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Being held accountable

Medicare officials are ready to draft accountable care organization regulations, but legal, economic and organizational challenges remain


By Melanie Evans
Posted: May 17, 2010 - 12:01 am ET
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On the road last June to stump for health reform, President Barack Obama argued for an overhaul without which, he said, paychecks, jobs and the economy would suffer.

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Too many lack health benefits and too few insured can afford care, he told a Wisconsin crowd. He lobbied for changes to squeeze spending for care that shows no results. “We have the most expensive healthcare system in the world, bar none,” he said. “But here's the thing, Green Bay: We're not any healthier for it.”

And he singled out pay to hospitals and doctors—not the price, but the method—as a major culprit behind waste.

“We should change the warped incentives that reward doctors and hospitals based on how many tests and procedures they do even if those tests and procedures aren't necessary or result from medical mistakes,” Obama said.

Eleven months later, Medicare officials are preparing to draft regulations for one provision under health reform that policymakers hope will help achieve such a fix.

Under the law, Congress gave Medicare leeway to give healthcare providers that curb Medicare spending a share of the savings as long as they reach quality and cost-control targets. To be eligible, providers must create networks, known as accountable care organizations, that contract to manage care and curb spending for a specific group of patients. But how such ACOs will operate and whether they will help slow health spending as reform rapidly expands access—and demand—for medical care to an estimated 32 million uninsured remains unclear.

Federal officials must settle several key details before Medicare begins to make such payments in 2012 under the health reform law. A spokeswoman for the CMS, which oversees Medicare and the safety net insurer Medicaid, said in an e-mail that details would be released with upcoming regulations.

Among commercial insurers, medical groups and health systems, the law has prompted a rush to launch efforts in the private market in a bid to shape emerging federal rules, including a pilot backed by prominent health policy experts.

But questions dogging the private efforts underscore just how elusive such a fix could prove to be despite wide endorsement.

In the private market, insurers and hospitals are grappling to devise ways to project spending and potential savings and award incentives without running afoul of laws that prohibit physician self-referral and collusion or state insurance regulators. Others are considering whether and how to divvy up costs should hospitals and doctors in accountable care groups fail to produce savings—a strategy some policymakers say could yield greater results, but comes with more risk and likely more regulation.

Consider flexibility

Proponents of the ACO arrangements acknowledge policymakers and the healthcare industry face legal, economic and organizational challenges.

Former CMS chief Mark McClellan and Elliott Fisher, director of the Dartmouth Center for Health Policy Research, writing in the journal Health Affairs this month, noted that accountable care networks of largely independent hospitals and doctors could raise antitrust concerns. McClellan and Fisher co-authored the paper with three others. McClellan, director of Brookings Institution's Engelberg Center for Health Care Reform, and Fisher have championed the payment arrangement and launched accountable care pilots in Arizona, Kentucky and Virginia with another 60 hospitals and health systems signed on to learn about the networks.

Incentive payments present further legal and regulatory challenges, healthcare lawyers and industry executives say. Dividing bonuses among networks of independent providers may risk violating laws to prevent abuse of referrals among doctors and hospitals. State insurance regulators may also intervene should incentives put hospitals and doctors at financial risk, as is the case with lump-sum payments to treat patients, or capitation. If costs exceed the lump sum, providers must absorb the cost.

“There really is no model out there that says this is how you have to do it or how you should do it,” said Palmer Evans, chief medical officer of the 555-bed Tucson Medical Center. The solo hospital—which employs 15 doctors and relies largely on independent physicians—began talks more than a year ago with UnitedHealthcare to create an accountable care network under the pilot led by the Dartmouth Institute for Health Policy & Clinical Practice and the Brookings Institution's Engelberg Center.

The prospective partners are working to project how spending may grow if unchecked, estimate potential savings, determine how much a bonus may be, and figure out how to award bonuses without breaking any laws.

McClellan and Fisher, writing in Health Affairs, called for “considerable flexibility” to promote accountable care groups regardless of providers' markets or resources and put forward a proposal for how to organize those groups. The proposals were echoed by policy experts in a separate article in the Journal of the American Medical Association also published in this month (See chart).

The proposals call for three levels of accountable care groups that would range from less-comprehensive and low-risk to highly integrated with extensive quality reporting and greater potential for financial gain or loss.

Such range could aid CMS officials, who will face the challenge of drafting achievable, but not weak, criteria for Medicare accountable care contracts, said Stephen Shortell, dean of the University of California at Berkeley School of Public Health. Shortell co-authored the JAMA article that also called for a three-level range of accountable care groups.

Entry-level networks would offer bonuses based on savings and quality targets. Level two would offer greater bonuses but also put hospitals and doctors at risk should spending exceed savings goals. Networks in level three would be paid in capitation, or a lump sum, or partial capitation, which would require financial reserves to guarantee against risk.

But Robert Berenson, an Urban Institute fellow and former head of Medicare payment policy and managed-care contracts from 1998 to 2000, said he doubts bonus payments in addition to fee-for-service, methods proposed under the entry-level ACOs, will successfully slow spending. “We should have real accountable care organizations,” he said. “At some point we should have better payment incentives for practices to do a better job without thinking everyone needs a financial incentive.” Hospitals can continue to profit from volume under models that add bonuses in addition to fee-for-service, he noted, adding, “That doesn't change healthcare.”

Berenson argued a bonus from savings won't “change their business model” if payment remains tied to volume. “The basic incentives in the system matter for everybody.”

