No ROI in ACO

The healthcare reform law created a flurry of activity among hospitals and systems laying the groundwork to get in on Medicare's new incentive programs for accountable care organizations.

But most of the largest for-profit healthcare groups have been absent from the clamor, hardly represented in the first few waves of participants in the CMS experiments. Instead, their executives have said publicly and privately that they're waiting to see how the program evolves before investing resources in it.

While there are several factors that separate for-profit groups from not-for-profit providers, chief among them may be the laser focus on the bottom line, and quarterly earnings pressures that don't necessarily mesh with a program that asks for years of patience before savings are seen.

Wayne Smith, chairman, president and CEO of Community Health Systems, Brentwood, Tenn., caused a small stir when he said during the Nashville Healthcare Council's “Wall Street” event in February—where financial analysts offer their predictions to the industry—that ACOs are “another form of capitation,” using a term that recalls the restrictive and unpopular medical-care strategy of the 1990s. But other for-profit healthcare executives told Modern Healthcare that they agreed with that sentiment.

Still, when the CMS released its list of Pioneer ACOs in December, Detroit Medical Center, part of investor-owned Vanguard Health Systems, stood out. The hospital is participating in the Michigan Pioneer ACO—a group whose governing body includes DMC's top leadership and the dean of Wayne State University's School of Medicine and private-practice physicians.

The collaboration between physicians from different organizations makes the program unique, said Tim Petrikin, executive vice president of ambulatory-care services at Vanguard. “We're doing it with essentially a mixed network,” he said about the initiative, which began March 1. “We're organized and up and running.”

At Vanguard's Nashville headquarters, Petrikin stressed that the parent company is excited about what is happening at DMC. “We're very supportive,” he said. “We think directionally it's the exact way we want to go.”

Petrikin acknowledged that other for-profit hospital systems have expressed less enthusiasm for the ACO model and conceded the point.

“There isn't certainty, but that's part of the business we're in,” he said. “We may not realize savings, but there's not an option to sit back and protect the status quo. I don't really know that there's a choice but to pursue lowering the cost of care.”

At CHS' headquarters several exits south on I-65, Smith noted in an interview that, while the idea of continuity of care is a good one, he questioned whether the Shared Savings Program will actually meet its goal.

“There's no empirical evidence that they're saving money,” he said. “We've said from the very beginning that it's trying to move the risk from the payers to the providers. It's very similar to a Medicare HMO product.”

But unlike an insurance product, the ACO model is asking providers to set up infrastructure without a clear understanding of what the level of utilization will be—and without underwriting or risk assessment in place. “The economics of it are even more complicated,” Smith said. “I think we all have to be thoughtful in terms of how we operate in that environment.”

At Capella Healthcare, Franklin, Tenn., Chairman and CEO Daniel Slipkovich similarly recalled the HMOs of the 1990s as he explained why the hospital group would not be applying to form an ACO. While the focus has moved away from capitation and more toward outcomes, he said, “much of the same discussion in different form is happening today.”

The primary concern for Capella is that there's no requirement for patients to make a commitment to the program, potentially leading to high dropout rates, Slipkovich said. Also, the ACO model asks providers to take on population management, he added. “There are a lot of growing pains in that.”

Patrick Easterling, president of the Health Management Physicians Network, part of Health Management Associates, Naples, Fla., also noted that there are questions that still need to be answered. Most shared savings programs are built around baseline data—but uncertainty remains about the metrics that will be used as well as the baseline population.

“The government has not provided the data,” Easterling said. “The stakes are just too high—and we're not going to get a do-over.”

While he described HMA and its physicians as “excited” about ACOs, he said the group has adopted a wait-and-see approach. “We're not feeling compelled to be a trailblazer in this area,” he said. “We've been open and honest about that. We don't want to be followers just because other people are jumping on it.”

Anne Hance, a partner at law firm McDermott Will & Emery, noted that the hesitation from for-profit hospital groups is not surprising, given the uncertainty about whether and when ACOs will offer a return on investment.

