Making ACOs Work for You. By Gregory A Culley, MD

Making ACOs Work for You By Gregory A Culley, MD

The continuing increase in medical costs has created a renewed interest in changing the payment method for healthcare providers. In some ways, everything that’s old is new again. Discussions of Accountable Care Organizations (ACO) who would be responsible under a global budget for the total cost of care for a defined population, reminds us of the attempts of global capitation with integrated health systems of the 1980’s and 1990’s. The Commonwealth of Massachusetts has announced that under The Commonwealth Plan, there will be a move away from fee for service to global budgeting for healthcare providers. Although this concept sounds like a good solution for the ever increasing costs, the implementation will be far more difficult to achieve, based upon the experiences of the previous

attempts to do this.

I have consulted to numerous integrated health systems who accepted managed care risk with global budgeting, or capitation. This paper describes the key determinates of success as well as the pitfalls of carrying out this difficult task. There have been far more failures than successes of healthcare systems in managing medical cost budgets. Those who decide to attempt this need to learn the lessons from those who have done it well.

There are six critical elements to success in managing global budgets:

1. The culture of the organization 2. Physician leadership

3. Primary care emphasis

4. Systems of evidenced based care 5. Information technology

6. Payment methodology

Culture of the organization

The culture of most healthcare providers who tried and failed to manage global risk is palpably different

from those who succeed. Fragmented uncoordinated care, lack of quality/cost improvement activities, a

fee for service mentality and specialty domination characterized unsuccessful organizations. The larger

organization, PHO or IPA had accepted a global risk contract, while the vast majority of practicing physicians were still in the mode of maximizing volume and revenue. There were little or no systems of care, or for that matter, methods of communication between physicians managing the same patients.

The culture could be best described as individuals, or small groups interested in only looking out for their own interests and maximizing fee for service revenue and incomes.

Successful organizations managing risk have a culture of “groupness”, whether or not they are a single group. The very successful California IPA’s with hundreds of thousands of members and hundreds of doctors share a single goal of managing a population by following common principles guidelines and payment methods. Established true group models, such as Kaiser and Geisinger, have created cultures of patient centered, evidenced based quality care that enables them to act in a unified approach to

patients with simple or complex problems. Organizations such as IPA’s who have had positive financial results managing populations under global risk contracts are able to achieve a common culture of integrated, coordinated care. Both true groups and virtual groups have a strong history of examining common conditions, diseases and treatments to, as much as possible, standardize care. A good example of this is Intermountain Healthcare, where Dr. Brent James has established a culture of quality/cost improvement with intensive use of data, feedback and physician interaction.

Physician Leadership

Successful organizations who manage global budgets are all physician led. Physicians cannot be controlled or managed, only led, and best led by other physicians. Physician leaders share similar characteristics and one sometimes wonders about how much of this leadership can be taught and how much is inherent. Well respected physician leaders always are noted by fellow physicians as excellent clinicians. There is some difference of opinion whether or not the physician leader should continue to practice. Some organizations require this of their leaders. Others feel that the requirements of being a full time administrator do not allow for the leader to practice medicine in a way that would serve either the patients, or the organization, with excellence in either job.

I have worked with numerous physician leaders who still had the complete respect from their peers for previously demonstrated clinical excellence, even though they were now full time administrators.

Physician leaders must have a strong understanding of the business of healthcare. This is one area which the new leader can be taught, or learn on their own. They will have to interact with the financial,

operational and IT executives and equally as important, serve as a “translator” to the physician

community regarding the business concepts doctors will have to understand. Whether or not an MBA or similar business training is required is open to debate. I can cite a number of very successful physician executives who have acquired their business savvy on the job. However, being a strategic thinker is an essential character of a physician leader.

Physician leaders need to be charismatic. This is hard to define, but almost everyone recognizes it when

it exists and more importantly when it does not. More than anything, it means the ability to clearly

communicate the vision and new ideas being put forward to the usually difficult to change, very conservative doctor community.

It is best when physician leaders are “native” to the community. In the early days of managed care, we saw several HMOs who brought medical directors into the Northeast from California, or other advanced managed care markets. At that time, California was already very advanced in managed care techniques, such as specialty capitation and moving, what was consider then, major surgical procedures to

outpatient facilities. It was almost cruel and unusual punishment what the new physician leader from a more advanced market was subjected to when anything he suggested hit up against, “That’s not how we do it in this community.” Although we have seen locally developed physician leaders who could not make the transition away from peer pressure in order to effect change, I advise having a doctor who knows the local culture as the one most suited to change it. A good physician leader is a skilled

“midwife” to change. As such, they are in a better position, if they know the “patient.”

Physician leaders must feel passionately about the work of managing global budgets and population health and transfer this passion with their charismatic personalities to the other physicians. At one academic medical center, with a full risk global contract, the physician leaders may have felt passion about their research and individual departments, but were, at best, skeptical about managed care. We often observed in the 1990’s, that the push for a loosely integrated system, such as a PHO taking managed care risk, came out of the hospital after those executives were sold the concept by consultants.