The Congressional Budget Office said accountable care organizations under health reform would save Medicare roughly $5 billion over a decade, a figure McClellan and Fisher conceded is clearly not “bending the cost curve,” but goes further than solo efforts such as health information technology or disease management, the experts wrote in Health Affairs. The CBO included accountable care organizations under Medicare in a recently published list of health reform provisions for which the law allows unspecified appropriations. The budget office included the list in an update of discretionary spending in the health reform package, but said the CBO lacked information to provide estimated costs.

In California, Blue Shield of California; Catholic Healthcare West, San Francisco; and Hill Physicians Medical Group, an independent physician group, announced the launch of an accountable care network in January with the goal of holding healthcare costs flat this year for Sacramento-area California employees.

Mary Carol Todd, vice president of medical management for the 38 hospital-CHW, said the effort has targeted costs from overuse of surgery, avoidable hospital readmissions and patients who seek care outside the managed-care network in their effort to hold spending at about $400 per member per month in 2010.

The effort stemmed from a year of talks among the partners to identify ways to improve quality and patient satisfaction and reduce costs, Todd said. Each had data without which others could not readily identify waste or errors that drove spending.

Unexpected results

Results of the analysis produced some unexpected results, Todd said. A major source of overuse proved to be knee surgery and hysterectomies, rather than treatment for asthma, diabetes or pneumonia. Meanwhile, IT proved to be a barrier as the partners sought to improve quality. Hill Physicians and CHW sought to improve communication to prevent avoidable return trips to the hospital, but not all clinics have electronic health records, Todd said. Nurses with Hill Physicians now access patient records at CHW hospitals for clinic case managers, after vetting the process to protect patient privacy, she said.

Juan Davila, senior vice president for network management at Blue Shield of California, said costs the prior year rose roughly 8% to 10% and the flat spending amounts to savings of roughly $15 million. Davila contends the savings offers the network a competitive advantage among plans offered to California employees, which benefits the partners, he said. The insurer also guaranteed growth in members for CHW network and referrals for certain services to the system's hospitals, which stand to lose business under the cost-control efforts, he said.

The partners also agreed to share losses should spending exceed the target, but the payment did not tie incentives to specific quality measures in the first year, Davila said. However, the partners separately report quality measures for California employees in the accountable care network to the state to monitor and ensure quality performance, he said.

At least 16 health systems are expected to announce this week plans to separately launch accountable care networks through an initiative by the group-purchasing and quality-improvement organization Premier. The Charlotte, N.C.-based company, which is owned by health systems that contract for its purchasing services, said accountable care networks will seek to cut costs by 10% per capita over two years.

Wes Champion, senior vice president of Premier Consulting Solutions, said he believes the private-market push ahead of federal regulations represents “a huge opportunity” to influence federal policy. Premier is expected this week to unveil the organization's push to promote the model with a two-tiered network of hospitals and health systems seeking to create such arrangements.

One tier includes at least 16 systems with roughly 60 hospitals that meet criteria for those able to quickly adopt accountable care networks. Members agree to share quality and spending performance and experience creating the networks.

To be eligible, health systems must: be ready to adopt Medicare accountable care rules, once released, within one year; employ doctors or have an established physician organization; contract with one insurer that covers at least 5,000 Medicare enrollees; and have IT to transfer data from doctor to hospital to insurer.

Health systems must also be members of a nearly 3-year-old effort to reduce costs, avoid infections or deaths among patients, and improve quality and patient satisfaction.

The second tier includes roughly 11 health systems that operate more than 90 hospitals that do not meet the criteria but will undergo an evaluation for how to adopt an accountable care arrangement. Richard Bankowitz, Premier's CMO, said the group has not yet completed its quality measures.

Baystate Health, Springfield, Mass., is among those in the Premier initiative nearly ready to adopt an accountable care group.

The system's significant stake (97%) in insurer Health New England is among the reasons Baystate Health is poised to test the payment model, said Peter Straley, president and CEO of Health New England. Should the three-hospital system take on financial risk under an accountable care group—risk that may be subject to state insurance regulators' oversight—Health New England holds necessary approvals.

Massachusetts' health reform, which expanded insurance coverage ahead of national reform, is among the reasons Baystate Health is eager to consider accountable care, he said.

Fairview Health Services, Minneapolis, joined Premier's second tier to learn from others' experience as they grapple to develop aspects of ACOs, such as how providers handle financial risk or legal avenues for including independent doctors within an accountable care network, said Mark Eustis, president and CEO of the seven-hospital system.

Fairview employs roughly 500 primary-care doctors in 45 clinics, and in February 2009 overhauled the organization and responsibilities of providers at the first of four clinics to pilot Fairview's push toward an ACO. At the Eagan, Minn., clinic, doctors, nurses and schedulers now work alongside one another, huddle daily to manage care and review a more comprehensive list of quality measures weekly rather than monthly.

Lynne Fiscus, medical director for the Eagan clinic, who described the switch as the first step, said the more frequent and detailed quality data allow clinic staff to react quickly when patients do not receive appropriate care. Projects to improve patient satisfaction and quality are reviewed during daily huddles and a weekly operations meeting. And working in close proximity has improved communication among doctors, nurses and schedulers.

Fiscus said that in coming months, Fairview will convert doctor compensation to pay tied to four performance measures: 40% quality, 40% productivity, 10% patient satisfaction and 10% based on managing the cost of care.

She said the system is “sort of dipping our toe” into pay based on total cost of care, which may include care doctors provide outside of Fairview that the system cannot measure. So to start, Fairview will use a surrogate measure for the cost of care: How many hospitalized patients receive follow-up calls within 72 hours after going home, she said.

Pay tied to productivity will measure all contact within a group of patients—including video conferencing, e-mail and telephone calls, she said. The measure compensates Fiscus for some services that give patients access to providers without the hassle of an office visit, but for which she previously did not get paid. “We're just trying to meet patients where they are,” she said.

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