Editor's note: The following is an edited transcript of a March 30 editorial webcast, “Next steps for ACOs,” conducted by Modern Healthcare. One day after the webcast aired, HHS released its proposed regulations on forming a Medicare-eligible accountable care organization. The three webcast panelists discussed the key components of a successful ACO now and in the future. The panelists were Steven Lieberman, visiting scholar in the Engelberg Center for Health Care Reform at the Brookings Institution in Washington; Dr. Steve Hester, senior vice president and chief medical officer at Norton Healthcare in Louisville, Ky.; and Dr. Mark Shields, senior medical director at Advocate Physician Partners in Oak Brook, Ill. Modern Healthcare reporter Rebecca Vesely moderated the webcast.
Forging a path for ACOs
Panelists discuss how ACOs will work and how providers can get ready
Rebecca Vesely: So, Mr. Lieberman, obviously we've all been waiting for the CMS to release proposed regulations on ACOs. Last time I checked this morning, they aren't out yet, so I'll let you tell the audience what we know so far about ACOs.
Steven Lieberman: Let me start with a quick review of some of the key goals of ACOs. First, ACOs are about promoting and developing new systems of care with the important caveat of not having an adverse effect on existing systems that are already providing accountable care. And the key goal of ACOs in creating systems of care is to change provider culture in the incentives so that we're no longer operating under the environment of fragmented fee-for-service. The goals of ACOs are to lower cost while improving population health. The critical tools that ACOs bring are the ability to measure both clinical and financial performance, and, ultimately, to hold provider systems accountable for both cost and quality for assigned patient populations.
So, if the key foundation of ACOs is creating a system of care, the logical question is: Why create provider-space systems of care? And the answers are: First, there is some empirical evidence in the peer-reviewed literature that systems of care provide better care at lower costs than fragmented fee-for-service. Independent of how strong that evidence is, the critical reason for having systems of care is that only systems of care have enough patients to allow for meaningful measurements of financial and clinical performance. Clearly, small and solo physician practices don't have that. In addition, the reason to have systems of care is you need a comprehensive set of services. Work done by my colleague John Bertko suggests that the minimum risk-pool size system just from a financial perspective requires 5,000 Medicare patients, and more is better and 15,000 commercial patients. Without that, there's just too much volatility in projecting budget targets and measurement. And, as I'm sure we'll hear from my clinical colleagues, those risk pools are actually probably too small to prevent and to support the kind of detailed measurement of clinical outcomes that we need to have comprehensive measurement.
Finally, I believe strongly that the performance goals have to be patient-centered. That is, the quality, efficiency and appropriateness of the care that a patient receives has to reflect all the care that that patient receives and should have received, and not just what an individual physician does—that it becomes enormously complicated to try to do a measurement on it, especially or procedural basis.
Some of the other key ACO innovations—and, perhaps, this starts to address the question of how ACOs will differ from HMOs and more conventional managed care—is that ACOs are designed to minimize barriers to entry for both patients and providers. That's the reason why ACOs have adopted a patient-attribution methodology rather than acquiring patient enrollment. In the Medicare statute, it's very clear that there are no benefit or network restrictions, there's no lock-in, there's no prior authorization. None of the kinds of structural features that HMOs have to gain beneficiary compliance.
Lastly, ACOs are designed to be a very flexible model that will allow for different configurations of providers to come together in different organizational and legal context to form different kinds of ACOs that will very much reflect the local markets in which they practice.
The second key innovation of ACOs is it's a very flexible payment model. The shared-savings model can be a bonus only, no downside risk. For more sophisticated groups, it can have a symmetric level. It could have symmetric risk where the providers are taking marginal reductions—at risk for marginal reductions in their payments or get shared savings if they do better than budget targets. And it will also support a hybrid system of shared savings and partial capitation. Importantly, it's possible to set up a shared-savings methodology to incorporate other innovations such as medical homes or episode-based bundling of payments.
