Accountable Care Organization (ACO)

Summit

Marc B. Westle, D.O., FACPAugust 30, 2010

Where Are We?

There are 48 million Americans without health insurance.

Approximately 14,000 Americans are losing their health coverage daily, and many others are paying much

more than they can afford.

What We Know

Research indicates that for every 10% increase in health insurance premiums, the number of employers that offer health insurance falls by roughly 2.5%.

This is simply not sustainable and will bankrupt the country.

Nationally, health insurance premiums increased 65% between

2000 and 2004.1

This increase was greater than general inflation (9.7%) and more than 5 times the wage growth (12.2%). 2

The healthcare cost share of the GDP rose rapidly from 16.2% in 2007 to 17.6% in 2009, largely as a result of the recession, and is expected to climb to $4.5 trillion in 2019 and 19.3% of our GDP.

3

Accountability

Agenda

How did we get here?1

How does “Accountable Care” differ from the “Capitated Care” of the 1990s?2

Patient Protection and Affordable Care Act3

Definition of an Accountable Care Organization4

Components of an Accountable Care Organization5

What does this mean for me?6

Next Steps7

Questions8

How did we get here?

What’s the problem?

• The current fee-for-service (FFS) payment system does not promote integration or coordination of healthcare, but rather fosters fragmentation.

• Providers are rewarded largely based on the volume of tests and procedures they perform – irrespective of quality, outcomes or the evidence-based needs of the patient.

• Simply – The predominant FFS payment system rewards volume and is disconnected from quality and accountability.

Rewarding Volume

Where It All Began• In 1965, the Social Security Act established both Medicare

and Medicaid.

• On July 30, 1965, President Johnson signed the Medicare and Medicaid Bill.

• When Medicare began in 1966, it adopted the approach of many private payers, particularly BCBS, who was actually retained to process claims.

• Hospitals were retrospectively reimbursed for reasonable costs reasonable costs they incurred while providing services.

• Physicians were paid a fee based on usual, customary and reasonable usual, customary and reasonable chargescharges – meaning they received whatever they charged, up to a limit

established in each service area.

1966 Medicare Summary• Hospitals were reimbursed essentially for all the costs they

incurred.

• Physicians were paid essentially whatever they charged for whatever services they provided.

• One by-product of this payment environment was that there was very little cause for conflict between hospitals and very little cause for conflict between hospitals and physiciansphysicians. . Both were paid more for treating more patientsBoth were paid more for treating more patients. .

• Incentives essentially were aligned across the two groups – but there was no cost containment or efficiency incentiveno cost containment or efficiency incentive..

The Tax Equity and Fiscal Responsibility Act of 1982 (TEFRA)

• Faced with imminent insolvency of the Health Insurance Trust Fund, Congress moved to constrain the growth of Medicare hospital spending by enacting TEFRA.

• TEFRA placed a temporary limit on hospital payments and required the HHS Secretary to develop a prospective payment plan, under which prices would be set in advance for each type of patient condition (primary diagnosis).

• The act was delivered to Congress in December 1982, and the Medicare Prospective Payment System (PPS) for hospital inpatient services was enacted in April 1983 – and implemented in October 1983.

The Medicare Prospective Payment System (PPS)

• Under Medicare PPS, each hospital patient is assigned to a diagnostic-related group (DRG).

• Price is set to represent the relative costliness of patients in each DRG.

• With this change from retrospective cost reimbursement to prospective payment for each case, the incentives facing hospitals changed dramatically.

• It focused broader attention on the “cost-efficient” treatment of the patient at least while in the hospital.

• Higher costs no longer meant higher payments, so the ability to control the cost of each case directly affected the hospital’s financial status.

The Medicare Prospective Payment System (PPS) – continued

• Medicare PPS succeeded in slowing the growth of Medicare hospital spending.

• By 1988, the projected insolvency date for the Hospital Insurance Trust Fund had receded to 2005.

• It also changed the relationship between hospitals and physicians.

• Now hospitals were in potential conflict with physicians, who, as the agent of the patient, and given the prevailing physician payment system, had no incentive to control costs.

The Resource-Based Relative Value Scale (RBRVS)

• After relatively successful implementation of the Medicare PPS, attention turned to physicians.

