an Agreement

The partners’ decision to form an ACO was sparked by the desire to innovate on care quality, but also by the real threat of competition, Markovich acknowledged.

As Blue Shield’s premiums continued to rise in the late 2000s, Kaiser Permanente moved to steadily capture more of the Sacramento market — and CalPERS was thinking of switching plans. At risk of losing about 41,000 CalPERS beneficiaries, Blue Shield worked to set up a pilot intended to help the state agency cut its health spending costs while improving beneficiaries’ outcomes. Under the pilot, Blue Shield planned a narrow network that would involve Hill Physicians and four area Dignity Health hospitals.

But convincing these organizations — which were used to fiercely bargaining with each other over payment rates — that Blue Shield was interested in “sharing risk, not merely shifting it” wasn’t an easy task, Markovich writes. To overcome this inherent wariness, the partners set up a board of senior leaders that represented each organization. The board was charged with developing strategy for the ACO and, when necessary, breaking deadlocks among the partnering organizations.

Meanwhile, a comprehensive review of the target population revealed that 5,000 chronically ill beneficiaries represented about 75% of total health care costs in the pilot ACO. As a result, the partners hammered out goals that targeted these patients and other heavy users, ranging from reducing drug costs and physician variation to improving population health management. They also implemented targeted utilization management, in an effort to reduce CalPERS beneficiaries’ length of stay and out-of-network spending.

But turning these plans into reality took months; Markovich writes that the groups began discussing alignment in 2007 but didn’t settle on an agreement until April 2009. The ACO itself didn’t launch until January 2010.

Demonstrable Savings, Right Away

Yet the ACO saw significant results within the first year, Markovich reported in Health Affairs. Health care costs per CalPERS beneficiary decreased by 1.6%, even as the average cost for beneficiaries outside of the ACO increased by 10%.

Many of those initial savings were linked to shorter hospital stays, as inpatient days and hospital readmissions decreased by 15% in the first year of the ACO, according to Markovich. The number of hospital stays lasting longer than 20 days decreased by 50% during that time.

Markovich also suggested that the reductions were the result of improved oversight of patients discharged from the hospital, such as checking in with patients by phone within two days of discharge and reviewing discharged patients’ prescriptions for potentially harmful drug interactions.

The improvements added up to $37 million in lower spending for CalPERS, Markovich reports. And altogether, the partner organizations beat their 2010 and 2011 cost targets by $13 million, sharing in the savings.

It Gets Better — and It Also Gets Harder

Armed with evidence of better care at lower cost, CalPERS officials say they plan to expand the ACO to southern California. And the pilot has won national plaudits, too. HHS Secretary Kathleen Sebelius last year said that the Sacramento project is on the federal government’s “radar” as a model for stakeholders looking for ways to curb rising health care costs.

But writing in Modern Healthcare, Melanie Evans notes that “savings have grown more elusive” as the pilot enters its third year. Having already targeted care coordination and reduced length of stay, the ACO’s leaders are now attempting to tackle harder-to-solve challenges, like ongoing management of patients with chronic conditions. Speaking with Blue Shield’s Kristen Miranda, Evans reports that the partners were slated to meet last week to review new strategies, such as the development of patient-centered medical homes.

Will the CalPERS project continue to produce savings, or have the partners already plucked the low-hanging fruit? Their efforts bear watching, especially as newer ACOs and similar pilots continue to come online. Here’s what else is happening around the nation.

Administration Actions

  • Last month, the Obama administration issued a rule amendment to clarify that young undocumented immigrants with temporary legal status would not be eligible for many of the benefits under the federal health reform law. Under the rule, such individuals will be barred from enrolling in the health insurance exchanges and high-risk insurance pools or qualifying for coverage subsidies (Winfield Cunningham, Washington Times, 9/9).

Election Watch

  • During a recent interview, Republican presidential nominee Mitt Romney said he still intends to repeal the Affordable Care Act, but noted that he would preserve some popular provisions, such as ensuring that individuals with pre-existing conditions can get coverage. Under his plan, people with pre-existing conditions would receive guaranteed insurance only if they have not experienced previous coverage gaps (Pear/Goodnough, New York Times, 9/10).

In the States

  • Nearly 1.6 million Florida residents who were uninsured in 2010 would be eligible for Medicaid if the state opts in to the Affordable Care Act’s Medicaid expansion, which Gov. Rick Scott (R) previously has rejected (Southwest Florida News-Press, 9/1).
  • Kansas insurance regulators are expected to make recommendations to Gov. Sam Brownback (R) on the essential health benefits that should be included in the state’s health insurance exchange under the federal health reform law (Shields, Kansas Health Institute News, 9/3).
  • A November Montana ballot measure will determine whether state residents must comply with the individual mandate under the Affordable Care Act. If approved, the measure would ban the state or federal government from forcing Montana residents to purchase health coverage (Cheney, Politico, 9/9).
  • Last week, Maine Gov. Paul LePage’s (R) administration filed a lawsuit with the First U.S. Circuit Court of Appeals against the federal government arguing that the Supreme Court ruling on the Affordable Care Act allows it to drop hundreds of thousands of Medicaid beneficiaries. Maine’s petition asks the court to order CMS to approve the state’s proposed changes in its Medicaid rules to drop beneficiaries or require CMS to cover the cost for beneficiaries whose coverage the state intends to end (Kliff, “Wonkblog,” Washington Post, 9/5).

On the Hill

  • On Wednesday, the House Ways and Means Committee’s Subcommittee on Oversight will hold a hearing to examine the Affordable Care Act’s tax provisions (Viebeck, “Healthwatch,” The Hill, 9/4). Subcommittee Chair Charles Boustany (R-La.) said the ACA contains 47 tax or tax-related provisions, most of which are in effect or will be implemented over the next 18 months (Needham, “On The Money,” The Hill, 9/4).

Rolling Out Reform

  • Financial advisers are developing strategies to help their high-income clients avoid additional taxes under the Affordable Care Act. Under the ACA, two provisions that take effect in January will affect residents with annual incomes greater than $200,000 for an individual or $250,000 for a household. One provision would raise the Medicare payroll tax by 0.9%, while the other would raise taxes on certain investments by 3.8% (Dixon, Reuters, 9/7).
  • In a recent letter to advocates for the lesbian, gay, bisexual and transgender community, the HHS Office of Civil Rights clarified that provisions in the federal health reform law prohibiting sex-based discrimination in health insurance also apply to transgender individuals. The letter states that the law would make it discriminatory for insurers, employers and others to deny health insurance coverage or benefits based on “gender identity or failure to conform to stereotypical notions of masculinity or femininity” (Andrews, Kaiser Health News/Washington Post, 9/3).

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