She offered the hypothetical example of a program that starts its first performance year Jan. 1, 2013. Even after the performance year ends, the program might not receive any feedback on savings until mid-year 2014, and it's unclear how quickly those shared savings will be paid out.

Yet during that time, the organization will have incurred costs associated with launching the ACO as well as costs associated with participating in the program.

Moreover, savings might not even be seen until a number of years later. “I think there's a very real question of whether ACOs will be able to generate savings in their first performance year,” Hance said. “Under the Medicare Shared Savings Program, you still have a significant multiyear participation agreement where the first half of the cycle is loaded with costs.”

Some for-profit hospital groups are pushing forward with ACOs outside of Medicare. Tenet Healthcare Corp., Dallas, for instance, has set up an ACO as a three-way partnership between Blue Shield of California, AllCare Independent Physician Association and its Doctors Medical Center of Modesto. Participants include about 8,000 Blue Shield HMO members in Stanislaus County.

Investor-owned hospitals also are laying the groundwork for the potential new payment models by actively acquiring or partnering with physician groups, according to a report from Moody's Investors Service. Yet the report noted that hospital systems that are too aggressive in adjusting their business models could be taking a risk if the Patient Protection and Affordable Care Act, which called for the CMS to establish an ACO framework, is overturned by the U.S. Supreme Court this summer.

“It is therefore unclear whether for-profit hospital operators that have made these investments would have the competitive advantage or see the financial benefits they expected from the development of new payment models,” lead analyst Dean Diaz wrote in the report.

Of course, many not-for-profit healthcare companies—including venerable academic institutions such as the Mayo Clinic and the Cleveland Clinic—have also declined to participate in Medicare's Shared Savings Program.

But the risk may be greater for the for-profit chains, which have to answer to shareholders.

“I think they're treading cautiously,” said April Wortham, an analyst at HealthLeaders-Interstudy. “They don't want to go full-force until they can see a proven business case for them.”

Wortham also suggested that not-for-profit health systems may be better structured geographically to take advantage of the coordination required in an ACO. Yet she noted that doesn't mean that for-profit groups are standing idle. “I think they're doing these things a little more quietly,” she said.

HMA, for instance, is looking to target and collaborate with payers, Easterling said. The health system is also putting a greater focus on preventive care and personalized medicine. And it is evaluating whether to participate in HHS' bundled-payments initiative.

“We think we can make more of a difference in the bundled payment model than the ACO model,” Easterling said. “That's something we're looking at very aggressively.”

Bundled payments are also of interest to Capella, said COO Michael Wiechart. “I do think we're going to experiment with other types of shared-savings programs,” he said, adding, however, that the group is not planning to move away from fee-for-service.

Still, for-profit systems that have forged ahead with ACOs say they have seen what consistency of care and greater accountability for care can accomplish.

Steward Health Care System, like Vanguard's DMC, is another investor-owned group that was selected as one of the CMS Innovation Center's Pioneer ACOs. The group, owned by private-equity firm Cerberus Capital Management, said it started thinking about risk contracting in 2008, two years after health reform was passed in its home state of Massachusetts.

Executive Vice President Dr. Mark Girard noted that while quality and access improved under the health plan, premium increases were “far outstripping” those in other parts of the country.

“What we began to do is focus on something called ‘total medical expense,'” he said. “We started to build infrastructure based on our commercial contracts.”

Nearly four years later, 90% of its commercial contracts involve risk contracting. And among its employees, who are in a self-insurance plan, Steward has seen an average savings of 25% to 35% by encouraging them to choose Steward providers and use lower-cost care centers.

Girard noted that more sophisticated health information technology has made it easier for providers to get real-time feedback on performance. “It's a very different time now than the early '90s,” he said. “In the early '90s, capitation was designed to control costs alone.”

But Pioneer necessitates that participants always keep an eye on quality. “That shifts the entire focus of the organization.”