The following was written by Andrew Hayek, president and CEO of Surgical Care Affiliates.
The Accountable Care Organization provision within the healthcare reform law has generated a significant amount of discussion and speculation. We have heard a broad variety of interpretations of what ACOs are and what they mean for community physicians and surgery centers.
Our organization, Surgical Care Affiliates, partners with Monarch HealthCare, a leading independent practice association based in Orange County, California. Monarch was recently named as one of five pilot ACOs in the country, designated by the Brookings Institution and Dartmouth College.
Monarch has been collaborating with independent community physicians in Orange County for 17 years to improve health outcomes, to enhance the patient experience, and to reduce healthcare costs, as part of their managed Medicare and commercial HMO products. Monarch’s position as a nationally recognized leader in care coordination and physician collaboration contributed to the decision to include them as one of five pilot ACOs in the country.
Monarch’s ACO is in partnership with Anthem Blue Cross of California, and the goal is to manage beneficiaries in a PPO, using the structure of an ACO. In this partnership, Monarch will manage tens of thousands of Anthem PPO beneficiaries in an ACO model.
Because of our partnership with Monarch, we have an interesting vantage point from which to observe the role that ASCs play in ACOs.
Purpose and intent of ACOs
Before getting into specifics, it is important to step back and examine the overall purpose and intent of ACOs. The fundamental premise of an ACO is that physicians can improve quality and reduce healthcare cost by collaborating together in new ways and by being held accountable to the health outcomes and total healthcare cost of a patient population. In this way, an ACO is very similar to health maintenance organizations (HMOs), which have been prevalent for more than 30 years.
HMOs operate with "closed" networks, meaning that patients are required to see an approved physician, which allows a health plan to work with the physicians in the network to influence how care is delivered. The goal of an ACO is to extend some of the most important benefits of an HMO into "open" network structures, like fee-for-service Medicare and PPO products.
The hope is that ACOs can accomplish this by allowing for greater physician-to-physician and physician-to-facility collaboration and by creating shared bonus structures that allow physicians and other ACO participants to share in cost savings, as long as quality and clinical outcome goals are met.
There are three primary payment incentive structures in discussion – a shared savings program (in which a payer, like Medicare, continues to pay fee-for-service rates and adds a potential retrospective bonus payment based on savings demonstrated in the ACO’s population), partial capitation (a combination of a flat "per member per month," or PMPM, fee as well as fee-for-service payments), and full capitation (a flat PMPM fee only, as many IPAs currently utilize).
Hospitalizations, chronically ill are main targets
The main target for care improvement and cost reduction is hospitalizations. Payments for hospital inpatient care by Medicare in 2009 totaled $136 billion, 28 percent of Medicare’s total expenditures. (Total Medicare payments to ASCs in 2009 were $3 billion, less than one percent of total Medicare expenditures.)
From a beneficiary perspective, ten percent of Medicare’s beneficiaries account for 63 percent of Medicare’s expenditures. These beneficiaries consume an average of $44,000 per year in cost to the Medicare program, whereas the other 90 percent of beneficiaries consume only $3,000 per year.
The defining characteristic of these high-cost beneficiaries is the prevalence of chronic illness (diabetes, CHF, COPD, hypertension, etc.). An estimated 75 percent of total healthcare expenditures are driven by chronic disease treatment.
Therefore, to bend the curve of rising healthcare costs, ACOs will need to reduce expenditures for patients with chronic illness and reduce hospitalizations, which account for the majority of cost. By comparison, reducing the cost of every case performed in an ASC to zero would reduce Medicare’s cost by only 0.6 percent.
Structure of ACOs still unclear
As with many elements of the healthcare reform bill, a significant amount of uncertainty remains as to how the vision of the bill will be translated into day-to-day reality. With respect to ACOs, there is even more uncertainty, because it is not yet clear how some basic functions of ACOs can or will work.
One of the major open questions is how to manage patients who are in “open” networks, like Medicare fee-for-service and PPO products. HMOs have been effective because of their ability to control where patients receive care by utilizing a closed network of providers. Whether ACOs can effectively manage the cost of care using an “open” network, in which patients can see any willing provider, remains to be seen, and may not be possible in many areas.
There are a wide variety of other very fundamental challenges – like how to assign patients to a primary physician (which could include cardiologists, ob/gyns, and other specialists, in addition to primary care physicians), how to track patients care and costs in an open network, and how to create sufficient incentives and accountability for changing care delivery.
These are significant challenges that will take years to resolve and operationalize. As a result, we estimate that it will take several years for ACOs to become a material part of healthcare delivery, and we predict that many ACOs will fail to realize the goal of reducing cost.
IPAs are in a relatively stronger position to launch ACOs, as they have been working with physicians to improve care and reduce cost for many years, and they have the experience and infrastructure to take risk on total medical costs for large populations.
SCA's role in Monarch's ACO
In addition to 17 years of improving care and reducing cost through physician collaboration, Monarch also knows the ASC model very well. One year ago, Monarch co-invested with SCA in two surgery centers in Orange County, and we are exploring adding a third center together. Monarch executives, including Monarch’s CEO (Dr. Bart Asner), attend the surgery center’s board meetings and are integrated into our management process.
Monarch’s interest in ASCs is based on three goals: improving the quality of care and clinical outcomes, enhancing the patient experience, and lowering unnecessary medical costs. Well-run ASCs are able to deliver on each of these three goals, which are essential to the success of the ACO model.
We are also working with Monarch to further enhance the value of ASCs by collaborating together in new, more coordinated, ways to enhance clinical outcomes, improve the patient experience, and reduce unnecessary cost.
We use the National Quality Forum endorsed quality metrics in all SCA centers, and we use these statistics with Monarch to track quality outcomes. Given Monarch’s data regarding overall patient health outcomes, we are exploring how to expand and refine our quality measures to tie to total health outcomes of Monarch’s patient population – in other words, which specific aspects of care in our ASCs tie most consistently with better overall health outcomes for patients?
On the cost side, we have very precise data within SCA that tracks the labor and supply cost of each procedure. We use this data to work with physicians to think through how to improve efficiency and reduce unnecessary cost. This data is very helpful to Monarch, and we are working on how to expand our cost analysis to tie to total healthcare costs for the patient population. The question being: What can we do in an ASC that helps reduce total healthcare costs for a given patient population?
Summarizing the challenges
Based on our experience, we would summarize our thoughts regarding ASCs and ACOs as:
1. ACOs are in a very early stage of development, and it will take several years to create viable ACOs outside of the current pilot environment.
2. Many ACOs will struggle, given the complexity of creating and managing physician networks and the complexity of assuming risk, particularly in an open network structure.
3. The main focus of ACOs will be reducing hospitalization costs and managing costs for patients with chronic illness, which account for the majority of Medicare spending.
4. While surgical costs will not be a main focus, ASCs will play a role in helping to improve quality and reduce costs for outpatient surgery.
5. For ASCs to contribute to an ACO, they will need to have robust clinical systems and sophisticated tools to improve cost and efficiency, and they will need to tie their clinical and cost analytics into the ACOs information on the overall patient population to drive ongoing improvement in outcomes and cost.
SCA's experience participating in an ACO in Southern California underscores why we are so passionate about ASCs – we are an important part of improving the healthcare system by improving clinical quality and reducing cost. The ACO structure can further align incentives in the healthcare system to achieve the benefits that ASCs provide.
Learn more about Surgical Care Affiliates.
Read more insight from Andrew Hayek:
- CMS Final Rule Gives ASCs 0.2% Increase for 2011
- 10 Watershed Trends for ASCs Over Past 25 Years