Primary Care Directed

The present fragmented health system does not lend itself to communication and coordination between physicians and the other parts of the system. In fact, coordination and cooperation is actually

discouraged by the different incentives of the fragmented system. The most important thing I have observed in successful groups managing populations is that the physicians of the same specialties, using data, talk with each other about how they practice and communicate about shared patients. In such a system the primary care physician as the care coordinator is essential to making this work.

For many years the importance of primary care has been stressed while PCP reimbursement has been flat to lower and the morale of these physicians has reached an all time low. Meantime most specialists’

incomes have risen well above the rate of inflation. Hospital payments and the dominance of hospital care far outweigh outpatient primary care. The rhetoric that we need more primary care has been hollow. Perhaps under health reform this will change, but the specialty dominated academic medical centers have few role models to offer examples to medical student. Further, if the primary care payment model does not change, why would a young medical student choose that path?

Primary care today is a volume and revenue driven, high overhead, low or no margin business. The E&M

codes make up over 75% of practice revenue and require that the PCP see twenty-five or more patients

a day. There is little time to manage patients with chronic diseases. Most large systems that employ

PCPs pay them based upon a percentage of collected cash, or RVUs generated. An administrator once told me, “They’re RVU slaves. They won’t even take vacation, because it will harm their incomes.”

Successful organizations have developed innovative PCP payment methods that improve the job satisfaction and increase potential income by as much as 50%. We will cover this under the Payment Methods section. Suffice to say, that the way an organization treats its PCPs says everything about their commitment to successfully managing a population under a global budget.

There are differing views as to whether or not the PCP should have to approve all referrals to specialists (“Gatekeeper”), or have “open access” to specialists. In our view, tight referral control is not essential if there are systems of care to manage patients with chronic diseases and excellent electronic systems to facilitate communication between the various components across the care continuum.

The Medical Home is much touted as the answer to the 2% or so of patients who represent 35% to 50%

of the medical costs. For Medicare, 5% to 7% of patients often have costs as high as 60% of the total.

There are a number of models of the medical home and the concept dates back to pediatric practices of the 1970’s. I recently visited two very effective practices where patients with chronic diseases are well managed. One is a community health center in central Pennsylvania which has five primary care physicians and five nurse practitioners. They function in teams with nurse care coordinators,

nutritionists, social workers and home visitation workers. There is an electronic medical record, with a disease registry. There is real time case management. All the patients with chronic diseases are carefully tracked and during regular clinic visits there is a brief case conference by the team. The current status is reviewed and a plan established or changed. The patient education is done and the next visit scheduled.

The EMR enables the team to monitor adherence and if necessary send a home health medical assistant to follow up in the patient’s home.

Another is a practice in Southern New Hampshire with three teams, each with a family physician, two mid-level practitioners (either PAs or NPs), a nurse coordinator and a Medical Assistant (MA). There is a shared nutritionist/diabetic educator for the practice. The practice has a basic lab, basic x-ray, and onsite physical therapy. There is an EMR, disease registry, and care management tracking software.

Patients are evaluated by the MA before being seen by the physician or mid-level. Following the patient’s visit the nurse coordinator works with the patients to go over their treatment plan, schedule follow up, or to arrange referrals. Once a week there is a team conference and once a month all patients with chronic diseases are discussed. This practice has demonstrated excellent quality outcomes, has lower than expected costs, in a population with a significantly higher risk score and has achieved patient satisfaction scores of over 90%.

The major problem related by one of the family physicians was the lack of coordination with specialists.

She stated that feedback from specialist referrals was rarely timely, often inadequate and many times

there was no information after a referral. This brings us to the next issue.

Systems of Care

We use systems of care rather than utilization management, because the latter is often an activity performed by the managed care plan where the doctors are passively “managed.” Systems of care have several unique elements. First, it is a well designed care management process where there is

coordinated care across the entire continuum, from the home, to the primary care office, through specialty care, the hospital and in sub-acute facilities. This coordinated care must have good flow of information, preferably through interconnected electronic records. There must also be clear interfaces when the patient transitions from one provider to another. The major causes of hospital readmissions are the lack of medicine reconciliation and inadequate follow up instructions, including a scheduled appointment.

The second crucial element is the variation in physician practices. Successful organizations who have achieved high quality outcomes and cost efficiencies have established quality/cost processes for the most common diagnoses, conditions and procedures. These organizations have developed both primary care and major specialty work groups. For most specialties ten to twenty diagnoses or conditions represent a significant portion of that specialty’s patient base. These quality/cost improvement groups’

purpose is to improve quality, reduce variation, improve coordination and communication and in doing so, reduce costs.

There are two critical aspects of this work. The first is accurate, risk adjusted data. Physicians always question data, especially as it related to their practices. Considerable investment in credible data is necessary.

The second factor which has been learned by successful groups is that there must be an investment in education of all physicians in this effort. High level provider relation representatives, who understand data and have excellent communication skills, are needed to develop and facilitate these groups. The groups should meet frequently at first to work on the most common diagnoses and procedures. As the ACO matures meeting frequency will decrease. However, the upfront investment in data and personnel to support this effort cannot be overstated.

