HEALTHCARE REFORM OCTOBER 2012

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HEALTHCARE REFORM

Tracking ACO Growth Nationally

OCTOBER 2012

The enclosed slides are intended to provide you with a snapshot of how private sector accountable care organizations (ACOs) have formed since the advent of coordi-nated care agreements under the Medicare program. Private payers, hospitals, physician practices, and other healthcare stakeholders are establishing new partner-ships across the country in order to reduce costs, improve quality care, and share financial incentives if certain performance benchmarks are met. These private sec-tor collaborations, many of which have chosen to participate in the federal ACO program, can offer insight to how health reform’s Medicare Shared Savings Program (MSSP) will impact healthcare in the years to come.

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Providers Increasing Activity

As the health reform Medicare Shared Savings Program (MSSP) was established in 2012, many

providers also entered new ACO-like partnerships with private payers aimed at improving

coordinated care and controlling costs.

Major private sector ACO initiatives:

• Cigna has launched a collaborative accountable care (CAC) program that includes 32 CACs serving

300,000 patients in 16 states

– Cigna’s goal is to have 100 CACs covering one million patients by 2014

• Aetna has ten ACO-like agreements with providers in place, and expects to have 20 by the end of 2012

– Aetna is investing over $1 billion in a “variety of capabilities” to support its ACO program, including

acquiring a health IT services firm

• Blue Cross Blue Shield Massachusetts entered into ACO-like “Alternative Quality Contracts” with 11

provider organizations in 2009-2010, achieving savings of 2.8%

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Providers participating in ACO agreements with private payers may also choose to participate in the

national MSSP program – however, private sector agreements may have significant differences in

terms of patient volume, eligible participants, financial incentives, and clinical/quality.

Comparing Medicare and Private Programs

MSSP

Private

Eligible Participants

Federally qualified health centers, rural health centers, critical access hospitals, acute care hospitals, physician groups and practices

Private insurers; hospital systems, physician practices, health clinics, specialists, other providers

Organization

must be represented), must obtain exclusive tax ACO board governance (75% of provider entities identification number for ACO

Contractual agreement within a provider network with payers

Population

5,000 or more Medicare beneficiaries recommends at least 15,000 patients in each Determined by ACO – Dartmouth Institute participating commercial plan1

Timeline

Three-year contracts; beginning in 2012 Determined by ACO

Goal

Coordinate care to improve quality and reduce costs Coordinate care to improve quality and reduce costs

Total ACOs

153 organizations are participating in such initiatives _{as of August 2012}2

221 total organizations are participating in such initiatives as of August 20123

1 “ACOs: Frequently Asked Questions,” The Dartmouth Institute, The Center for Population Health, retrieved on December 2011. 2 MSSP: “CMS Adds 88 New Medicare Shared Savings ACOs,” CMS, July 9, 2012.

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Comparing Medicare and Private Programs

MSSP

Private

Payment

• Fee-for-service • Shared savings model • Benchmark created for Medicare Part A and Part B expenditures based on previous spending measures • Two models for participants4_: 1) One-sided model (sharing savings, but not losses, for the entire term of the first agreement)

2) Two-sided model (sharing both savings and losses for the entire term of the agreement, offers greater shared savings)

• Receive a portion of the shared savings from payers, likely based on savings from historical spending patterns

• Premier ACO partnership5_{, which helps}

coordinate private sector ACOs, anticipates deep operational interactions across a wide spectrum of services to achieve payment incentives, including; 1) Predictive modeling 2) Case management 3) Network and medical management 4) Financial reporting • Savings can allow for investments (e.g., in health IT)

4_{“ACO Providers Fact Sheet,” Centers for Medicare & Medicaid Services, October 2011.}

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Some Markets Quick to Adopt

Certain states have experienced a high amount of private sector ACO formation, as some

healthcare delivery networks are already increasing coordination and integration.

Entity Sponsoring ACO Formation

Location6

_{Hospital System}

_{Physician group}

_Insurer

Community-based

organization

Total

California ₁₂ 11 2 0 25 Texas ₁₀ 6 0 0 16 Massachusetts ₇ 5 1 0 13 Michigan ₈ 3 1 0 12 New Jersey ₆ 3 1 1 11 New York 5 6 0 0 11

6_{“Growth and Dispersion of Accountable Care Organizations,” Leavitt Partners, June 2012.}

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Breakdown of Healthcare Spending in an ACO

Under a Blue Cross Blue Shield Massachusetts Alternative Quality Contract (AQC) agreement

that took place from 2009-2010,

7

_{11 organizations reduced spending in a program similar to new}

Pioneer Accountable Care Organizations in Medicare.

Change in Average Healthcare Spending per Member

7_{“Alternative Quality Contract,” Health Affairs, August 2012}

Total Quarterly Spending

2009

2010

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California, Texas, and Massachusetts Lead the Way

Source: “Growth and Dispersion of Accountable Care Organizations,” Leavitt Partners, June 2012 Update.

HEALTHCARE REFORM OCTOBER 2012