Lastly, and this is a really critically important point: Regardless of how well an ACO does on financial terms, it will not qualify for the first dollar of shared savings if it doesn't meet its quality thresholds.
So, what are some of the challenges for ACOs? The first challenge is whether ACOs can succeed in saving money and improving quality. That's a particularly interesting question given the fact that ACOs don't have the ability to enroll patients, don't have lock-in or the other benefit changes, leaving the question of: By relying on systems of care and the provider-patient relation, is it possible to change patient behavior. One of the questions that is an environmental question that is not directly related to ACOs but is related to what's going on in our current healthcare marketplace is: What happens to provider concentration and power? And, finally, the age-old question is whether ACOs will empower physicians or hospitals.
So just to go to that first question of whether ACOs will be financially viable, let's take a very simple, stylized example that takes the bonus-only model, assumes that an ACO is what I would consider to be highly successful and manages to come in 5% below its budget target. So it saves 5%. Under most formulations, we would expect the first 2% to go to the payer. I'd be happy to explain and answer a question of why that's necessary. And the remaining 3% would get split 50-50, although I think Steve Hester would say that in his case he's actually getting less than 50% of savings. So, in a 50-50 model, the ACO receives 1.5 percentage points in shared savings. And there's an important question here of: It's not free typically to produce these rather dramatic results and changes. Where does the cost of financing those necessary clinical process improvement and infrastructure changes come from? And for the purpose of simplicity, I'm going to say that let's assume that there's a net 1.5% savings—that'd be shared savings bonus that the ACO gets. That's a significant portion of typical spending for primary-care physicians, but it becomes a relatively small share of the overall physician compensation, and it's almost rounding thus on the total number of physician and hospital spending.
So, it pains me to say this but: ACOs are not a magic bullet. There's no simple way here to both lower PMPM spending and improve quality and at the same time increase speed. If there isn't an increase in the number of patients that a system sees, lower per-member, per-month spending necessarily translates into lower top-line revenue going to providers. So the question becomes: Which providers lose revenue, particularly in a Medicare context where prescription drugs—so-called Part D or outside of the ACO support the ACO calculus, most of the low-hanging fruit would appear to be taking actions that reduce hospital revenues, limiting emergency room use and avoiding unnecessary inpatient admissions and readmissions, shifting care to less costly sites of care for imaging and free-standing surgery. All those are things that have the effect of hurting the hospital's top-line revenue. So if reductions in top-line revenues are not going to automatically translate into an adversely affected bottom line that requires cutting costs by more than the loss of revenues for institutions that have high fixed costs, that would be quite challenging. And certainly in a bonus-only model, from a narrow financial perspective, hospitals may wind up winning simply by continuing to exceed budget and never even qualify for shared savings.
Vesely: I want to follow up on one thing that you mentioned earlier, which is the 2% savings going to payers first. Why is that?
Lieberman: In the bonus-only model, where if an ACO does better than budget, it will get savings. But if it does worse than budget, it has no financial consequences—what cost estimators refer to as a one-sided bet. Because projecting cost is statistically very noisy, there will be a lot of groups that do absolutely nothing hypothetically and will be able to just by random chance do better than budget targets. And in that case, the payer will be paying out for people who are doing better simply by random chance and normally if you had symmetric risks so that, if there's a group that did worse by simply random chance than budget, it would have to pay it back because we are only paying on the favorable side and there's no consequences for people who have unfavorable variance. That's why we need something like the 2% corridor.
Steve Hester: I appreciate the opportunity to share some of the things we're doing at Norton, and certainly we continue to be in the learning phase of this as many others are. But one of the things I really want to focus on—obviously health reform sort of changed how we look at our business on a daily basis. But specifically, I think it's easy to get focused into an accountable care organization and call it sort of the organization. I really think it's about how as healthcare providers we look at how we provide greater accountability for the healthcare we deliver and, ultimately, provide more value to those who are receiving the care as well as those who are paying for the care. And I think that really comes to a lot of clinical re-engineering and that's obviously not an easy task to achieve, and one that requires a lot of change management as well as patience on both the provider and administrative side.
