Bowtie Confidential: Is an ACO Right For Your Organization? 5/11/11

Although the acronym ACO (accountable care organization) is relatively new, the basic construct of this type of organization is at least 30 years old. The first PHO (physician hospital organization) was started in 1984. The PHO at Lutheran General (now part of Advocate Health Care) was unique in that it accepted risk on behalf of its physician membership and the hospital. This risk sharing is the same type of financial arrangement currently being promulgated through the ACO.

Most PHOs were not set up as risk-taking or risk-sharing organizations, but established as contracting mechanisms that would be attractive (often due to price reductions) to insurers. Under the Affordable Care Act, risk sharing (gain sharing for the initial time period for certain ACOs) is a cornerstone of the patient care delivery process. The federal government has mandated that there be savings from the delivery of care for designated populations, and have offered the ACO as the preferred alternative delivery model to achieve these savings.

Healthcare organizations are continuously looking at ways to hold down costs, especially as insurers are cutting payments to providers. Will ACOs be the answer to these current issues?

Healthcare organizations will need to determine whether they want to form or be a part of an ACO. Either way, each organization (hospital and other providers) must better organize resources, systems, and processes to be successful in this changing environment.

The elements needed to start a successful ACO are the same as launching any new endeavor:

• Effective leadership
• Patient-centered case management system
• Information technology that can support an ACO
• Diversity of providers
• Legal and actuarial services
• Financial reserves

The first priority is effective leadership. ACOs need effective and committed leadership from the physician community and the organization’s executive leadership. There must be a commitment to work together, to understand the intent of the ACO program, and to align the ACO organization to maximize the chance of success under this different payment method.

Once the leadership is in place, the ACO will need a robust, patient-centered case management system. Many organizations are establishing patient-centered care delivery models, most commonly referred to as the “medical home.”

Another critical success factor is capable information technology that can support an ACO. These requirements include:

• Systems to enable a patient-centered approach, such as CPOE, electronic prescriptions, and up-to-date patient discharge systems.
• An electronic health record (EHR) that is appropriately utilized by all of the providers, delivering the right information to the right provider, in the right format, at the right time.
• The capability to provide additional information in real time, such as which providers are in/out of network, and preferred vendors.
• Information systems that can show physicians their utilization and the costs for providing care to their patient panel need to be considered. This information might be in the form of a robust data warehousing system, which can integrate data from multiple sources. Another concept would be some form of internal claims processing. Some of this is already being done by insurers, but now the responsibility for providing this information will be the ACO’s.

A more obvious ACO requirement is a diversity of provider types. This is lacking among most hospitals and provider groups today. For example, does your organization have contractual arrangements for nursing home beds? Are you guaranteed these beds at a favorable price? Do you have the methodology in place to share risk (sub-capitation) with these providers, or will you have to pay market rates for beds and other essential services for patients that you will be responsible for (medically and financially)?

There will also be a need for professional support for the ACO, such as legal and actuarial services. Legal issues will be related to organizational structure, board creation, payment methodology, and OIG regulations. Actuarial services will help your organization decide how much risk it is willing to take and how to divide payments among the various providers (primary care, specialists, and other in-network providers).

You will also need to thoroughly assess your organization’s ability to put all of the building blocks of the ACO into place. Do you have the financial reserves to account for adverse selection? Do you have the appropriate leadership, including CMO, CIO and CMIO? Will creating an ACO give you a competitive advantage in your market, or at least keep you level with your competition?

You will need to feel confident that you have the elements mentioned above in place before you move forward with the formation of the ACO. The ACO is an opportunity to generate additional income through implementation of an effective care delivery system. However, without the aforementioned components in place, the risk, reward and revenue associated with a successful ACO will not come to fruition. In fact, the opposite can happen – higher risk, lower reward, and revenue loss.

Don Michaels, PhD is vice president, strategic and advisory services, for Hayes Management Consulting and teaches healthcare IT for the Harvard School of Public Health.