Can accountable care organizations reign in health-care costs?

February 13, 2013

Photo: Flickr/surroundsound_5000

By Callie Shanafelt
California Health Report

Coordination and effective use of existing resources can save money. That’s the idea behind the push for innovations built into the health care reform law, like electronic health records, pay for performance and accountable care organizations.

But it’s unlikely that any of these innovations will be a silver bullet in the battle against rising health care costs, including accountable care organizations. Those familiar with the provider conglomerates say they may not be as much of a cure-all as health-care reform suggests.

Accountable care organizations are a coordinated group of health-care providers who agree to a set payment per patient, rather than charging a fee for each service provided.

“What ACOs really are is repackaging or rebranding,” said James Robinson, a UC Berkeley professor who studied the past three decades of managed care in California for the Integrated Healthcare Association.

Health-care organizations like ACOs have been around for decades under different names. California, for instance, has HMOs like Kaiser Permanente and independent practice associations made up of doctors who agree to coordinate care.

A new form of ACOs was born with the enactment of Obamacare and the creation of the Medicare ACO program.

“In the haste to pass health-care reform quickly, we picked up something that had been hanging around,” said David Sayen who runs the new Medicare program in California, Arizona, Hawaii, Nevada and the Pacific Territories.

Beginning last spring, select provider organizations enrolled in the Medicare Shared Savings program, which pays a set amount for the Medicare patients they serve if they meet 33 quality standards.

After three years, the organizations can opt to share the risk with Medicare, in which case they would lose money if the costs of patient care are higher than the prepaid amount or gain money if it is less.

The provider organizations are unexpectedly diverse: some are run by doctors, some are coordinated by hospitals, some are made up of thousands of providers across multiple states and others are composed of less than a hundred providers and serve smaller areas.

Venu Kondle is the president and CEO of Golden Life Healthcare, the only ACO in California to receive an advance payment of $1.9 million to set up the infrastructure of his ACO. The advance payment program is designed to jumpstart smaller organizations. Kondle’s ACO coordinates 55 to 70 primary care doctors and serves about eight thousand Medicare patients.

Kondle sees coordinating care to improve prevention and reduce hospital admissions as the work of a socially conscious physician.

“The social responsibility comes from an idea of taking responsibility for what’s happening around you and what’s happening around you is that the cost of the care is escalating in a non-sustainable way,” Kondle said.

In the past decade, he’s seen Medicare change their mindset from a check-cutting organization to a health-care organization. Without the resources and guidance of this program, Kondle wouldn’t have been able to set up the electronic health records and infrastructure necessary to coordinate the physicians in his network.

The program is intentionally starting out slowly and experiencing some expected growing pains. Changing the mindset of providers from volume-based to value-based is difficult, Kondle said. Coordinating with hospitals that have a pay structure based on how many beds are full is also a challenge, as Kondle’s ACO is trying to reduce hospital admissions.

Ultimately, he said, if doctors lead the way, hospitals will have to follow.

The Medicare ACO model comes from researchers at the Brookings Institute who analyzed the characteristics of patients in a traditional fee-for-service health care system, used by the majority of people in the U.S. They found that while people have a choice of who to go to, they still only use a small group of providers.

But providers aren’t necessarily coordinating their care when they are serving the same patients. Kondle attributes 20 percent of health-care costs to waste created by fragmented care.

So with the new Medicare program, if providers can identify at least 5,000 patients who are staying within their network of providers half of the time, they could form an accountable care organization and qualify for a pre-determined Medicare payment per patient.

Patients must be notified of their enrollment, but they aren’t restricted in where they seek care.
“You show up with a Medicare card, you’ve got a blank check there,” Sayen said.

Sayen thinks this incentive will work better than others because the providers are paid up front instead being promised the potential of future payment. He said they’ve tried other methods to lower
Medicare costs, such as paying less per service. But instead of lowering costs, they found that doctors just performed more services.

The Congressional Budget Office predicts that the ACO program will save Medicare five billion dollars in the first five years.

Critics argue that this doesn’t go nearly far enough towards reducing the costs of the $523 billion Medicare yearly budget.

Critics of ACOs also fear a repeat of the medical bankruptcies of the 1990s, which happened when hospitals took on too much risk in buying doctors’ practices. That led to the closure of 147 physician organizations serving more than 4 million patients in California between 1998 and 2002.

Medicare administrators created the ACO Pioneer Program to address these concerns. They chose 32 organizations that have already been operating by coordinated care principles.

Brown & Toland Physicians in San Francisco is the only Pioneer ACO in Northern California. They are an integrated practice organization made up of 1,500 doctors. About 200 of those doctors are serving about 18,000 Medicare patients in the ACO program.

They aren’t concerned about assuming too much risk, said Keith Pugliese, vice president of accountable care and public policy, citing a long history of risk management in the organization. But, he added, any organization considering becoming an ACO should see risk management as a key to their success.

The Pioneer ACOs will provide a model for future programs, Sayen said, and they will adjust the program and incentives based on what they learn.

It’s too early to tell if the program will help them reduce costs and increase quality, Pugliese said, but the early indicators are that it will.

James Robinson and others at the Integrated Healthcare Association looked at the past three decades of ACOs in California and came up with ten policy recommendations.

Overall, they found that ACOs can’t be the only solution to reign in health-care costs, but they can help. There isn’t one ACO structure that is guaranteed to work, but organizations need to be thoroughly committed to coordinating care in order to succeed. They also found that paying per patient can work in varied formats.

Some of the key challenges are coordination between hospitals and doctors as well as working with traditional insurance companies. They also found that special attention must be paid to ACOs in low-income areas.

Studies of other demonstration programs prior to the creation of the Medicare program showed mixed results. The five-year Medicare Physician Group Practice demonstration project that began in 2005 closely resembles the Medicare ACO program. In the first three years of the program, some practices were able to achieve bonuses but others found that costs continued to rise because not all patients were enrolled in coordinated care.

It will take at least six years to get the desired level of coordination at Golden Life Healthcare, Kondle said, but he is hopeful in the end it will pay off.

“As a stakeholder, I take part of the responsibility that I can decrease the cost,” Kondle said.

“I do believe creating this kind of incentive is probably the best chance we have of getting a handle on these high costs,” Sayen said.

Kondle has seen other countries provide better care at a lower cost.

“Why can’t we be one of them?” Kondle said. “Why can’t we be a leader of them?”

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