I think one of the things that in the early phase looking at the health reform package, it really did not have—seem to have a lot of focus on healthcare delivery, but it focused mostly on healthcare payment structures. And I think one of the values is that there's really an opportunity for physicians and hospitals to come together to say, ‘How do we actually take our delivery system and change the way we provide care specifically around things that are continuum of care, post-discharge follow-up, those type of things?' I think it's a real opportunity as well as a challenge.
For a little bit of an overview of Norton Healthcare, we're a not-for-profit health system in Louisville, Ky., five hospitals, a significant number of outpatient centers. There's roughly 60,000 discharges a year with about a 2,000-member medical staff. We employ about 500 providers, certainly not unlike any other healthcare system starting to see physicians seeking more employment. And, as we've done that, I think one of the things to highlight about our system is we don't have our own insurance product. We don't own our own post-acute-care facilities or our own home health, so those are things I'll talk about in a moment about important areas I think that require a different level of partnership than we may have had in the past.
We get caught up into the rules, regulations, how we're going to make things move through. But really when I look at this, the key is how do we put the patient at the top of this and make sure we're working toward greater patient accountability? Certainly I think it's going to be incumbent upon health systems to do that better from an educational perspective and making sure that we're pulling folks in and giving patients the tools they need to improve their health. So often, we get into situations where patients want the quick fix, the easy fix, and that's not always the answer. I think we really need to make sure we're spending the amount of time to help develop patient accountability, but clearly they need to be at the top of this if we're going to see improvement in outcomes and ultimately in value. Now I think clearly there's a place where the payer or employer plays into this, and you're certainly seeing a large number of health companies develop health wellness programs. I think that's great in terms of how they're getting engaged to help their employees from a health perspective, but not only that but ultimately trying to decrease their health spend. And then ultimately the provider. I think it's really going to take all three of these areas to come together to really get success around accountable care.
Now, I'll be anxious to see what the regs say when they come out, but I think some areas that I found that are real operational challenges and things that we feel we've spent a lot of time working through and still have a lot to learn, but attribution can be a challenge to get that right. You obviously want to make sure you get the appropriate number of patients involved, and attributing those to the folks that can make impacts—not just from measurement standpoints—but I think the key on attribution for me is: If I want to attribute a patient to a provider, I'm going to make sure that provider can make an impact on both outcome and quality. Now I think on the measurement reporting side, one of the values we found in our partnership—we're working with Humana in the early phase here—we've found that the health plan provides information that we don't yet have available. Some of the claims information can be very valuable as it relates to tying that into our electronic medical record to get more of a 360-view of patient movement and spending, and how we can actually improve utilization and quality metrics. Now in financial modeling and budgeting, I think it's going to be an area that as organizations try to take on accountable care, it's going to be a new challenge because I think the reality is most healthcare organizations that don't have a health plan have not spent a lot on population actuarial analysis.
And I think that's going to be a new area that from a healthcare delivery system to spend some time and understand that is going to be very important—making sure that budget targets can be set and that really everyone understands because just as Steven mentioned earlier, some of the 2% corridor, I think as you get into the details of this, you start to understand why that 2% corridor is there because it's not an exact science. It takes a great deal of relationship-building and comfort to get to a place where you feel like both sides of the organization when something happens there's been a real reason that there's that outcome or impact. And then again, the re-engineering focus, the oversight in structure and then partnerships are going to be really key going forward.
So, from a Norton Healthcare perspective, we have a patient population in the Louisville community of about 1.2 million. We started this to include our Norton healthcare employees, our Humana employees, and as we've gone through our attribution model, that went from probably about 24,000 folks down to about 10,000. We're working with some other groups to pull into the process. The early phase included about 300 of our primary-care physicians and specialists. I think one of the things I would say as an organization that does about 1.5 million patient visits a year, one of the challenges is getting to a scope to be able to make effective change because obviously taking a significant number of large employers and putting them into a population to develop to get to 10,000 patients—it gets hard to make sure those all get monitored as those things go through the system, and so if you're really making impact, I would say our greatest level of clinical impacts we're trying to make now focus more broadly on healthcare delivery, but certainly targeted at things we've learned. Their ACO population that we believe we can work through and see improvement.
