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Dr. Alexander Perrian of New Pueblo Medicine hugs a patient. For the seven-doctor practice participating in a new Medicare ACO, bonus pay-for-performance measures from private insurers have helped offset investment costs.
Dr. Alexander Perrian of New Pueblo Medicine hugs a patient. For the seven-doctor practice participating in a new Medicare ACO, bonus pay-for-performance measures from private insurers have helped offset investment costs.

Doctors on deck

ACOs led by doctors seek to manage costs, quality and hospital relationships

By Melanie Evans
Posted: April 14, 2012 - 12:01 am ET

Medicare is expanding and diversifying its experiment with accountable care.

The latest crop of hospitals, medical groups and clinics that agreed to try out the payment model known as accountable care—the third group to date—was dominated by doctors without any formal ties to hospitals, some with as few as 30 to 50 physicians. That's in contrast to early participants in different programs, announced late last year, which included prominent health systems and major medical groups such as Geisinger Health System and Monarch HealthCare.

Leaders at ACOs owned and operated solely by doctors said they nonetheless expect aid from hospitals in efforts to improve quality and curb costs thanks to existing relationships and pressure for hospitals to reduce avoidable readmissions.

“There were some people who feared that the only entities that would participate would be hospital-dominated systems,” Jonathan Blum, director of the Center for Medicare Management at the CMS, said in a call with reporters as the new accountable care groups were announced. “That has not happened.”

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Also unique to the most recent slate of ACOs: one-third of them entered into joint ventures with a publicly traded insurance company.

With 27 accountable care organizations named last week, the total number of such networks under Medicare has grown to 65. The newly named ACOs include more than 10,000 physicians, 10 hospitals and 13 smaller physician-led entities.

Under accountable care, Medicare offers providers financial incentives—possible bonuses, and in some cases penalties—to improve quality and control costs for a select group of patients.

Fifty organizations applied to Medicare's most accessible ACO effort, formally known as the Shared Savings Program. Three were denied as unprepared, Blum said in an interview. Twenty decided to withdraw and resubmit applications at a later date. Blum called it unsurprising that more organizations would apply for the later start date, considering the demands of the model, which asks providers to transform healthcare delivery. “This is not easy.”

Nearly all opted for one of two payment options that protects providers from potential financial penalties; two agreed to accept downside risk. Five will receive an advance on possible bonus payments to help fund investments, an option available to small hospitals and medical groups that lack needed capital.

More Medicare ACOs are on the way. CMS officials are reviewing 150 applications for another group of Medicare ACOs to launch July 1.

That is, unless the U.S. Supreme Court, which heard arguments last month over the constitutionality of the health reform law, strikes down the entire Patient Protection and Affordable Care Act in June. Blum said the agency believes the law will survive its legal challenge and officials are moving accordingly.

Doctors go at it alone

The American Medical Association applauded the strong presence of doctors among the owners and leaders of newly named Medicare ACOs. “CMS' announcement … shows that many of the first ACOs will be led by physicians and build on existing physician-patient relationships,” AMA President Dr. Peter Carmel said in a written statement.

Dr. Elliot Fisher, a proponent of accountable care who jointly launched a private market pilot of the payment model with former CMS administrator Mark McClellan, said physician-only ACOs could see advantages of operating without a hospital, such as the lack of hospitals' capital costs or the “consequences of unused capacity” if doctors successfully keep patients healthy enough to avoid hospitalization. However, doctors without a hospital must then negotiate to find a hospital partner, he said.

Among private market efforts to launch ACOs, doctors who decide to operate without a hospital are “trying to figure out the best partner,” Fisher said. In markets with rival hospitals, that could lead to competition for the ACOs' patients, he said.

One doctor-led group Medicare ACO is Coastal Carolina Quality Care.

Stephen Nuckolls, CEO of Coastal Carolina Quality Care, said that including a hospital could provide some advantages: access to capital and hospitalists who could help closely manage patient care. But the ACO's doctors, a single practice of about 50 doctors, decided to operate independently to qualify for an advance on Medicare bonus payments. With the sole local hospital, the ACO would have been ineligible, he said.

The CMS criteria for advance payments is limited to two types of small providers: ACOs without a hospital and yearly revenue of less than $50 million, or ACOs with yearly revenue of less than $80 million and hospitals that are either critical-access or Medicare low-volume rural hospitals.

Others said existing relationships with hospitals would be enough to operate an ACO without a more formal partnership.

