Odd Little Facts about ACOs


  • The Medicare patients will be invisible to the providers for one year so as to discourage lowering costs improperly. How will this affect the providers’ ability to design cost-lowering programs?
  • ACOs are not closed networks;
  • When ACO beneficiaries go outside the ACO, and healthcare cost savings or excess is passed onto the ACO, even though the ACO had no control over such things. Imagine how seasonal residence plays into this;
  • Demonstration projects show a lot of patient “churn,” further challenging the ability of an ACO to control costs;
  • It looks like the two sided model will put 25% of reimbursement at risk;
  • Even Mayo, Geisinger and Cleveland are saying they won’t participate in ACOs.


ACOs are S.T.U.P.I.D

We have probably never seen so much enthusiasm and spending on anything in our history as we are on healthcare reform. The point is to slow spending and improve quality by incentivizing cost-saving, quality-enhancing behavior. And the Accountable Care Organization is the new healthcare delivery model designed to save us from our greedy, over-utilizing selves. Here’s how it works:

First, you take a lot of primary care physicians and tell them they will get more money by (1) taking an expanded role in taking care of patients, and (2) reducing the expenses associated with that care. Then you tell them two really special things: first, you tell them “Uh, since we’re afraid that you will improperly reduce the amount of care the patients need, we won’t tell you which patients are in an ACO and which are not.” Second, you tell them “We really mean it when we tell you that we intend for you to make more money, but we won’t tell you exactly how we’re gonna do that. Trust us, ok?”

Second, you empower physicians to lead the charge. After all, they’re the only participants in ACOs that smart people think can control costs and quality. And you do this by telling them to (1) shell out about $26 Million to form an ACO, (2) go to Wharton and get an MBA, (3) educate themselves about all the intricacies of information technology and work out the kinks involved in implementing electronic medical records, and (4) keep taking care of those patients while you do all this. Finally, you keep the identity of patients secret from the physicians so there is no way to prepare care plans that take into account the diseases faced by the patients. No problem.

Third, you let patients run amok. They can go into an ACO…or not. They can go in and out of ACOs. They’re like kids that way, but they’re responsible for reading the 397 pages of ACO regs and then deciding whether they like the idea of not. Oh, and they have absolutely no incentive to sign up for ACO care. And why would they? “Hey, how about you go with this ACO, which will get more money if they spend less on you. How’s that sound?” How could this possibly be sold to Medicare patients? “This ACO will get paid for getting you well! Your primary care doctor that you’ve trusted for 20 years and who helps you get and stay healthy…that person doesn’t have the same incentive to get you well.” NOT.

Simplicity. There is none. Never before in our history have we seen something so simple (patient rationing) become so complicated (rationing = less expensive care). And so many acronyms and governmental departments and positions too! There are one sided models, two sided models and now a Pioneer model, for those who are especially adventurous. And did I mention that the basis for healthcare reform, the one that only the state of Washington has the courage to articulate, is really just rationing?

Troubling to pretty much everyone. Yes. Except for policy makers, there has yet to be any significant support for anything other than the IDEA that healthcare should cost less and be more outcome oriented. Even the Mayo, Geisinger and Cleveland systems have all politely declined at this point.

Unlimited flexibility. Yes, this is true, especially as it relates to patients. See, patients can be in a cost saving ACO or not. They can go in and out of them and the ACO will bear the cost. That’s right: patients can go in and out of them—ACO, non-ACO, and yet only the ACO will be penalized for cost increases. Let’s see, the ACO model is the cost saving model. And the plan is to allow patients to choose for society to save money or not. And the patients have zero incentives for participating in an ACO. And who is responsible for the behavior of these patients? Uh, well, we all are.

Patient accountability. This is completely lacking in the ACO model. There is absolutely nothing to incentivize patients for making healthy decisions and to punish them for making unhealthy ones. Also primary care driven. Not really. There aren’t enough to go around, but some guy who knows a doctor is free to see you now. Oh, also pro competitive, meaning everyone will wanna be an ACO, so that will create competition in the market and a tremendous drive to drive costs down and quality up. Ok, not really, but wouldn’t it be nice if that COULD happen. In fact, healthcare reform is functioning to do one sure thing—reduce competition, since only the biggest, strongest organizations can afford to compete or to be one.

