Electronic Health Reporter

Guest post by Timothy “Dutch” Dwight, vice president of business development, Medullan, Inc.

Will today’s pioneer ACOs share the same demise as the HMOs of the 80s and 90s? It’s certainly starting to look that way.

Like HMOs, ACOs (Accountable Care Organizations) were created to reign in excessive fee-for-service arrangements and provide an incentive for capitating costs. The premise was that under the umbrella of an ACO, providers and payers would share in the responsibility for quality, cost and coordinated care for a defined population of patients.

If an ACO saved money for the payer without compromising quality, providers — defined as physician practices, hospitals, group practices, physician-hospital alliances and networks -–would share in the savings. And the savings were projected to be significant. Early forecasts from the Congressional Budget Office estimated that the 32 pioneer ACOs could save more than $1.1 billion in the first five years. On the other hand, if the ACO failed to meet capitation limits while providing care, the group shared in the losses.

To offset the risk and encourage membership, the early ACOs were supposed to receive multi-year compensation. However, that financial support disappeared after the first year and most provider groups did not have the business margins to carry them through a long-term investment approach. In addition, the ACO model requires a draw on scant resources from all parties to create another layer of program oversight – further cutting in to margin.

So where does the ACO model stand today? Nineteen of the 32 pioneer ACOs have left the program over the last two years, resulting in considerable wasted taxpayer dollars. As CMS moves towards the Next Generation program, can it succeed?

What will it take to save the ACO?

I believe ACOs can be saved, but significant changes must be enacted.

The fundamental problem with the pioneer ACO is that it manages the care of an unhealthy population without having sufficient oversight of that population. This leads a risk-adverse industry to hold their cash and cling to old processes.

Two years ago, Clayton Christensen rightly pointed out that the provider community must make major process and procedural changes in order for the ACO model to work. “No dent in costs is possible until the structure of healthcare is fundamentally changed.” I couldn’t agree more.

To survive, ACOs need to align with the Patient Centered Medical Home (PCMH) model, which is continuing to thrive and grow. PCMH is designed to align more holistic care management with a consumer incentive to prevent high-spend patients from seeking services from the more costly care centers such as emergency rooms. The payer, or insurance company, rewards the consumer for making smart choices by reducing deductibles and other fees if they use lower cost service centers such as primary care physicians, nurse practitioners, and urgent care centers. PCMH models use a combination of fee-for-service, value based payments to providers and align consumer incentives to reduce the cost of care. Comparatively, the ACOs capitated, “value based” payment model, intends only to lower the cost of care without having the proper procedures, tools and feedback loops in place to account how that care is provided. In other words, a visit to a PCP or ER makes no difference in the ACO model. On their own, ACOs do not have enough process control(s) and sufficient incentives to change patient behavior.

However, in combining the ACOs and PCMH model, the healthcare industry stands a much greater likelihood of meeting its goals — to improve the quality of care while containing or lowering the costs.

What needs to happen?

It starts with patient education – consumers need to be educated about their options and when and how to best use them. The next step is employing financial incentives. In short, money talks and will be key in changing old habits. When there is financial reward for going to one’s PCP or an urgent care center instead of an ER, consumers will make smarter choices. And ACOs will have an easier time capitating costs.

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