The question is not whether your organization should develop an ACO/CIN. Instead, the question is once you do, will you be able to convert it into a high-value network capable of delivering high quality and cost-effective care in bundled and other risk-based contracts with the necessary scale, cohesion and market acceptance to create sustainable growth?
The passage of the Patient Protection and Accountable Care Act in 2010 served as the catalyst for disruptive forces that are transforming the traditional healthcare business model, including reimbursement reductions, provider recapitalization and reconfiguration, and new payment models moving from a Curve 1 (volume-based) to Curve 2 (value-based) paradigm.
Though the pace of change varies by market, the shift from Curve 1 to Curve 2 will happen eventually irrespective of an organization's readiness. The looming question for providers over the past four years has been which approach they should take in response. Here are the three most common:
- Wait and see: "Should we maximize fee-for-service opportunities until the market requires a shift or creates sufficient financial upside to do so?"
- Be an early adopter: "Can we create first-mover advantage by creating an accountable care organization/clinically integrated network to offset the impact of reduced reimbursement and utilization by increasing market share of covered lives and keeping more services delivered to those lives within our network?”
- Hedge our bets: "Do we experiment with pay-for-performance contracts and managing our health system's employee populations until more drastic change is warranted?"
The jury is still out on which approach will create a platform capable of weathering the perfect storm that lies ahead. But with a set of early results, it now is possible to answer the question if ACO/CIN development is, or ever has been, a viable strategy.
Despite the significant investments made by early adopters, initial results are mixed. Only 42 of the 146 participants in the Medicare Pioneer ACO and 2012 Medicare Shared Savings programs generated any shared savings.1,2 Other commercial ACOs/CINs have found themselves without the critical mass of covered lives needed to justify their investment, often due to insufficient infrastructure and/or a lack of receptivity from payers and employers.
While some may think that these results vindicate the "wait and see" strategy at first blush, further study reveals that the benefits can be real and meaningful. For example, a CIN in Minnesota, with 275,000 covered lives in beneficial shared savings contracts negotiated with payers and employers, and an ACO in Ohio, with a three-year decline in its employee health plan spend, have created significant market differentiation and interest from payers and employers. An ACO in California covering 42,000 lives generated $95 million in savings from 2010-2013.3 Other ACOs/CINs have secured capitated contracts for health maintenance organization lives to create sustainable financial returns while reducing total cost of care. Considering all of these results holistically, Navigant believes the following to be true:
- Succeeding in population health requires more than simply filling out a MSSP application and creating a Federal Trade Commission-compliant structure.
- Creating an effective and scalable population health/clinical integration infrastructure requires a significant investment of capital, time and resources.
- It is extremely difficult to align providers across the care continuum in a way that drives quality and sufficient cost savings to create meaningful shared savings dollars.
- The financial benefits of shared savings programs are directed at primary care physicians and are inherently short-term unless incorporating bundled payments as a means to engage specialists and focus on reducing spend in high-cost procedures.
- Payers are often unwilling to structure mutually beneficial contracts with networks that offer sufficient upside potential to offset losses in fee-for-service revenue because the networks have unproven track records or lack sufficient geographic reach to meet access requirements.
- Not all networks are capable of contracting directly with employers, either due to their insufficient payer capabilities or limited geographic coverage for a broad employee base.
These conclusions should not lead providers to abandon an ACO/CIN strategy, as the pressure from employers to reduce premiums and the government's expansion of its value-based programs will continue regardless. Instead, providers must realize that "if we are going to be paid differently, we must organize and deliver care differently in a way that leads to different results." A new payment model will arise using a foundation of bundled payments over high-cost inpatient procedures and episodes of care for chronic conditions, requiring a significant departure from the traditional delivery model in a fee-for-service or even ACO 1.0 environment.
Developing a high-value network is a way for providers to respond to these changes, overcome the above challenges and achieve the requisite level of transformation to secure sustainable contracts and successfully navigate the transition from Curve 1 to Curve 2.
High-value networks have the following capabilities and characteristics:
- Extensive geographic coverage to meet access requirements of payers and employers. Hospital primary service areas typically do not satisfy the geographic-access requirements for narrow network plans, whether for a county-based Medicare Advantage product or an employer with a distributed employee base. This has major consequences, as some commercial ACOs/CINs have been forced to retain hospital competitors "in-network" for their Medicare Advantage products, limiting their market share potential.
- Robust and aligned provider network capable of providing services across the full continuum in a coordinated and consistent fashion. High-value networks must make thoughtful decisions about high-cost providers like academic medical centers, which are correlated with 10 percent higher premiums in narrow network products. The network must have coordinated relationships with all provider types from the urgent to post-acute care to effectively manage patient transitions and total cost of care.
- A clinical excellence infrastructure that generates superior quality outcomes at a competitive cost to create market-differentiated product offerings. Networks must focus not only on the size, composition and distribution of their network, but also their cohesion. Having the appropriate analytical and care management support, whether embedded or centralized, will allow providers to effectively engage in performance improvement efforts. Providing meaningful and regular data via a combination of electronic medical records, claims, billing, biometric and patient-prompted data sets is critical to their efforts.