Inexpensive. Nah. While the initial cost projections suggested about a $2 Million price tag for forming one, they are now up in the $12 to 26 Million range.

Direct and demonstrative. NOT. The entire healthcare reform delivery plan is like pushing a mouse through a maze by its tail.

Healthcare reform is like Alice in Wonderland at its best. It only makes sense on mind-altering drugs. Moreover, the shizo message from our policymakers on the whole issue is dumbfounding. “We are committed to lowering healthcare costs. ACOs will do this. Patients can be in them…or not.” Some legislators think they’ve created a panacea with ACOs, but then don’t want to compel them. It’s just political nonsense.

Look, slowing healthcare cost creep and quality enhancement are good things. We all (patients included) ought to be outcome driven and focused so that the end result is actually healthcare. ACOs just don’t and won’t do that, which may have something to do with the recent announcement by Mayo, Cleveland and Geisinger that they’re really not that interested in playing with them.


So, What are ACO's Really All About?

Policymaker: Well, we’re pretty excited about these ACO regs

Reporter: These ACOs are really supposed to lower healthcare costs and improve quality?

Policymaker: You bet. We really believe in them. It’s the a common sense model that is primary care driven.

Reporter: So, then I suppose all the Medicare patients are gonna be in them, so that we get the cost reduction and health benefits?

Policymaker: Ummm, no. We don’t want to require that. We want to design the perfect system, but we don’t want to require anyone to use it.

Reporter: Why not? If you believe in it, why not just implement it?

Policymaker: It’s not American to require people to do anything.

Reporter: That’s confusing. What’s the value of having spent so much time and money on the perfect system if it isn’t actually implemented?

Policymaker: Oh, it will be! Trust me, when Medicare patients see the value of being in a healthcare delivery model that makes more money by reducing the amount spent on care, they’re gonna flock to it.

Reporter: How will you know?

Policymaker: Great question. We’re gonna track it. We’re gonna assign the patients to an ACO and then watch the cost fall and the quality rise.

Reporter: How is the patient gonna feel about being assigned to an ACO, one where maybe their physician isn’t even participating?

Policymaker: Oh, no problem at all. Good care is good care. We think the physician patient relationship is overrated.

Reporter: Really? It seems so personal and essential.

Policymaker: Not really. We just think that. We’re not even gonna tell physicians who’s in an ACO or not?

Reporter: Why not?

Policymaker: Cause we think physicians might prefer the money from reducing costs over helping people get well.

Reporter: So you think paying physicians for saving money will cause them to provide insufficient care?

Policymaker: No, we think paying them to provide really excellent care will drive costs sky high.

Reporter: So is the goal to reduce the quality of care?

Policymaker: No, just the amount of it, because the more you provide, the more it costs.

Reporter: Sounds like healthcare reform is about rationing.

Policymaker: (Laughs). Oh my, no! That would never fly. What we have to do is to make sure patients get exactly what they want and, at the same time, reduce costs.

Reporter: And ACOs will do that?

Policymaker: You bet. That’s the magic. By providing the perfect system and then by mixing it with patient choice and secrecy, we’re convinced we’ll see reduced costs and higher quality.


Creating the Ideal ACO

The current fixation on Accountable Care Organizations (ACOs) is causing an enormous amount of two things:  (1) talking, and (2) inactivity.  Yes, the concept of delivering care in a manner that reduces or at least controls costs is important and interesting.  Yet, the marketplace is replete with people and businesses that have adopted a wait and see approach, which is really no approach at all.  Businesses and people who will thrive (especially in dynamic times) are those who, as always, take a lesson from sharks:  swim ahead or drown.

