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Hospital Operators on ACOs: Lay the Groundwork, or Wait and See?

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Since the Patient Protection and Affordable Care Act of 2010 sanctioned the development of accountable care organizations, healthcare groups have been divided on whether or not to participate.

While some industry leaders view the initiative as an opportunity to lower the cost of healthcare, others view ACOs as nothing more than a modernized version of capitation. The following public statements made by public company hospital executives highlight the sentiment of healthcare systems that are laying the groundwork for ACOs and those that are waiting until reliable evidence of actual cost savings is available.

Laying the Groundwork

Tenet Healthcare Corp.
In an earnings call on Aug. 7, 2012, Trevor Fetter, president & CEO of Tenet, stated:

You've seen us do other more innovative contracting like the ACO that we began in Northern California on January 1, we're very pleased with the results that we've been seeing in something like that. And I would just remind everybody that we've been doing capitated and risk-based contracting for decades as part of our heritage in California…I would just echo something Clint [Hailey, chief managed care officer and senior vice president for Tenet] said earlier on, this is very limited still. There's a lot more talk than action in this whole area.

Vanguard Health Systems
In an earnings call on Aug. 23, 2012, Kent H. Wallace, president and COO of Vanguard, said:

And then also on the population health front, we currently have ACOs in three of our markets. We've discussed the primary ACO in Detroit, but we also have some new opportunities in Chicago and Texas. Also, we recently announced in Phoenix a relationship with Dignity on a combined market ACO.

Waiting and Watching

HCA Holdings
In an earnings call on May 3, 2012, Juan Vallarino, senior vice president of strategic pricing and analytics for HCA, said:

With regards to the ACO regs, while we admire the cause of the regs, we find a lot of concerns regarding the administrative cost, clarity in foreign abuse waivers, the retroactive assignment. So they really do not excite us. I think if you look into the foreseeable future, most of our business is going to be fee-for-service. So there's a lot of noise in ACO. We need to focus on the fee-for-service side, which we do.

Community Health Systems
In an earnings call on July 26, 2012, W. Larry Cash, CFO of CHS, said:

The other thing probably pertinent is looking at all the ACOs that are existing or announced to be in existence. I think we've got about 3 percent of our primary population that's near an ACO that can be a competitor. If you look at the secondary, it adds another percent to it. So it's a roughly small percent. We've got probably 20 million people in our population service areas. So I don't think we're going to see a lot of ACOs being that competitive. If they are, then we have to think different about it or arrange differently, but at least starting out, it don't look likely to be that much of a competitive threat for us.

Health Management Associates

Patrick Easterling, president of the Health Management Physicians Network, in a April 21, 2012, Modern Healthcare article "No ROI in ACO," stated:

The government has not provided the data. The stakes are just too high — and we're not going to get a do-over… We think we can make more of a difference in the bundled payment model than the ACO model. That's something we’re looking at very aggressively.

Capella Healthcare
Daniel Slipkovich, CEO of Capella, was quoted in the same Modern Healthcare article saying:

The primary concern for Capella is that there's no requirement for patients to make a commitment to the program…I do think we're going to experiment with other types of shared-savings programs.

Summary

According to experts, it could take months after the close of a performance year before information is available regarding savings earned as a result of the Medicare ACO program. Furthermore, if savings are evident, it could be months or years before those savings are distributed. Other concerns include patient commitment, return on investment, risk shifted from payors to providers and overall uncertainty. But as Tim Petriken, Vanguard's executive vice president of ambulatory care services, has stated, "We may not realize savings, but there's not an option to sit back and protect the status quo. I don't really know that there's a choice but to pursue lowering the cost of healthcare."

Jennifer Brunkow is a manager in the professional service agreements division at VMG Health. She specializes in valuing a wide variety of professional service agreements including clinical compensation, medical directorships, subsidies, co-management arrangements, quality initiatives, management arrangements and billing services. Prior to joining the division, Ms. Brunkow provided valuation services in VMG Health's business valuation division. In this capacity, Ms. Brunkow valued hospitals, rehabilitation facilities, skilled nursing facilities, radiation therapy centers, ambulatory surgical centers, diagnostic imaging centers, single and multi-specialty physician practices and dialysis centers. Ms. Brunkow holds a bachelor of business administration degree and a master's degree in science in accounting from the University of Colorado.

More Articles on ACOs:

How to Foster Physician Buy-In for ACOs
Study: Health Plans Embracing ACO Model
Pre-ACO Checklist for CFOs

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