Now as part of the Brookings-Dartmouth pilot—Brookings and Dartmouth have both been very helpful as we've worked through this over a period probably of about 18 months to try to get to a model where we feel like we can have exchange of data and some clear definition around progress. And I think one of the things—certainly there are other organizations listed that are included—but one of the things we all felt was important from the beginning was really a standard set of quality measures that can be reproduced. One of the things I would say on the patient-attribution model is: Don't let perfect be the enemy of good because certainly there are a number of challenges in that model, but one is just to get something going. Because, as you move through a model, regardless of what it is, there will be a significant amount of learning that can help you continue to improve on. I think, and certainly we have looked initially at self-funded populations primarily because we felt like from an employer standpoint, there's a significant amount of engagement on seeing their employees' healthcare improve and as well as understanding the direct spend on their healthcare dollar. And then obviously completed a proposed shared-savings model, which Steven had alluded to earlier.
Some of the things from a performance metrics standpoint: You know, these are an early phase. I would really want us to get to where a lot of these—one of the things I think we've done much better in the past 10 years in healthcare is we are measuring a lot more of what we do. But we still haven't gotten to really good outcome metrics and for comparable purposes. And I think that's the real challenge for us in the next five to 10 years: As healthcare delivery, how do we get better at measuring real outcomes? And so, but we started with really clearly looking at triple aim focus from population health safety and patient experience. But then, looking at just we're measuring a number of other things, but as a start, because these are claims-based it doesn't require a significant amount of infrastructure for organizations to get started in something like this. We really focused on looking at overuse around low-back pain, use of imaging studies, how we look at population health from cancer screenings and then safety for annual monitoring of patients on chronic, persistent meds. Care coordination is a big part of this, and Steven got into value-based purchasing, but the 30-day all-cause readmissions, this has been a real focus for us as an organization. And then continuing to push our patient experience at work. We have a team that's really dedicated to that, and I think it is something we can measure and have comparable ideas for improvement.
On the clinical re-engineering side, we really have taken a focus to say, ‘How do we change care coordination and communication from providers?' Really looking at prevention as being a part of this, and then really trying to say, ‘How do we get the folks who are in the emergency department who might need—who could go into an immediate care center-type setting—to make sure we're getting those folks placed into the right level of care for delivery. I think also a big focus has been on the increase in generic medication utilization. As we looked at our own numbers, we found we had opportunity there in really taking some focused efforts to decrease that. But then looking at total different systems of care around management of some complex patients.
One of the things that I hit on earlier, but I think is incredibly important, is partnerships in the community, really a strong focus on how you find a home health partner, long-term-care rehab services and look at those folks and start to have discussions about their outcomes and metrics. And I think as you look at this, you really want to find folks who are giving you the best outcomes, because obviously if you're in a payment situation, you want folks who are invested in both helping you give the best level of care and increasing the value of the patients. Community health departments can be a real value and one that has not been looked at in terms of the continuum of care but how do we pull those folks in in a different way. Certainly those are resources in our community that can be maximized.
Lastly, I think things that are going to help us get to a place of success really are perception of the ACO development in the communities, and those are very much going to be community-based. ... But I think that's going to take some marketing to our patients to make sure we continue to have their best interests at heart. I think patient engagement is a must and then making sure that we understand provider culture change is not something that's easy. And this is really the hard part of this work. I think really having some strong folks to help that structure will be real important. And then I think innovation and data exchange and reporting of—as I stressed earlier—outcomes metrics are going to be really important. And I certainly hope, and Steven hit on a little bit of this earlier, that we see as regulations come out we get some flexibility there around some of the restrictions we might have now around Stark and the antitrust-type things to really look and say, “How do we improve care without finding ourselves crossways with governmental regulations?”
