Will ACOs Be A-OK? Model Stirs Hopes, Questions

by Dan Diamond, California Healthline Contributing Editor
Will ACOs Be A-OK? Model Stirs Hopes, Questions

Accountable care organizations, or ACOs, are the most-discussed acronym-cum-health care payment model since HMOs. As providers across the nation rush to adopt the concept, is California poised to be a leader?

Many experts argue that the fee-for-service reimbursement model is a key driver of the nation’s rising health care costs and care fragmentation. While lawmakers have tried for years to curb so-called unnecessary utilization, this year’s health care overhaul aims to change health care provider behavior by hitting them where they’ll notice: their pocketbooks.

Medicare increasingly will experiment with several payment models, including value-based payment — where reimbursements are linked with quality and patient outcomes — and bundled payments, where physician and hospital reimbursements are combined into a lump sum. While both models raise questions, such as how Medicare will define “quality” and how physicians and hospitals can legally align, providers generally grasp the concepts.

Less understood is Medicare’s planned move to contract with “accountable care organizations” beginning in 2012 — partly because CMS has yet to define what constitutes an ACO.

Who Can Become an ACO?

We do know how the new ACO payment model is intended to work. Medicare will push providers to reduce utilization of high-cost services by setting total-cost-of-care targets for a given population of patients. This reimbursement concept will initially be voluntary but is meant to eventually encompass the entire Medicare population.

Most likely, ACOs will be an integrated combination of hospitals, physicians and other providers that can manage the cost, quality and utilization of services for a given population of patients. A recent Health Affairs brief posited five potential delivery system models, ranging from hospital-centric ACOs like Cleveland Clinic to ACOs driven by large primary care groups, such as California’s Monarch HealthCare, which could act as “gatekeepers” for the delivery of care.

Questions remain about which providers are positioned to transition into ACOs, and which providers will become supporting actors in another organization. The California law preventing hospitals from directly employing physicians creates a further wrinkle, although integrated delivery systems like Kaiser Permanente are well-positioned to manage costs while providing team-based care.

Echoes of HMOs Among Concerns

The model also raises questions because ACOs harken back to the “failed” HMOs and capitated payments that were in vogue during the 1980s and 1990s, but ultimately were abandoned. Under capitation, “California became notorious for such profit-enhancing schemes as ‘drive-by deliveries’ that would ban newborns and their mothers from even an overnight hospital stay,” Consumer Watchdog’s Judy Dugan wrote in California Healthline‘s Think Tank in February.

Others have raised concerns that ACOs may be hamstrung by political maneuvering. The California Association of Physician Groups, which the Wall Street Journal notes is the largest U.S. accountable care trade group, recently protested that lawmakers’ efforts to narrow insurers’ medical-loss ratios and classify expenses like nurse hotlines and wellness provisions as administrative costs “would create a disincentive for plans to contract with our members and undercut” the ACO model.

Nine out of 10 experts surveyed by Commonwealth Fund also felt that current financial interests and misaligned incentives will create significant barriers to ACO implementation. However, 54% of the same experts said ACOs will be an “effective” reform model — once CMS gets around to defining them.

Local Efforts Dot Landscape

With Medicare’s January 2012 ACO launch on the horizon, many providers already are re-evaluating how they operate to offer the best standard of care and repositioning for the coming payment shift, often by contracting with other organizations. In some areas, “the scramble is so intense” that physicians are signing new partnerships almost daily, the Los Angeles Times reports.

At the same time, hospitals are joining forces, state lawmakers are kicking off pilot projects and even private payers are getting into the act. Anthem Blue Cross of California in May announced its own ACO pilot with two Southern California physician groups; the pilot is slated to begin in 2011 and to last five years.

Can California Be a National Leader?

California’s Department of Managed Health Care’s Financial Solvency Standards Board is slated to help develop the state’s ACOs and ensure successful regulation. 

According to Keith Wilson, the physician who heads the board, California’s experience with managed care gives the state a leg up on implementing ACOs. Moreover, “It’s the kind of thing the rest of the country is looking to emulate,” Wilson said. He noted that some California physician groups recently led a standing room-only “national seminar on how to run accountable care organizations. … We have a lot of experience with this.”

The law firm Paul Hastings also suggests that California’s unique medical foundation model “could serve as a good platform for establishing an ACO,” given most medical foundations’ existing billings and collections infrastructure, high degree of clinical integration and legal structure.

However, California providers aren’t leaders on every ACO front. Many health systems have been slow to adopt patient-centered medical homes, which connect each patient in an ongoing relationship with a primary care provider. Given their focus on preventive care and goal of managing chronic disease, medical homes are “the cornerstone” for any new payment model, according to Thomas Bent, president of the California Academy of Family Physicians.

Like ACOs, much about medical homes remains ill-defined; for example, what role would nurse practitioners be allowed to play? California lawmakers may soon have an answer thanks to AB 1542, which would better define medical homes under California law and is wending its way through the Assembly.

While care providers strategize on ACOs, here’s a look at what else is happening in health reform.

Implementing the Overhaul

Spreading the Word on Reform

On the Hill

Spotlight on State Opposition

Eye on the Insurance Industry

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