            So what about ACOs?  What the best “thing”?  How do you make one?  First, you have to do away with the focus on ACOs, since they are more of a concept than a thing.  Focusing on ACOs as a thing merely paralyzes the viewer because they are, by definition, not subject to such limitations.  What is clear, however, is what they’re supposed to do:  reduce costs and improve quality in a demonstrable way.  How do you do that?  Easy…squeeze the toothpaste tube backwards.

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Proposed ACO Regs Are Out!

“Patient centeredness,” “fragmentation” and “value based purchasing” are just a few of the terms that are peppered throughout the newly proposed regulations for accountable care organizations (“ACOs”).  The healthcare reform law established the Medicare Shared Savings Program for ACOs as a key way to accomplish its two core objectives:  (1) reduce healthcare costs, while (2) preserving and improving quality.  Like most new legislative ideas, the ACO regs raise lots of questions.

Who can become an ACO?

 Answer:  Pretty much any legal entity that complies with state law, has a tax ID number, applies successfully and which:

  1. Agrees to participate for three years;
  2. Cares for 5,000 Medicare patients;
  3. Is prepared to receive and distribute shared savings;

4.         Is prepared to repay shared losses (if it takes economic risk);

5.         Establishes reporting, and ensures ACO participant and ACO  provider/supplier compliance with program requirements, including the quality performance standards;

6.         Has shared governance that provides all ACO participants proportionate control over the ACO’s decision making process and includes Medicare patient representatives;

7.         Is operated and directed by Medicare-enrolled entities that directly provide health care services to Medicare patients.  ACO participants (e.g. physicians, hospitals) must have at least 75 percent control of the ACO’s governing body;

8.         Has sufficient primary care physicians to meet the primary care needs of the ACO patients;

9.         Has administrative and clinical organization and leadership;

10.       Is patient-centered though the use of such things as patient assessments and individualized care plans; and

11.       Is subject to substantial monitoring and reporting requirements, including public reporting of quality data to ensure transparency.

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IPAs Again

Independent practice associations (“IPAs”) are gaining momentum in response to healthcare reform and market changes responding to healthcare reform.  In an era when consultants are selling one-size-fits-all solutions, physicians have to consider IPAs as a viable option once again, but they have to fine tune their expectation to recent changes.

            In the thunderous noise wrought by talk about accountable care organizations (ACOs), physicians are scrambling to see where they might fit in the future of healthcare.  While we think those changes will be neither as severe or as pervasive as feared, we do see huge opportunities for ANY organization which can (1) reduce healthcare expenditures, and (2) improve quality.  Healthcare businesses of the future will view utilization skeptically.  Hospitals of the future will look like medical practices with beds.  Medical practices of the future will have a stake in the cost and quality of care being delivered and will view utilization skeptically. 

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ACOs Wobble But They Don't Fall Down!

Accountable Care Organizations are posited as the new healthcare delivery platform for the masses.  They are more an idea, an experiment, than they are a thing.  The basic elements are:

  1. They are a legal entity which consists of physicians, hospital(s) and insurer(s);
  2. They have a core of primary care physicians;
  3. They must make a three year commitment to function together;
  4. They must care for 5,000 patients;
  5. They must be prepared to reduce overall healthcare expenditures and improve quality. 

They are intended to be pro competitive, but watching the early line-up of entities that are positioning themselves as early ACOs looks more monopolistic than anything.  It’s a little like a child who planted little butterfly chrysalises, waited idealistically for the small winged things to emerge, then ran in horror when it was Pterodactyls, not butterflies that swarmed.

            The concept of an ACO is curious, yet hospital systems all over the country are busy preparing themselves to take the lead on ACO development.  Why?  Who else but hospital systems have the necessary ingredients of:  (a) time, (b) money, and (c) organizational expertise?  Physicians certainly don’t, but they are necessary players.  ACOs cannot function without physicians; and physicians must take a key role in ACO development without “joining.”  That is, they have to take active roles in the ACO development talks and remember not to simply sign up.

