Newsletter
Accountable Care Organizations and their Impact on Physician Affiliation and Reimbursement
Presented by Integrated Healthcare Strategies
as Authored by Jamie Youssef
As healthcare reform discussions continue, a concept called Accountable Care Organizations (ACOs) continues to gain attention. Both the Senate and House healthcare reform bills include provisions directing Medicare and Medicaid to test the ACO model, while a number of states are pursuing ACO demonstrations with more pilot studies planned for 2010.
What is an ACO?
There are many different descriptions of ACOs; however, in general, the goal of ACOs is to pay providers in a way that encourages them to work together, does not promote supplier induced demand, and to create a healthcare organization that is rewarded for providing high quality care. Regardless of the official definition of an ACO, there are common key elements amongst them all that include:
- Local accountability for the quality and costs of patients participating in the ACO;
- Ability to prospectively establish the organization’s budget and resource needs;
- Ability to measure performance and use the results to drive improvement;
- Capability to provide or manage patient care across a continuum of settings; and
- Willingness to implement payment incentives that reward health care quality improvement, efficiency, effectiveness, and timeliness.
There are some questions about how a model focused on physician and hospital partnership can succeed at a time when physician and hospital relations are increasingly competitive and strained. Despite those that question the long-term viability of the concept, ACOs are a model that healthcare organizations need to acknowledge and begin to prepare for.
Payment Implications of ACOs
One key element of an ACO is the establishment of a payment methodology that will assist in driving behavior that improves quality, efficiency, effectiveness, and timeliness of care. In that model, Medicare could pay ACOs with a “gain sharing” type mechanism.
In the gain sharing framework, the fee-for-service (FFS) payment structure remains, but a portion of patient cost savings is passed through to the physician. For example, ACOs would participate in a "shared savings program" (“SSP”). Under SSP, the ACO and payer would establish a benchmark for the total expected annual spending for ACO enrollees. Participating physicians would be paid FFS, but if the ACO reduced costs while meeting established performance measures, the physicians, providers and payer would be rewarded with the savings. In other words, a bonus would be paid if the financial targets were met.
What does this mean to the healthcare organization? Assume the ACO realized $5 million in savings, these dollars would be redistributed to the parties (i.e., participating physicians) in the form of a bonus. The question then is how will these shared savings be paid out? For example, some organizations may consider an 80/20 shared savings scenario; 80 percent ($4 million) would be paid to the providers and 20 percent ($1 million) would be paid to the payer(s). The bonus model may differ depending on whether the physicians participating are current employees of the healthcare organization or independent physicians participating in the ACO. In addition to the healthcare organization, a fundamental issue for physicians will be how to share in the savings, especially if the physicians feel they are not leading the initiative.
Based on the potential complexity associated with this type of payment program (in addition to potential bonus payments, there may also be associated penalties for failing to meet benchmarks), the associated physician skepticism, and the fact that the specific payout methodology must be negotiated in advance, it appears that Healthcare-led ACOs will have an incentive to "lock up" physician services via physician employment arrangements in an attempt to simplify the compensation model. Add to that the belief that the more integrated the healthcare system, the more potential there is for savings.
With the continued pressures of reimbursement, increasing costs, and the growing shortage of physicians, IHStrategies continues to see more healthcare organizations attempting to affiliate and partner with their physicians. In addition to these challenges, the rise of ACOs will continue to increase healthcare organizations’ focus on affiliation models such as employment. Therefore, if you are considering affiliating with physicians, it will be important to consider the impact ACOs may have on your strategy.
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