Beyond ACOs

Don't look for Intermountain Healthcare, the Utah health system widely cited for its efficiency and quality, to be among the hospitals and medical groups that are testing accountable care organizations—the healthcare reform law's chief initiative for achieving cheaper yet higher quality medical care.

Intermountain, which operates 22 hospitals in two states, not only doesn't operate an ACO, it proudly states it has no plans to do so. Officials said it will not be joining the roughly 250 Medicare ACOs, where providers assume some financial risk for their patients.

“Accountability has to rest with the patient,” said Greg Poulsen, senior vice president and chief strategy officer of Intermountain Healthcare. Since Medicare's accountable care program does not require patients to actively select an ACO—or even, once enrolled, seek care from that ACO—Intermountain is instead developing what officials call a shared accountability organization. Intermountain will put up to 25% of doctors' compensation at risk for performance on quality and cost targets. But the shared accountability organization also uses shared decisionmaking and benefit design to hold patients accountable in a way officials say ACOs do not, he said.

Intermountain is not alone. Fully 60% of the systems in Modern Healthcare's 2013 Hospital Systems Survey reported they didn't have an ACO. The reasons varied, ranging from too little capital to too few doctors to too much risk under the payment model. Their reluctance underscores the high degree of uncertainty that hospitals and doctors face as the industry and policymakers struggle to find a remedy for the U.S. healthcare's erratic quality and rising costs.

Modern Healthcare's voluntary survey drew responses from 150 systems that collectively encompass 2,245 U.S. hospitals. Survey respondents ranged from one-hospital systems to giants such as Universal Health Services, King of Prussia, Pa., and Ascension Health, the nation's largest not-for-profit health system. The median number of hospitals operated within the responding systems is six.

Systems in this year's survey employed roughly 68,450 doctors, with the median hospital reporting 259 doctors.

Only 60 reported having entered into accountable care contracts with payers. Some, such as Advocate Health Care in Oak Brook, Ill., reported active ACOs with both the private and public sector. Others focused on only one sector or the other.

Financial risk was a major factor inhibiting the startup of an ACO, according to some systems. East Texas Medical Center Regional Healthcare System, which owns 15 hospitals across Texas, said as much. The Charleston (W.Va.) Area Medical Center Health System, which owns two hospitals, could not spare scarce capital to prepare for an ACO.

“We don't feel that our balance sheet can withstand the financial risk,” said David Ramsey, president and CEO of CAMC. That does not mean the system has overlooked opportunities to invest in information technology, healthcare delivery reform or new payment models. “We're doing what I call plug and play,” he said, with investment in electronic health records and patient-centered medical homes. Ramsey said he's eager to hear about ACOs' successes and failures, but CAMC will “wait and see.”

Capital hurdles to accountable care can be significant, particularly information technology costs, said Dr. Elliott Fisher, director of Dartmouth Institute for Health Policy and Clinical Practice and an early and aggressive champion of accountable care. “It's a huge investment, if you try to start from scratch,” he said this month during a two-day meeting on accountable care in Washington.

Some ACOs are using data aggregation from medical claims and electronic health records to identify the most costly patients and those more likely to need expensive hospital care. They can also analyze the information to pinpoint who may be overdue for screening, which can improve disease management and prevent illness.

Fisher said ACOs with early success in reducing healthcare spending have succeeded by targeting the most vulnerable and high-risk patients. “That's where all the money is,” he said.

Dr. Mark McClellan, director of the Engelberg Center for Health Care Reform and former CMS administrator, said some providers are reaching deals with insurers or other partners in the ACO for an upfront infusion of cash for the needed capital investments.

The CMS Innovation Center has agreed to provide capital payments to 35 small ACOs, with potentially more to follow in January when Medicare's shared-savings ACO initiative is scheduled for another expansion. Medical groups with less than $50 million in revenue and no hospital can earn the capital payments. Small rural or critical-access hospitals are also eligible, as long as the ACO has revenue of less than $80 million.

McClellan, who backs the accountable care model, noted that capital isn't the only barrier to testing the new payment model. Hospital executives and doctors are used to thinking about how to generate revenue, he said, but the accountable care model incentivizes low-cost care by seeking to reduce unnecessary or avoidable volume. That culture change can be a barrier to accountable care adoption, he said.

Size can also be a barrier to proceeding down the ACO path. A number of survey respondents said their markets were simply too small, including Community Hospital Corp., which operates four hospitals with fewer than 50 beds and the 394-bed Baptist Hospitals of Southeast Texas, and LifePoint Hospitals, the Brentwood, Tenn.-based chain that has roughly two-thirds of its 52 hospitals with fewer than 100 beds.

A small-market hospital would be at risk for huge losses if its ACO had even a few patients going outside its network for treatments for their chronic conditions, said Jess Judy, senior vice president of provider services for LifePoint.

