Should Your Hospital Form an ACO? 5 Considerations

Many hospitals are now reconsidering their options to set up accountable care organizations. Given the proposed rules and regulations, it is unlikely that many will pursue a Medicare Shared Savings Program ACO, at least initially. "The opportunity is not as attractive as initially thought and organizations will be more inclined to do commercial ACO and ACO-like alternatives," says Mike Randall, a manager at The Camden Group, a healthcare consulting firm.

While some highly integrated systems may be well poised for success under this new model, many hospitals are simply not yet ready to become ACOs. These hospitals are better served by resisting the pressure to plunge ahead and instead develop core competencies for accountable care over time, says Mr. Randall.


Although the Medicare Shared Savings Program launches Jan. 1, 2012, ACOs that aren't ready to participate in the program can apply each subsequent year, meaning missing the initial deadline doesn't rule a group out from participating in the future. 

Health systems that aren't yet fully integrated should assess the pace at which they move toward an ACO by first examining their market. If competing systems are moving toward the ACO model, a hospital may need to accelerate its efforts to ensure it doesn't lose market share. Hospitals in markets with a less integrated environment have a bit more flexibility to ensure all competencies are mature before moving forward with an ACO, thereby reducing risk, says Mr. Randall. 

Before hospitals jump into ACOs, Mr. Randall advises they assess themselves against five core competencies for accountable care. If not all five competencies are present or mature, he suggests hospitals focus on building them up and utilizing other value-based payment strategies — such as a shared savings model through Patient-Centered Medical Homes or bundled pricing — before moving onto the more complex ACO model. Self-insured hospitals may also benefit by testing their capabilities with their own ACO pilots involving employees before entering an ACO agreement with Medicare or a commercial insurer, he says.

5 core competencies
1. Physician alignment. Alignment with physicians is the most important criteria to assess if a hospital can be successful as an ACO. As ACOs, hospitals need strong mechanisms for aligning with independent physicians, especially primary care physicians, in the market. Alignment efforts may include employing once-independent or new physicians, establishing medical homes and/or co-management, clinical integration or other arrangements.

"[Physician alignment] is the foremost issue and includes assessing such issues as level of trust with physicians, presence or lack thereof of formal physician relationships and level of experience in tracking physician performance quality. Also important is the commitment of a cadre of experienced physician leaders," says Mr. Randall.

2. Ability to exchange information across sites of care. To be successful as an ACO, hospitals will need to exchange patient data with physician practices, post-acute care facilities and others as well as have systems in place to mine data to inform clinical decision-making.

"Many organizations are pursuing EMR development, which is absolutely critical for the future, but EMR is not the full equation if you look at the needs of accountable care," says Mr. Randall.

The "full equation" referred to by Mr. Randall includes not only EMRs but also health information exchanges, which exchange health information across providers; disease registries, which gather health information from billing and diagnostic systems and EMRs; and a central data repository to develop reports and disseminate information to providers.

3. Outpatient clinical care management experience. Because most hospitals today focus on acute care, expanding their expertise along the care continuum will be a critical precursor for ACOs. Specifically, physicians will need to develop competencies in care management.

"Many hospitals today have clinical care management expertise on the inpatient side, with care managers, social workers and others who work closely with physicians to oversee a patient's inpatient stay and transition them to their homes or to a post-acute facility," says Mr. Randall. "On the outpatient side, you have primary care physicians who often don't have a lot of support in managing care, following up with patients or ensuring patients get regular check-ups, all of which prevent ER visits and admissions."

Typical outpatient care management teams include a medical director, outpatient clinical nurses, care managers and, in some cases, pharmacists, says Mr. Randall.

4. Willingness of private payers and large employers to support a value-based strategy. Hospitals need to ensure payors are aligned with efforts to move care away from fee-for-service to value-based models. Because the two types of models are very different, it is challenging for hospitals to work in both environments. For example, if only one payor is reimbursing on a value-based model, it may be challenging to truly change the way care is delivered. To provide a significant incentive that truly promotes high quality, low-cost care, incentives are needed across multiple payors, says Mr. Randall.

Large, self-insured employers also present opportunities to test value-based reimbursement programs. They are likely willing to work with hospitals to design a program for their beneficiaries. "Employers are often very motivated to pursue these models because they are looking for anything to lower cost of care for beneficiaries," says Mr. Randall. 

5. Ability to handle financial implications. Finally, hospitals need to ensure they can handle both the start-up costs associated with early adoption of the ACO model as well as the potential for downside risk associated with early adoption. Developing an ACO requires significant capital and resources, and early adopters may face higher costs than those who join later in the game using best practices already established by the early adopters. Additionally, participation in an ACO program may hold the ACO financially accountable if it leads to higher, rather than lower, costs — this will eventually be the case for all ACOs under CMS' program.

"Payback may take several years," says Mr. Randall. "It's unlikely to realize savings in the first year of a care management program unless the hospital already has experience managing care previously."

Learn more about The Camden Group.

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