Accountable Care Organizations

Accountable Care Organizations

An Accountable Care Organization (ACO) is a type of payment and delivery reform model that seeks to tie provider reimbursements to quality metrics and reductions in the total cost of care for an assigned population of patients. A group of coordinated health care providers form an ACO, which then provides care to a group of patients. The ACO may use a range of payment and is also accountable to the patients and the third-party payer for the quality, appropriateness, and efficiency of the health care provided.

As hospitals and health systems strive to decrease the costs of the delivery of care while simultaneously increasing the quality of patient experience, co-management serves as a platform to align physicians and hospitals. The term co-management is used in a variety of ways to describe physician and hospital arrangements. Here we define co-management as a quality focused approach where the hospital and physicians partner to “co-manage” a defined set of services. The hospital pays the physicians to co-manage the patient experience in quality, efficiency and experience. The scope of the management services are jointly defined by DRG and OP services. Physicians who are regularly present at that hospital are invited to join in the co-management process. It is important to have individual physicians present at that organization, so they can legitimately impact the desired change.

The legal arrangement may be the formation of a new company or an all-party agreement that defines structure and the scope of responsibilities. This structure meets all Federal, State and Anti-trust regulations. A fair market valuation is completed on the size and scope of the service line to set the management fee. This must be completed by an outside party to the physician and hospital arrangement. Physicians are invited to participate and work with the hospital to identify 10 to 12 measurable indicators that need improvement. National benchmark data is used to set the target goals on the indicators for the first year’s work. Physicians who choose to participate are paid an hourly rate to cover their monthly work toward the indicators and quality improvement efforts. This rate is set by a third party, at fair market value, for that specialty and scope of work involved. If the annual indicators are achieved, the physicians share in an annual incentive bonus. The agreement is then reset each year, with the definition of the scope, inviting physicians to participate and the setting of quality targets for the year.

Murer has worked with clients in using this alignment strategy successfully to improve performance and achieve measurable results in improving outcomes. Hospital clients experience a transformation of the partnership with physicians as they work side by side to impact quality outcomes. Our experience is that the investment made by the hospital is returned two- and three-fold year after year. This alignment strategy is frequently used to align incentives of the physicians and the hospitals. It also serves as a structure to enable physicians and hospitals to prepare for bundled payment opportunities and is often used side by side with bundled payment initiatives.

As the national discussion on reform continues, there are many uncertainties with how health care will be accessed and paid for in the future. One thing that is certain, the current Medicare program is unsustainable with increasing costs. CMS has launched a bundled payment pilot, building off previous bundled payment demonstration projects. The most recent, ACE (Acute Care Episode), bundled payment project launched in 4 states in January of 2010. CMS has now defined multiple models of bundled payment pilots and are calling for applications. The details continue to unfold on each program, with an expected start date of October, 2012.

Hospitals and physicians will be given the opportunity to work together to impact the patient outcome and cost of care in ways that were previously prohibited. To date, hospitals have been prohibited from incenting physicians from a monetary perspective. The idea behind bundled payment is to align the incentives for the physician and the hospital in the care for the patient, and to allow them to share in savings achieved. At present, physicians bill Medicare for each day in the hospital, while the hospital receives a DRG payment for the entire episode of care. The new models involve the hospital taking a discount to the current payment for the facility side, and allow the hospital to share any savings back with physicians. Physicians have the opportunity to earn up to an additional 50% of their total professional fees on the care of that patient, where quality and patient experience remain high.

The expected implementation is currently October 2012. There are 4 models for bundled payment as defined by CMS:

  • Model 1 – the episode of care is defined as the inpatient stay in the general acute care hospital
  • Model 2 – the episode of care would include the inpatient stay and post-acute care and would end at either 30 or 90 days post discharge
  • Model 3 – is for post-discharge services only
  • Model 4 – CMS would make a single, prospectively determined bundled payment to the hospital that would encompass all services furnished during the inpatient stay by the hospital, physicians and other practioners. Physicians and other practioners would submit a “no-pay” claims to Medicare and would be paid by the hospital out of the bundled payment

Murer is working with clients around the country in evaluating models appropriate for their hospitals and physicians. There is a tremendous amount of data analysis needed to understand the risk and reward of participating in any of these projects. Murer has the bench strength, the experience, and the ability to assist clients in evaluating the potential, in structuring the proposed approach, and in monitoring the results.