            The ACO concept is premised on some remarkably questionable assumptions like:

  1. Physicians, hospitals and insurers can create the trust, collaboration and transparency necessary to be in business together.  That’s a little like hoping cats and dogs will one day roam the neighborhood paw in paw.  It’s not impossible, just funny to think about.
  2. Primary care physicians can control ACO cost and quality.  The truth is that there is a primary care shortage all over the country; and the trend is towards a desophistication of primary care through the use of supervised “physician extenders,” such as PAs, MAs, nurses and nurse practitioners.
  3. Physicians can manage other physicians.  For an ACO to reduce costs and improve quality, someone has to lead.  The Brookings Institute, for instance, has opined that neither hospitals or insurers are well suited to  accomplish either of the cost/quality objectives.  Will ACOs empower and reward physicians to lead the cost/quality objectives and will physicians accept the responsibility?  That would be remarkable.   
  4. ACOs are procompetitive.  How can that be, when the only players lining up to lead the charge are the “big dogs” like Kaiser and Mayo?
  5. ACOs will reduce costs because the participants will be paid on an incentive basis (to reward lower costs and higher quality).  Untested, unproven, perhaps even unlikely.  As an aside, how will physicians know their insurer partner in an ACO has achieved cost savings?  It’s a Koan, isn’t it, like the sound of one hand clapping.
  6. This is the end of fee for service medicine.  Though FFS medicine is viewed as the root of all evil for healthcare pundits, no one is suggesting there be a mad dash towards capitation (a per member/per month payment).  In fact, most think tankers believe shared cost savings is the first and logical wave of payment reform.  No down side at all!

What is clear about ACOs so far is that they are big business; and there is huge interest among hospital systems in preparing for a battle royale with other hospital systems.  As such, systems have never been more active in gobbling up practices and integrating for greater geographic coverage.  Medical practices alike have “integration fever” and are ready to jump into nearly any mega practice arrangement that comes along.  Consultants with everything to sell from legal services to “healthcare consulting” services are busy selling in an environment where the motto has quickly become “Do something, anything!”

 For many businesses (physicians, hospitals, etc.) the answer has been to spend money, lots of it.  How many $100K “excellent” EMR systems sit burping uselessly in the offices of physicians who were told “You gotta do this to get the nearly $64K that awaits you (assuming 30% of your patients are Medicaid recipients).”  Plenty.  Oh, as an aside, remember that the incentive money has a planned five year pay-out and will likely be taxable.

 Healthcare reform concepts are not new.  The 90s brought a flood of fully capitated primary healthcare clinics and subcapitated specialists.  Every entrepreneur had a “network” that skimmed off the top, then sold to some Wall Street guys.  Healthcare reform is not new, but it is unique because it is (1) government mandated, and (2) linked to quality accountability (whatever that is).  And while it’s likely to change, it’s unlikely to go away.

 Slow down Stanley!  ACOs and the rest of healthcare reform’s measures are changing faster than anything.  The ACO concept itself is considering better alignment partners than originally considered.  “Maybe since physicians, hospitals and insurers don’t want to have lunch together let alone be in business together, other alignments might work better,” some lawmakers and think tankers maintain.  And we will definitely see a lot of such rethinking in the next 10 years or so that reform is set to phase in!

 So, what do you do?  Listen, learn, carefully examine your personal and professional plans, then see what might fit you.  One size does not fit all.  Is a mega practice the right thing for you?  Not if you’re gonna retire in a few years.  What about an IPA?  Sure, if the IPA is willing to break away from pure fee for services contracting.  What about going after the “proprietary market” with a concierge or VIP practice?  And what about solo practitioners?  Are they doomed?  Not likely.  In fact, as the insured market expands and care gets squeezed to its lowest common denominator, many think the proprietary market will expand faster than a Tempurpedic mattress. 

 ACOs, networks, MSOs, GPOs and the like are just part of the rich alphabet soup that physicians must drink from in order to play an active role at this time.  The truth is there is no way to avoid the change conversation.  There is no way to sit this one out!  And the truth is that jumping in is not a bad thing.  In fact, the dirty little secret of this era is that healthcare reform can be a little like chicken soup to physicians because anything they do which lowers costs and improves quality is good, regardless of what you call it.  Couldn’t hurt!