Not Ready to Form an ACO? Three Value-Based Alternative Models

Many providers are finding they don't yet have the resources to participate in or take on the risks associated with accountable care organizations. But it’s not an all-or-nothing situation.

In fact, most hospitals would be best served by taking a more measured but deliberate approach to value-based payments, as the U.S. health system moves away from its fee-for-service approach, says Mike Randall, a manager at The Camden Group, a healthcare consulting firm. Three alternative value-based reimbursement models can put hospitals on a path to ACOs, allowing them to develop competencies that will help them succeed with the more sophisticated ACO model.

These alternatives fit along a continuum, with the resources and level of integration necessary to succeed steadily rising. The payment models cannot be entirely separated from changes in care delivery, of course, and thus require increasingly tight hospital-physician alignment. Alignment can be achieved through physician employment, entering into service line co-management arrangements, clinical integration or other methods, notes Mr. Randall

1. Pay-for-performance. Hospitals and physicians begin by engaging in pay-for-performance programs with payors. This model requires establishing quality performance targets and rewarding providers who meet these targets, typically with bonuses above fee-for-service rates. This model requires less integration and IT infrastructure than other models, enabling less mature networks to participate.

Critical capabilities under this model include establishing clinical quality benchmarks, collecting and measuring results, and reporting. Pay-for-performance is a fundamental stepping stone to more advanced forms of value-based care.

2. Bundled payments. Because care for resource-intensive and complex procedures, such as cardiac and orthopedics, often leads to higher quality and lower per unit cost of care at high-volume hospitals, CMS is testing the effectiveness of offering incentives to consolidate care. Under the CMS’ bundled payment model being piloted at a handful of hospitals, a single discounted payment is provided to the hospitals and physicians for an episode of care, such as a surgical or medical DRG. In turn, hospitals may pay physicians up to 125 percent of Medicare fee-for-service rates and share up to 50 percent of savings (not to exceed their annual part B premium, up to $1,157) with Medicare beneficiaries.

For hospitals interested in trying bundled payments, CMS is expected to expand the pilot at some point. But some providers are not waiting and instead are working with private insurers to develop bundled payment programs for specific service lines. For the CMS pilot, hospitals must be accepted into the program, have the ability to demonstrate superior quality, and successfully align with physicians to lower costs (such as for devices and implants) and improve efficiency. Organizations can prepare for bundled payments by strengthening their ties to their independent cardiologists, cardiac surgeons, and orthopedic surgeons through service line co-management relationships.

3. Medical home. Proven to improve quality and lower costs as much as 20 percent, this primary care-driven initiative focuses on building a team of professionals — the physician, plus RN case manager, medical assistant, and in some cases, pharmacists. The intent is to provide better care coordination, especially for those with chronic conditions, and prevent hospital readmissions and emergency department visits. High functioning medical homes use electronic medical records, disease registries and central data repositories and require physicians to follow a limited set of evidence-based care guidelines.

To cover the infrastructure costs and staff for care coordination, providers can often negotiate a FFS rate increase or per-member-per-month (PMPM) on top of normal FFS payments. The real pay-off for providers, though, comes in negotiated shared savings arrangements, says Mr. Randall. PMPMs or FFS rate increases generally only cover the added infrastructure and staff resources, so shared-savings can be an enticing incentive because providers doing patient-centered medical homes are often challenged to maintain previous productivity levels.

Hospitals can gain experience with this reimbursement model by forming medical homes with their employed physician groups. They also can provide resources, management and services to physician groups that establish medical homes, although they will not directly receive value-based payments. In both cases, hospitals would benefit from the closer alignment with primary care physicians who will be pivotal to any ACO.

Ready for accountable care?
Once hospitals have built capabilities and gained operating experience with other value-based models, they will be in a stronger position to function as an ACO, overseeing the entire continuum for care for a patient. Under current ACO models, providers are compensated on a fee-for-service basis with the ability to share in savings created. However, the Medicare program also places ACOs at risk if costs rise higher than anticipated.

ACOs also require more resources than any other value-based reimbursement model. Electronic medical records, central data repositories, health information exchanges, evidence-based guidelines across multiple specialties, and clinical decision support at point-of-care are essential elements.

CMS is not and will not be the only option when it comes to accountable care. Other “ACO-like” shared savings models are currently in development.  For example, Blue Cross Blue Shield of Minnesota’s shared-incentive payment model creates incentives over time for four of the state’s largest providers to lower costs and improve healthcare quality. The mechanisms are less defined than those for an ACO, but these organizations will need many of the same competencies including tighter alignment with independent physicians, ability to track and report on quality, evidence-based protocols, and IT systems to coordinate care.

Beyond ACOs

The end game, however, is not an ACO, according to Mr. Randall. Care delivery and payment are moving toward a new form of managed care, he says.  It will take some time to get there, but it is clear that once payors perceive that most of the gains from the ACO models have been wrung out of the system, they're only a short step from being able to enter into capitation payment models.

Unlike the 1990s HMO era, however, providers will be ready because they will have added the necessary competencies in care management and population-based analytics. By this point, they will be clinically integrated, have put in place ways to track and measure clinical quality, and created care protocols that are offered at the point-of-care. It won’t be much of a leap for hospitals to then devote additional resources to disease management and predictive risk-assessment modeling, Mr. Randall says, which will move health systems toward success in a managed care environment.

Learn more about The Camden Group.

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