Mark Shields: I really agree with the two Steves that an ACO creates significant challenges and opportunities for the delivery system. Now in my comments, I'm going to primarily move what I would call upstream from an ACO and talk about building the chassis for a successful ACO and give our program over the last seven years as a template or an example of the kinds of things that we feel need to be done for a accountable care organization to be successful. I'm not sure it takes seven years. I think it can be telescoped, but there is a lot of change that needs to occur. ... Our joint venture, which is a joint venture between 3,800 doctors and Advocate Health and Hospital Corp., which is 10 hospitals in Northern Illinois. And, as I said, we've done this for the last seven years. It's essentially doctors working across specialties, working together with the hospital to drive quality, patient safety and cost effectiveness. And I think it's very important to point out that 75% of these physicians are in small practice. Average size is 2.7 physicians. Because clearly that is the target audience that we're going to have to include if ACOs are going to have significant legs across the country. We know large multispecialty groups are able to drive quality, patient safety, cost effectiveness, but infrastructure is needed to help these smaller practices reform.
So our program has not only come from this challenge of having small physician practices, which is a dominant practice across the country, but we also have, I think, addressed some of the shortcomings of the classical hospital medical staff structure. Of our 3,800 doctors, we represent about 65% of physicians who are on staff of the Advocate hospitals. So this is an elite group. I'll talk about some of the membership issues in a minute, but it's not for everybody. They really have to be engaged in the program and we've had commercial contracts for this program now for seven years. So it's a model that works both in the commercial market as well as the potential governmental market. The clinical integration program has evolved now to have 146 individual measures basically grouped into five categories: clinical outcomes, efficiency, medical and technological infrastructure, patient safety and patient satisfaction.
When we first started, we had only 36 measures, but we've added measures for specialists as the industry has really developed more and more measures for specialists and then, more recently, we have added measures that tightly align physicians and hospital management. That's the same measures, the same thresholds for them to succeed, and then it's really helped drive things like CPOE, use of electronic ICU and other measures.
It takes time. We develop individual report cards that go out every quarter to physicians on their own metrics as well as for the local physicians in the hospital organization—make sure we've got all of the metrics.
I mentioned that we have within this joint venture about 65% of the hospital medical staff. It's a significant hurdle to be a member of this joint venture. As you can see here, we've progressively increased the number of membership requirements, so you really have to jump through a good number of hoops to continue to be a member of Advocate Physician Partners, and that's really gone along with the development of the physician-led culture of this organization.
It is a yearlong process that we go through to develop new measures that we will use in the program. We don't view our expertise in measure development but really look to national organizations like the National Quality Forum, the NCQA, the AMA consortium and others. But we've spent a lot of time vetting which measures we use, making sure they're relevant to the marketplace, insurance companies, to employers, to patients, to physicians. Then we assess the data-gathering challenges. We approve an initial list and develop quality improvement, process improvement measures and support them and then roll them out in the fall of the following year.
But having measures and having incentive funds ... we'll distribute about $50 million (for the pay-for-performance program) starting in a couple weeks based on the 2010 performance. And it's a key part of the program. It awards physicians for work that they know is good for patients but is not compensated for in our fee-for-service system. But you have to go beyond having measures and incentives to really providing infrastructure and support to help doctors succeed.
And this will be very important as we move into ACOs. And for example, having Web-based disease registries, having pharmacists who do academic detailing to help drive generic use, having formal educational programs—both for doctors and for their office staff, following the Institute for Healthcare Improvement models of advice for chronic admissions and how we're moving into access. So having education and infrastructure support is critical to achieve success, particularly if you're dealing with small group practices.