Information Technology and Data

Needless to say, none of this is possible without the supporting information systems. At minimum the following is required:

 Electronic medical records, connected across all providers

 High level PMPM and rates/1000 reporting

 Care management tracking software

 Predictive modeling software

 Risk adjusted profiling software

For some ACOs it may be decided that payment systems to providers be done by the organization, rather than by insurance plans from whom they are contracting membership. This software can be very expensive and many of the products on the market today may not be able to administer the complex payment methodologies described below. At the same time, the insurers do not have systems able to do much beyond simple fee for service claims payment.

The Payment System

Without question, this is the most important determinate of success, or failure. The most common reason that so many organizations were not able to manage global risk was due to paying standard fee for service to physicians and high reimbursement to hospitals while having to live under a global

payment. Fee for service, with a withhold, is a recipe for disaster because it maintains “the more you do the more you get” culture. Even worse, because many physicians assume that they will never see their withhold returned, there is an increase of utilization. If the greater organization takes risk, everyone participating must accept risk. The major goal of a physician payment model is to design a system which rewards efficiency and effectiveness, while equitability compensating for needed care.

Payment systems for physicians should have the following principles:

 Support caregivers in providing the best care

 Use data that providers use in their operations and business processes

 Allow for potentially significant increases in revenue to primary care practices

 Payments should be divided between: a periodic prepayment, a payment for services rendered and a payment for performance

 Performance measures should begin with a small set of simple measures

 Physicians should have input to the payment model

 Significant resources must be applied to educating physicians to the model

A number of innovative models have been implemented in the past few years by successful groups. For primary care, models have greatly evolved from the vanilla primary care capitation methods of early managed care. I like the following two models.

The Capital District Physicians’ Health Plan in Albany, NY has developed and elegant model which combines incentives for development of a medical home, uses HEDIS performance measures, achieves cost targets and has some utilization measure which can be controlled by PCPs’ practice patterns. These utilization measures include admissions of ambulatory sensitive diagnoses, emergency department visits, and generic drug prescribing rates.

A successful California IPA pays primary care physicians 50% of a Medicare fees schedule for rendered services and 50% capitation monthly base upon Medicare, so that total compensation would never be lower than Medicare. Then primary care physicians can earn up to 180% of Medicare through

performance measures based upon meeting cost targets, quality measures, participation in the group’s

quality/cost improvement activities and certain utilization measures. Primary care groups, through this model can increase their incomes as much as 60%.

The principles these two models enforce are that a combination of the triple AIM goals of patient experience, cost control and quality create the potential for increased revenue and better care coordination to primary care practices.

For specialty physicians the task is more complex. For over sixty years specialists, especially the ones doing procedures have received significantly higher reimbursements for services and therefore much higher incomes than primary care. Leveling the playing field is extremely difficult, because of one medical director told us, “This is all about physician incomes. You can’t threaten reducing them.”

The most successful groups managing global risk have addressed this. Certainly paying salaries with incentives for quality performance, rather than production is the best way to achieve the right incentives. The examples of Geisinger, the Mayo Clinic, Cleveland Clinic and others are often cited.

However, the great majority of physicians are not in these closed, fully integrated organizations. Any group that decides to form an ACO will have to address this dilemma. In order to get away from the incentive of, “the more you do, the more money you earn”, several methods have been tried. Let us, again, state that one method, fee for service with a withhold, absolutely has been proven not to work.

Physicians assume that they will never see the withhold, so utilization actually increases.

The methods used by successful groups include:

 Capitation of one specialty group for all services

 Variable RVU multiplier

 Contact capitation

 A blend of a reduced fee for service schedule, with a periodic capitation payment, or contact capitation

 Episode of care (ETG) payment

Some countries, such as Denmark, use the blend of fees, combined with capitation. This model pays 40% based upon a fee for services and 60% as a periodic fixed payment.

What is important is that considerable time and resources must be dedicated to obtaining input from physicians, educating them to whatever methodology is chosen and getting commitment to the new system. It is also important to share a percentage of any cost savings with all physicians.

The methods described here are complex and require the proper IT systems and physician billing and accounting systems to administer and track the payments. The Prometheus software system for episode of care payment has several demonstration projects in place. One of the recognized

problems with this methodology is that there are limited episodes available to do this. The second issue is how to equitably divide the global episode payment among those sharing the care.

Physicians’ office billing systems currently in place are not capable of accounting for new methods of

payment. In one non-integrated system where the blind of fee for service and contact capitation

was tried, the failure of the experiment was attributed by the medical director to this reason. He said, “Specialists have ten to twenty CPT codes that form the basis of their revenue and their incomes. All their systems are directed at those codes. They can’t manage their practices any other way.

Conclusion

I feel that ACOs are the best chance of dealing with raising health costs. However, past experience tells us that carrying out the details, from formation to implementation and management are far more difficult that most persons are aware of.

Anyone setting out on this journey would be wise to learn the lessons from those who have succeeded as well to understand the reasons why many organizations failed.