“We have strong relationships with a number of area hospitals, said Dr. Surendra Jain, chief medical officer of the AppleCare Medical ACO, which will include about 8,000 Medicare enrollees in southern Los Angeles and Orange County, Calif.

The Accountable Care Coalition of Mount Kisco will also rely on “strong” relationships with hospitals without including them in the business arrangement. “We're all trying to improve the healthcare in our region,” said Dr. Scott Hayworth, president and CEO of the Mount Kisco (N.Y.) Medical group. “Our ACO is just one way we can all work together.”

For example, medical directors from the ACO and hospitals are meeting to address avoidable readmissions, “which is good for everyone,” he said. Medicare will halt payment for readmissions it deems avoidable starting in October. Hospitals “are very interested in preventing them,” he said.

New policy, new market

One publicly traded insurance company has emerged as a major player in Medicare's accountable care expansion.

Universal American, a Medicare Advantage and supplemental insurance provider, jointly owns nine of the newly announced Medicare ACOs through its subsidiary Collaborative Health Systems. The Accountable Care Coalition of Mount Kisco is among them.

Jim Korry, senior vice president of Collaborative Health Systems, said the company is expected to invest more than $50 million in its accountable care network, which could include as many as eight more Medicare ACOs starting in July, when the CMS approves the second wave of program participants. “This is going to continue to be a line of business for Universal American that we continue to grow,” he said.

Collaborative Health Systems, based in Houston, does not employ doctors, but does hire nurses and social workers to coordinate patient care and will provide clinical support for medical groups, he said. The company will also provide information technology infrastructure and data analytics for the accountable care organizations.

Korry said the company's care coordination among its Medicare managed-care programs made the company well-suited to adopt accountable care. “It was not a far leap for us,” he said.

Universal American reported income from continuing operations of $259,000 on revenue of $2.3 billion for 2011, a significant drop from the prior year after the $1.4 billion sale of its Medicare Part D business to CVS Caremark.

Korry said its accountable-care business markets the company's entry into the Medicare fee-for-service market and will position the company to enter into Medicaid and commercial accountable care organizations.

The company expects that it will recoup its upfront investment in the long term from its share of bonus payments its ACOs earn, Korry said. The company, which owns a 51% stake in ACOs it develops, will receive a share of savings-based bonuses that is tied to its ownership stake and other factors, he said.

Accountable care organizations in Collaborative Health Systems' joint ventures all selected payment without the risk of penalties, he said. “It's still new,” he said.

The new Medicare ACOs that include hospitals say the partnership will allow for closer coordination to curb costs.

Arizona Connected Care includes the Tucson Medical Center, three federally qualified health centers plus 150 doctors. John Friend, executive director of the Arizona Connected Care board, said the hospital always intended to be a minority partner in the effort, which operates in Tucson and southern Arizona.

“The hospital is not in a superior role,” he said, despite its early efforts to establish an ACO. The Tucson Medical Center was selected in 2009 by the Brookings Institution and the Dartmouth Institute for Health Policy and Clinical Practice to pilot private-market accountable care organizations.

Talk among the organization's members has largely focused on clinical integration of its independent providers, he said, which are led by a doctor-dominated governing board, as required by the regulations.

Doctors who participated were those able to absorb upfront investments for a while, or permanently. “Cash flow is pretty problematic,” Friend said. He described members' investment as “material” but said he could not provide a number. Doctors know there is no guarantee of payment and no payment in advance. And only strong performance will reap bonuses. “This is going to be very challenging.”

An organization with hospitals and doctors has its advantages and drawbacks, Friend said.

“If a material amount of the costs we're trying to bring under control exist in the hospital, then I think it's advantageous to have a hospital,” he said. But efforts that included everyone come with challenges. “In our market, it's as difficult as any for physicians and hospitals to see eye to eye,” he said.

For New Pueblo Medicine, a seven-doctor practice in the Tucson ACO, bonus pay-for-performance measures from private insurers has helped offset investment costs for nurses to help educate diabetics and manage patient care, said Dr. Jeffrey Selwyn, chairman of the Arizona Connected Care board and one of New Pueblo's physicians.

He described the hospital's role as “integral” and said the accountable-care effort allows formerly isolated independent providers to learn from one another. “We haven't been able to communicate with each other for lack of time and lack of infrastructure,” he said.

But plans call for more providers, not fewer.

In Tucson, doctor and hospital organizers of the Medicare accountable-care effort are looking for ways to further diversify to include other services, such as skilled nursing, patients will need. “We may be unique and we may be wrong, but we like the broad engagement model” Friend said.

-with Rich Daly

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