I think the most important thing in getting success in an ACO will be culture, culture, culture. And it does take time, and it takes discipline. But an ACO has clinical integration, has—fits into the long-term goal of the Advocate Health and Hospitals Corp. culture as well as the culture of this joint venture. The Advocate 2020 strategic plan ... as I said, this is composed of 10 hospitals in Northern Illinois, and what is relevant ... is that the word ‘hospital' does not appear on it. That is very unsettling when this first came out, and this was long before there was discussion on the national scene of ACOs done about four years ago. So it made a lot of hospital CEOs uncomfortable, but we're interested in a lifelong relationship with our patients regardless of where they are and to re-engineer the care and programs to accomplish this.
We have rolled out starting Jan. 1 of this year a program that we call AdvocateCare. Essentially what we feel will be our accountable care model. And we have our first contract, commercial contract, to support Blue Cross, which is the largest payer in our marketplace. It's a shared savings model, and essentially we have a global cost management on top of the existing fee-for-service structure. We have responsibility for managing the comparative trend—how we do compared to the rest of the market. We have a method for sharing the savings both with the insurance company as well as amongst the physicians and hospitals. We've had to step up our partnering with Blue Cross that's been a good partner with us in terms of data-sharing and how we manage care at different levels of the organization. And we really feel this model will be applicable not only on commercial contracts but applicable to Medicare.
Vesely: One of the questions that we got from one of our audience members is: The number of metrics you are tracking is quite impressive. What does the infrastructure look like in terms of human capital necessary to support those initiatives, and what level of interaction does the system have to support all these small practices?
Shields: We—and you know when we started this seven, eight years ago, we weren't at this level. I think it's very important to point out. I think you can start and have significant success with many, many fewer measurements. Now, I think if you're going to be a full-blown accountable care organization, you have to quickly reach this kind of scope. But to start out with a product that is attractive to the commercial market on a clinical-integration basis, I don't think you have to do that.
But the bottom-line question is we currently have about 28 FTE equivalents ... committed to the clinical integration program. The hiring of dedicated care-management staff is something that's 70 FTEs, I said, we are hiring for this single commercial contract, and we need many more if we're going to move into a Medicare ACO. And those FTEs do not include the staff we have hired to help roll out an electronic health record across our physicians. And I think what's important to note is that the stuff we've done over the last seven, eight years was really been done without a fully deployed electronic health record. ... I think, quickly, a full-blown ACO is going to need an electronic health record to really capture the full opportunity.
Vesely: Dr. Hester, what kind of EMR are you using? Is in it synced up with allowing you to share across the care continuum, like ambulatory, nursing home?
Hester: No. We've had a complete EMR within our hospital system that we're in the process right now of rolling out to our ambulatory side. We're actually in the process of making a change—quite a bit of change for us—on the EMR front, but one of the things that we, too, have done a lot around the metrics side but using registries, things like that, to be able to do it. Sort of rather than having the full EMR, I would agree with Mark that the more you can have, that integration certainly you're going to be required, I think, in the future, and, so certainly in the process of building that. But to date we've not had the complete EMR rollout. But there's certainly hope to have that in the next one to two years.
Vesely: Dr. Shields, can you tell us a little bit about what you think small-group provider practices can do to prepare for all these coming changes?
Shields: I think they need to find partners. The critical thing is that they need to be able to work across specialties, and I think physician organizations alone could be a successful ACO or do a clinical integration program, but I think there is enormous value to partner with a hospital. Hospitals have management expertise, they have data management, they have capital. I think that if physicians do this alone, quite honestly I think they're leaving significant resources on the table. And then you also have to look at partnering with organizations like skilled-nursing consortiums. Those will be critical for success in a Medicare ACO. Not quite as critical for a commercial product, but for Medicare it's absolutely essential.
So it's looking for partners, and I think this needs some real culture change and I don't think the place to start—small practices aren't doing that now, and ACO is not the place to start. There are other opportunities—whether it's bundled payments, a clinical integration program, other kinds of efforts. But they need to start doing that immediately, and that's what I would say.
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