• Prior to Medicare PPS, hospital spending was increasing faster than physician spending. After Medicare PPS, physician spending began to grow faster than hospital spending.

• In 1989, Congress passed the Omnibus Budget Reconciliation Act (OBRA89).

The Omnibus Budget Reconciliation Act of 1989 (OBRA89)

• 1966–1989: Usual & Customary

• OBRA89 replaced the charge-based payment system in place since 1966 with a physician fee schedule.

• Payment for each service was based on an estimate of the resources required to provide it (Resource-Based Relative Value Scale), rather than each physician’s own charges for the service.

• It also attempted to correct the growing payment gap between E&M services and those for surgeries and procedures. The gap was widely thought to exceed the differences in the costs of providing these services – encouraging increasing numbers of these services.

The Omnibus Budget Reconciliation Act of 1989 (OBRA89),Implemented January 1992

• Physicians have more or less direct control over the volume and mix of services. OBRA89 tried to reign in growth and costs by reducing reimbursement.

• RBRVS initially reduced the distortion of fees that favored surgeries and procedures to E&M.

“Coming Together”

Fee Distortion Resurfaces

• Why?

• Two major trends:

– Development of new expensive procedures over time AND

– Specialty-dominated process for revising the relative weights (Annl Intern Med 2007;146:301-306)

• Many have recognized that the RBRVS is encouraging both increasing numbers of procedures and imaging, and diminishing therole of the PCP.

Sustainable Growth Rate (SGR)

• Mechanism used since 1998 to determine annual increase in physician fees based on the actual cumulative physician spending relative to a target.*

• This has produced successive cuts in response to the fact thatactual spending has exceeded the target since 2002.

• Spending growth has been primarily driven by volume and intensity of services.

*SGR Formula = Growth of Medicare population, increase in physician practice expenses and change in GDP.

The Annual “Last-Minute Repeal”

• Congress looks to offset the cost of annual physician fee cuts by finding savings from other provider payments . . .

• Thereby pitting physician against physician and physicians against hospitals, as each group fights for their piece of the pie.

A New Tug-of-War Emerges

“The Changing Landscape”

The Health Maintenance Organization Act of 1973

• By 1985, 20 million enrollees

• By 1992, almost 40 million enrollees

• In response to increasing HMO market share, in the mid-1990s there was a boom of IPAs, large multi-specialty groups, practice acquisition, hospital employment, etc. – all to achieve economies of scale for negotiating leverage.

• Except for a select few (Kaiser), the promise of “Low Cost, High Quality” care never materialized. Patient dissatisfaction was high.

How does “Accountable Care” differ from the “Capitated Care” of the 1990s?

How is the ACO different than the HMO?

• Integration models of the 1990s were formed primarily to gain market share and negotiating leverage.

• In the newly reformed healthcare delivery system, the primary focus is:

– Quality

– Coordination of Care Across a Continuum

– Outcomes

– Cost Control with Shared Savings

How is the ACO different than the HMO? – continued

• The HMO model transferred risk to the provider: the per-member-per-month (PMPM) payment model.

• The Patient Protection and Affordable Care Act is proposing a fee-for-service (FFS) + shared savings model for quality, outcomes and per-capita cost savings. To achieve these quality and outcome benchmarks, providers will have to align clinically and financially.

Patient Protection and Affordable Care Act

Patient Protection and Affordable Care Act*

• Section 3001 – Hospital value-based purchasing by FY 2013

• Section 3007 – Physician value-based purchasing based on quality and cost by FY 2015 (2-year phase-in)

• Section 3008 – Payment adjustment for conditions acquired in hospitals

• Section 3022 – Medicare shared savings programs by Jan. 1, 2012

• Section 3023 – National pilot program on payment bundling

• Section 3024 – Independence at home demonstration

• Section 3025 – Hospital readmission reduction program

• Section 3026 – Community-based care transitions program

• Section 3027 – Extension of gainsharing demonstration

*HHS has been given broad authority to expand models on a nationwide basis if they are proven to reduce cost and/or improve quality.