- Financial capacity and payor partners or capabilities that allow networks to effectively assume risk and price their products (e.g. bundles) for specific populations. As ACO/CINs assume performance risk in contracts or guarantee a 10+ percent cost reduction to move consumers into products with restricted choice/access, sufficient capital reserves to cover downside risk will be critical. Organizations should not assume that developing provider-sponsored health plans is the only path forward. Creating partnerships with payers to jointly approach employers accomplishes the same objective while limiting the investment needed to enter the insurance business.
- Internal distribution model that effectively rewards primary care physicians and specialists for their contributions to the network. In addition to the criticality of primary care to population health contracts, it is essential that networks also ensure specialists are similarly engaged in improving value. Specialist compensation must be derived from value-based payment methodologies, such as professional capitation or episodic/bundling, rather than operating under fee-for-service or receiving a fixed percentage of shared savings.
High-value networks meeting these requirements will be able to grow by offering best-in-class quality, patient experience and total cost of care. Resulting growth will come at the expense of under-performing ACOs/CINs and organizations still operating in Curve 1, as high-value networks increase their share of covered lives and healthcare services delivered to those lives in a given market. The need to offset utilization and per-unit reimbursement declines will create a zero-sum game that leaves some providers with diminishing volumes, market share and revenues.
This reality creates significant risk for providers who are waiting on the sideline and hedging their bets. The risk is not only being unable to successfully make the transition from Curve 1 to Curve 2, but waiting also has significant Curve 1 implications, as these providers will see reductions in current volumes as high-value networks shift more volumes to stay within their networks to ensure patients receive the highest-quality and most cost-effective care.
It is critical to recognize that not all organizations will be able to develop a high-value network on their own in response to such an unprecedented transformation of the provider market. Still, each organization should conduct an assessment of its internal capabilities, keeping in mind the following considerations:
- The new indicator of size and network potential is not the number of beds, but the location and number of primary care assets, including retail clinics, within a market.
- Market definitions should no longer be based on hospital service areas, but instead be correlated with covered-live distributions within defined products.
- Historical fee-for-service competitors represent potential partners in a value-based world. Collaboration may entail full clinical integration, a shared infrastructure or mutual participation in specific product offerings to secure sufficient scale.
- Full ownership of the entire continuum is not a requirement, so long as the network has formal partnerships with a broad array of providers (e.g. AMC, post-acute, retail clinic).
- Network expansion can be achieved via many tactics short of offering full ownership to prospective partners. Provider partners can be engaged through participation agreements, clinical affiliations or even equity stakes without decision-making authority.
- The ultimate measure of success for a partnership is the ability for members to collectively drive improved care delivery beyond what they could do independently. Cohesion must be created and maintained so that providers view themselves as parts of a whole rather than as individual entities.
- Sustainable growth will come from using this improved performance to convert fee-for-service and open access/shared savings lives into (partially or fully) capitated HMO products. Other "dual-curve" payment models such as bundled payments can serve as valuable transition steps for a network trying to enter a specific market.
The shift toward a value-based model is going to continue and likely accelerate as the U.S. devotes an increasingly sustainable portion of its GDP to healthcare. Despite the initial challenges faced by some early adopting organizations, ACO/CIN models that become high-value networks will be best positioned to succeed in both Curve 1 and Curve 2 models. Given this reality, the question is not whether your organization should develop an ACO/CIN. Instead, the question is once you do, will you be able to convert it into a high-value network capable of delivering high-quality and cost-effective care in bundled and other risk-based contracts with the necessary scale, cohesion and market acceptance to create sustainable growth?
Dennis Butts Jr is a director in Navigant's Strategic Healthcare Transformation Practice. Contact him at Dennis.Butts@navigant.com.
Vivek Gursahaney is a managing consultant in Navigant's Strategic Healthcare Transformation Practice. Contact him at Vivek.Gursahaney@navigant.com.
1 Kocot et al. (2014, Feb 7). “Year One Results from Medicare Shared Savings Program: What it Means Going Forward”, The Brookings Institution. http://www.brookings.edu/blogs/up-front/posts/2014/02/07-results-medicare-shared-savings-program-kocot-mostashari
2 (2013, July 16). “Pioneer Accountable Care Organizations succeed in improving care, lowering costs”, Center for Medicare & Medicaid Services. ”http://www.cms.gov/Newsroom/MediaReleaseDatabase/Press-Releases/2013-Press-Releases-Items/2013-07-16.html
3 Green, Lois and Glenn Melnick. (2014, Apr 17). “Four Years into a Commercial ACO for CalPERS: Substantial Savings and Lessons Learned”, Health Affairs. http://healthaffairs.org/blog/2014/04/17/four-years-into-a-commercial-aco-for-calpers-substantial-savings-and-lessons-learned/