ACOs: A mystery of biblical proportion

Everyone knows what unicorns look like.

You know, unicorns: well-brushed manes, thick cords of muscle, magical horns on their forehead. No one has ever seen a real one in flesh and blood, yet somehow everyone knows how it would appear if they did.

The same is true of accountable care organizations. Everyone—including the federal lawmakers who crafted the healthcare reform law—thinks they know what an ACO is basically supposed to look like. How many people have actually seen one, though?

This was the analogy offered by healthcare futurist Ian Morrison at the American Hospital Association's 18th annual leadership summit in San Diego July 22-24. (Morrison later admitted he borrowed the comparison from California HealthCare Foundation President and CEO Mark Smith.)

The unicorn-ACO comparison is, of course, a pejorative one. But for an idea that's supposed to hold the promise of revolutionizing healthcare finance, ACOs had no shortage of detractors and skeptics at the AHA meeting, both in public talks and hallway conversations.

“I defy anyone to define it,” said Martha Marsh, president and CEO of Stanford Hospitals and Clinics, commenting on ACOs as part of a panel on transforming healthcare for greater value.

Marsh's comment came in the context of a general warning to hospital leaders to stay away from fads while also keeping eyes open to new ideas, particularly those that other hospitals are trying with success. “The industry needs to get more innovative and nimble. We've built a culture that is slow to change,” she said.

Her comment was followed several minutes later by one of the most quotable lines of the entire meeting.

“Culture changes one funeral at a time,” said Lowell Kruse, a senior fellow at the Heartland Foundation who can speak a little more freely now that he's retired from his longtime role as president and CEO of Heartland Health in Missouri.

Unfortunately, hospitals may have to change much faster than that if they're ever going to embrace the ACO model, which seeks to finally undo one of the most confounding aspects of healthcare finance—hospitals don't have many financial incentives to actually make patients healthier, outside of a desire to build brand loyalty for future hospital visits.

ACOs, as defined in the 900-page Power Point presentation otherwise known as the reform law, will pay healthcare providers to keep patients healthy before they even become hospital patients by arranging for providers to receive set pre-payments for care. Hospitals would receive no extra money for readmissions or needless testing, creating strong financial disincentives for care that does not actually improve health.

(Note to recent graduates of healthcare finance programs outside California: Go ahead and look up the word “capitation” in a textbook index right now. You're going to need it.)

Sure, the concept sounds great on paper, but executives at the AHA conference noted that some of the most well-defined aspects of the idea are also some of the most challenging and detrimental to their business models.

At base, hospitals being paid by ACOs need to start thinking about not just the health of the people who come through their doors, but about all the people who could potentially come through their doors. In other words, under ACOs, keeping people out of the hospital would be more profitable than filling up beds.

It makes for a great bullet point in a multimedia presentation, but how can it work? And more important, how can a hospital gradually transition from a system in which they're paid to fill beds to one in which they're paid not to fill their beds, and not go bankrupt in the process?

It turns out, however, that there are a few real, live unicorns (so to speak) roaming out there.

One of them is fairly well-known: Geisinger Health System, based in Pennsylvania and serving a population base which has shown aggregate health improvements despite its blue-collar health habits. (Geisinger panel moderator Susan Dentzer of Health Affairs called Central and Northeastern Pennsylvania “the fast-food and beer belt of America.”)

Geisinger owns both an integrated health system and a health plan. The entities operate independently, but 30% of Geisinger system patients are also in its health plan—what Geisinger President and CEO Glenn Steele Jr. called the “sweet spot” in which the system can operate as a real ACO.

About 250 of the system's 800 employed physicians work in primary care, and the system also partners closely with 13 other community hospitals—which Steele twice insisted that Geisinger has no intention of acquiring—so that patients can receive care in their own communities. The health plan meanwhile shares loads of actual patient data with the health system so that the two can work to detect patterns and find areas of potential savings.

The key is that when innovations in quality and community outreach reduce overall system costs, Geisinger's health plan shares those savings with stakeholders like physicians, who receive as much as 50% of any savings as revenue.

Jean Haynes, CEO of Geisinger Health Plan, advised anyone in the audience who was interested in setting up a similar arrangement first reach out to start sharing clinical information with a “trusted payer.”

That phrase drew a hearty laugh from the crowd.

In a jokey aside, Steele defined a friendly payer as “one who works for me.” As for whether other commercial payers would agree to such revenue-sharing agreements with hospitals, he was skeptical: “The insurance companies in our area have done so well … that unless they're mission-driven, I'm not sure there is any motivation to change.”

However another system that serves a population that could scarcely be more different than Geisinger's has also found cooperation payers as it strives toward a population-based approach to healthcare in the Bronx.

Stephen Rosenthal is president and CEO of the Care Management Co., which manages pre-payments (read: capitated payments) for Montefiore Medical Center, serving 150,000 residents of northern New York City. It's a population including many elderly residents with multiple chronic conditions and transitory young residents from a diverse range of cultures.

It's also one of the poorest hospital service areas in the country. Upward of 75% of the system's revenue comes from Medicare or Medicaid.

Officials at Montefiore started thinking about managing population health 15 years ago, when they established the Care Management Company, which sits between the payers, doctors, and hospitals to manage the capitated payments from payers and shares the wealth, such as it is, from any efficiencies realized through cooperation.

Although it can be challenge to change mindsets, Rosenthal said the population-based approach to healthcare fundamentally alters how you think about healthcare finance.

“Fifteen years into this, I now think of it as: I have $750 million to take care of 150,000 people,” he said during a panel discussion on Montefiore, adding that the method strongly reinforces the “right care, right time, right place” mantra so often repeated by quality and efficiency experts.

Anne Meara, the associate vice president of network care management for Montefiore, said real-time data-sharing between payers, doctors and the hospitals is critical to the functioning of the system.

For example, the network officials scan the clinical data and make personal phone calls to primary-care doctors if they haven't been seeing patients who have high acute care utilization. The data is also useful in making sure that discharged patients receive necessary follow-up care, and in helping the executives quantify the results of their efforts, in metrics like reduced readmission rates.

But even those benefits only reinforce one of the core principles of population-management healthcare: “We can do all the data-mining that we want to, but it comes down to a personal relationship between the doctor and the patient to get things done,” Meara said.

Joe Carlson covers not-for-profit hospitals and health systems and human resources issues, including staffing, labor and management. He also covers regional healthcare business news in Florida, Iowa, Minnesota and Wisconsin.