Health Reform Implementation Timeline

= Coverage Provisions

= Transparency Provisions = Payment Constraint Provisions

= Delivery System Provisions = Quality Provisions

= Geographic Variation Provision

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019

Medicaid DSH Payment Reduction

Medicaid Expansion

CMS Hospital Behavioral Offset relating to IPPS

Hospital Wage Index

Independent Payment Advisory Board

Hospital Readmission Payment Reductions

Geographic Variation Bonus Bundled Payments Pilot

Insurance Reforms (Pre-existing conditions for children, no annual or lifetime limits, children on parents’ insurance until 26)

Hospital Market Basket Reductions

Hospital Value-Based Purchasing

Insurance Reforms (Pre-existing conditions for adults, premium limits)

Hospital Productivity Adjustments

Hospital-Acquired Infections Penalties

Medicare DSH Payment Reduction

Medical Device Tax

Accountable Care Organizations

Waste, Fraud, and Abuse Provisions for Medicare and Medicaid

Individual Mandate

Disclosure of Industry Payments to Physicians and Teaching Hospitals

KEY

Definition of an Accountable Care Organization

Definition and Goal

An ACO is a local healthcare organization and a related set of providers (at a minimum, primary care physicians, specialists and hospitals) that can be held accountable for the cost and quality of care delivered to a defined population.

The goal of the ACO is to deliver coordinated and efficient care. ACOs that achieve quality and cost targets will receive some sort of financial bonus, and under some approaches, those that fail will be subject to a financial penalty.

Source: Healthcare Financial Management, August 2010

Source: Healthcare Financial Management, August 2010

Components of an Accountable Care Organization

ACO Model: Core Components

A group of providers willing and capable of accepting accountability for the total cost and quality of care for a defined population.

The Vital Role of Technology

Accountable Care Organization Elements

• Local shared governance with engaged stakeholders (payers, providers, patients)

• Legal structure to distribute incentive or bundled payments

• Exceptional management expertise

• Integrated EMR infrastructure

• Includes sufficient number of PCPs for the beneficiaries for which the ACO is responsible

• ACO measures and reports on quality measures (actionable and timely data)

• Chronic disease management

• ACO adopts core values: quality, patient-centered care, accountability, innovation

Accountable Care Organization Elements – continued

• Group provides notice to beneficiaries regarding ACO

• All ACO primary care groups achieve National Committee for Quality Assurance Patient-Centered Medical Home Recognition

• Use appropriate work force (RN, LPN, PA, NP, clinical pharmacists, etc.)

• Embedded PI/QI processes

• Physician Executive Leadership

• CAPITAL

Physician Executive LeadershipCAPITAL

Introduction to the Patient-Centered Medical Home

• A video from the American College of Physicians

Choose Your Model and Build a High-Performance System of Care

Source: Sg2 2010

Contractual Affiliation Model

Much more severe than the consequences of a False-Positive

“Let’s control our destiny together”

January 2012

• Lead time necessary to develop:– Organizational structure (business model)

– Governance

– Clinical and financial integration

– Other infrastructure elements

• Makes it difficult to defer planning and implementation activities until HHS regulations are issued and finalized.

What does this mean for me?

Different Degrees of Commitment for Members

• Ready to begin implementing • Executive sponsorship and

participation• Payer partner participation• Physician network and sufficient

population base• Transparency and acceptance of

common cost/quality metrics (QUEST)

• Population health data infrastructure• Participation in work groups and

meetings• ACO contracting vehicle

• Capabilities assessment to pinpoint focus areas

• Participation in monthly webinars focused on execution strategies (including members of Implementation Collaborative)

• Online portal of ACO content, including toolkits, methodologies and related content

• Preparation to collect population-based measures

• Milestones to keep on track to join the ACO Implementation Collaborative

ACO Implementation Collaborative ACO Readiness Collaborative

Financial Risk Management Analysis

• Engaged to analyze our region’s Part A and B utilization and to help with financial modeling

Stay Engaged and Let’s Work Together

Next Steps

Source: Healthcare Financial Management, August 2010

Monthly Meetings Over The Next 12–15 Months

Contact: Anna Cain

anna.cain@msj.org

ACO Multi-Stakeholder Work Group

It Takes a Team

Questions