The Medicare ACOs allow patients to seek care anywhere, even outside the ACO. Yet the ACOs will be paid bonuses or face penalties based on the cost of patients' care, regardless of where it's delivered.

Hospitals in the LifePoint chain may be too small to offer specialty services, such as cardiac surgery, and patients may need to travel elsewhere for their care, Judy said. Since LifePoint has too few patients to negotiate lower-cost care from larger hospitals with specialty services, the ACO could wind up losing huge sums on such patients.

Judy said the system could not afford to risk its investment capital on ACO development. Instead, LifePoint has poured money into hiring primary-care doctors to develop a more integrated health system, he said. LifePoint employed 673 doctors at the end of last year, up from about 300 two years earlier. In West Virginia, the system is working to build a network of patient-centered medical homes.

LifePoint and its joint-venture partner Duke University Health System, Durham, N.C., are in talks with an insurer to develop a shared-savings contract. An analysis is underway to identify what may be needed to prepare for such a contract as early as 2014, Judy said. The contract would create an insurance plan that offers consumers a more limited network of providers and could be sold in insurance exchanges created under the reform law.

More than a year ago, LifePoint also began to pilot disease-management efforts to improve care and better control costs among its employees in Georgia. Jess said results underscore a small number of patients account for a large amount of healthcare expenses.

Despite the financial risks, not every system standing back from the initial rush to start ACOs plans to remain by the sidelines. Some surveyed—including some large or prominent regional systems—said the move was under consideration or in development.

Carolinas HealthCare System said an ACO was under evaluation as officials monitor the results of one of its bolder affiliates that has entered into an accountable care contract. Phoebe Putney Health System, a four-hospital system based in Albany, Ga., continues to analyze the option. Tanner Health System has hired a consultant to weigh an ACO for the three-hospital system based in Carrollton, Ga. Wheaton Franciscan Healthcare, with 14 hospitals in Illinois, Iowa and Wisconsin, has not ruled it out and Yale New Haven (Conn.) Health System said its developing ACO is not yet ready.

But even at systems not starting ACOs, the push to revamp the delivery system to improve quality and eliminate waste is gathering steam, especially now that Medicare is adjusting payments based on adherence to quality indicators and limiting hospital 30-day readmissions.

And some, even if they don't adopt the ACO form, are using the accountability label. Intermountain's Poulsen said a pilot of the health system's alternative to ACOs, the shared-accountability model, began this spring with 300 doctors and will continue through the middle of next year.

Intermountain's effort relies on patient education, shared decisionmaking between the provider and patient, and insurance benefit design to engage patients in carefully considering the potential outcomes, alternatives and cost of treatments. Shared decisionmaking may results in patients choosing the less expensive physical therapy over orthopedic surgery. Appropriate insurance design can encourage patients to use urgent-care centers over pricey visits to the emergency room.

Pouslen said the pilot will also test new physician reimbursement models to ensure new financial incentives aren't misconstrued or twisted. Three-quarters of physician pay will be fee-for-service, and the remaining quarter will be tied to quality and medical cost performance.

In a few cases where survey respondents reported no Medicare ACO, the systems reported they were entering into shared-savings contracts with private insurers that mimic the ACO payment model. Shared-savings contracts allow providers to financially benefit from the lower spending associated with higher quality performance and better patient outcomes.

Clearly, the lines are blurring between ACOs and other payment reform models. That could be seen in South Dakota, where Sanford Health officials believed the risk was too great to enter into an accountable care contract under Medicare.

JoAnn Kunkel, chief financial officer of Sioux Falls, S.D.-based Sanford, said executives feared regulation would prove too rigid and result in financial losses as its hospitals and doctors learn what works—and what does not—under the new payment model.

Yet that did not stop the rapidly expanding health system, which has its own insurance arm, from negotiating accountable care contracts in the private market, where health system executives believed Sanford would have greater flexibility to modify contract terms as they gained experience.

In Minnesota and North Dakota, Blues insurers agreed to pay Sanford bonuses based on quality and savings performance with similar talks underway with South Dakota insurer Wellmark Blue Cross and Blue Shield, Kunkel said.

At Baptist Health Louisville, the governing board three years ago rejected pursuit of an ACO after consultants offered conflicting prognoses for the payment model, said Andy Sears, vice president of planning and development for the system.

Investment required for an ACO was too great, and the system instead chose to focus on expense control and expanding its physician base. The Kentucky system has added 200 doctors to its ranks and hired a chief medical officer. Quality initiatives have introduced new dashboards to closely monitor performance, he said.

The system recognizes new payment models are coming, he said. “We were more worried about being prepared for accountable care than worried about ACOs,” he said.

Baptist Health Louisville's board will meet again this year to draft its latest three-year strategic plan and will likely revisit its approach to accountable care. The system is far better positioned to accept risk-based contracts, Sears said, but “we still have work to do.”

Follow Melanie Evans on Twitter: @MHmevans