To Run ACOs, Hospitals Need to Change Their Business Model

Hospitals looking to run accountable care organizations will have to change their business model from admitting as many patients as possible to learning how to reduce expenses, says Donald H. Crane, president and CEO, California Association of Physician Groups.

Mr. Crane suggests large physician groups have a more legitimate claim to run ACOs. CAPG consists of 150 large medical groups and independent practice associations, representing 59,000 physicians, or about two-thirds of all physicians in the state.

"It's interesting to see how the ACO provisions evolved," he says. "The House version of the reform bill did not mention hospitals as running ACOs, then the Senate version did.

"Why do you think hospitals weren't mentioned in the House version?" he says. "There are many exceptions but in most parts of the country, the hospital business model has to do with an inpatient model – 'heads in beds,' maximizing revenues. In an ACO, however, the goal is to reduce expenses, which is not what most hospitals do. So the ACO model poses a challenge to hospitals."

Even apart from ACOs, he says hospitals are under great pressure to change. "Put yourself in the shoes of a hospital CEO," Mr. Crane says. "You're getting a message – change your business model." The healthcare reform law "develops a host of imperatives for hospitals: readmissions, never events, value-based purchasing," he says. "All of these require a higher level of integration with physicians."

Physician groups eager to lead
If hospitals don’t run an ACO, they have the option of partnering with physician groups or serving as contracted vendors for an ACO, Mr. Crane says.

Physician groups are very interested in ACOs. At meetings, "we talk about ACOs all day long," Mr. Crane says. "To a great extent, it's old wine in new bottles. It's already our business model."

Mr. Crane says the ACO model is very similar to a capitated model, where providers get a set payment for all services and have to keep expenses in check. While physician groups in the rest of the country pretty much abandoned the model, capitation remains an important source of payment for CAPG members, he says.

Unresolved issues
Mr. Crane says he traveled to Baltimore last week, met with CMS officials who are currently writing the ACO regulations and shared his thoughts with them.

A number of issues will need to be resolved in the regulations, he says. For example, "We don't know how much of the population will move into ACOs." And will the ACO have to accept any physician who wants to join? Or will the ACO be able to choose who gets in? And if a physician didn’t get into the ACO, would he or she lose Medicare patients?

Eventually, he also expects disincentives for providers who don’t join ACOs. "That isn’t in the law, but it could happen down the line," Mr. Crane says.

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