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Accountable Care Organizations: Update on Medicare Implementation

November 17, 2011 in Health Reform, Medicare | 1 comment

Health Reform’s Accountable Care Act (ACA) mandates the creation of Accountable Care Organizations (ACOs).  Dartmouth researcher Elliott Fisher stimulating much of the interest in ACOs by introducing the concept of an “extended hospital medical staff” at a 2006 meeting of the Medicare Payment Advisory Commission (MedPAC).

Today, I review an article by Berenson and Burton (2011) describing the latest ACO developments.

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What’s the difference between an ACO and Managed Care?

August 22, 2011 in Medicare, Supply of Medical Services | 3 comments

Medicare recently release a request for proposal for health care agencies to participate in both the Medicare Shared Savings Program and the Pioneer Accountable Care Organization (ACO) pilot project.  The Pioneer ACO project is similar to the Shared Savings Program but has higher levels of cost sharing and (in year 3 of the pilot) partially uses population-based reimbursement.  The goal of both these project is basically to move towards more integrated care.  Although ACOs seem new, they are basically just efforts to move towards something akin to a staff-model HMOs.

There are some differences however.  Both Medicare ACO programs require the ACO to notify the beneficiary that they are participating the ACO.  Further, the ACO will be responsible for reducing cost for these beneficiaries.  Unlike in a traditional HMO, however, on the patients end the ACO is non-binding.  Whereas many private managed care plans force patients to choose a primary care provider (PCP), Medicare patients can still see any physician they want without a referral.  According to CMS:

“Medical ACO models on offer do not involved beneficiary enrollment or lock in.  They do not involve gatekeeping or pre-authorization.  It is traditional Medicare.”

Instead,  Medicare assigns the beneficiary to physicians in the ACOs based on the patient’s base treatment history.  [Note: In the Pioneer ACO, Medicare assigns beneficiaries to a physician in an ACO who has the largest amount of primary care evaluation and management (E&M) claim cost].

Another similarity between ACOs and managed care is that Medicare ACOs are moving towards capitation payments.  In the third year of the Pioneer ACO pilot, Medicare will give the ACO a population-based payment worth 50 percent of the estimated cost of care for that beneficiary.   Providers will only receive 50 percent of their typical payments in the for of fee-for-service reimbursement, and the ACO will determine what share of the population based payment each provider should receive.

ACOs also increase the size of the provider organizations.  The Shared Shavings Program mandates a minimum number of beneficiaries of 5,000; the Pioneer ACO minimum is 15,000 (except for rural areas).   This trend towards larger provider organizations  could increase provider leverage in negotiations with Medicare regarding future reimbursement rates.

Why does Medicare like ACOs?  It gives providers a significant incentive to reduce cost.  In the Shared Savings Plan:

“…an ACO that meets the program’s quality performance standards would be eligible to receive a share of the savings it generates below a specific expenditure benchmark that would be set by CMS for each ACO.  The proposed rule would also hold ACOs accountable for downside risk by requiring ACOs to repay Medicare for a portion of losses (expenditures above its benchmark).”

Putting providers at risk for cost increases will incentivize savings, but physicians are not known as the best risk managers.  It a managed care, population based capitation payment is where Medicare is heading, incentivizing more people to join Medicare Advantage may be a more sensible option.

For more information on ACOs, see some of my previous posts.

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Alternative Quality Contract

March 14, 2011 in P4P, Physician Compensation, Supply of Medical Services | No comments

“In January 2009 Blue Cross Blue Shield of Massachusetts launched a new provider payment system called the Alternative Quality Contract that exemplifies the type of experimentation with novel payment models that the Affordable Care Act encourages. The Alternative Quality Contract is a modified global payment model in which annual payments to medical groups are linked to a per member per month budget.”

Today I will review a paper by Chernew et al. (2011) describing BCBS’s Massachusetts initiative.
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Legal Barriers to ACO implementation

January 17, 2011 in Public Policy, Supply of Medical Services | 1 comment

Accountable Care Organizations (ACOs) are the latest rage in health policy circles.  Health reform legislation will allow for federal health agencies to create waiver programs to allow for the creation of ACOs.  For ACOs to actually come to fruition, the waivers must take into account existing laws which currently greatly limit the scope under which ACOs could operate.  These statutes include restrictions on:

  • Incentives to Reduce Care: The statute 42 U.S.C. 1320a–7a(b) states that a hospital or critical access hospital may not knowingly make a payment, directly or indirectly to a physician as an inducement to reduce or limit services provided to a Medicare or Medicaid beneficiary under the direct care of the physician.
  • Beneficiary Compensation:  Persons may not provide remuneration to a Medicare or Medicaid beneficiary where the person knows or should know that the remuneration is likely to influence the beneficiary to order or receive a service from a particular provider, practitioner or supplier where the item may be covered in whole or in part under the Medicare or Medicaid program See 42 U.S.C. 1320a–7a(a)(5).
  • Certain Referrals.  According to the Stark Law, a physician may not refer Medicare patients for certain designated health services to an entity with which the physician or an immediate family member has a financial relationship, unless an exception applies. An entity receiving a prohibited referral may not bill the Medicare program for the resulting items and services.  See 42 U.S.C. 1395nn.
  • Physician Kickbacks.  According to the Anti-Kickback Statute, 42 U.S.C. 1320a–7b(b)(1) and (2). Persons may not knowingly offer or receive, directly or indirectly, overtly or covertly, in cash or in kind, any remuneration to induce or influence the furnishing, arrangement, purchase, leasing, or ordering of items or services for which payment may be made in whole or in part under a federal healthcare program.
  • Balance Billing.  As outlined in 42 U.S.C.1320a-7a(a)(2), Medicare will directly pay the fee schedule amount for the services, and the beneficiary will be responsible for paying the coinsurance and any remaining deductible. Collectively, the fee schedule payment and coinsurance/deductible are referred to as the “allowed amount.” By accepting assignment, the provider agrees to accept the “allowed amount” as “payment in full” for the services.

How would Medicare get around these legal restrictions?  An article by the American Health Lawyers Association outlines some waiver options which would be useful to get around these restrictions to create a viable system of ACOs.  Eliminating all these restrictions, however, may not be desirable.  I generally support allowing Medicare providers to balance bill patients.  Allowing for physician “kickbacks,” can also be useful to incentivize physicians to select the best and/or most cost effective treatment option.   The incentive structure, if not properly constructive, can increase the amount of bias in physician diagnosis and treatment decisions.

Source: Douglas A. Hastings, Robert G. Homchick, Peter M. Leibold, Arthur N. Lerner, Beth Schermer, Lisa D. Vandecaveye. Waivers Under the Medicare Shared Savings Program: An Outline of the Options. American Health Lawyers Association, October 28, 2010.

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Three Tiers of Accountable Care Organizations

August 4, 2010 in Health Reform, Supply of Medical Services | 2 comments

The Healthcare Economist has previously reviewed different forms of Accountable Care Organizations (ACOs).  Implementing ACOs in practice, however, may prove more difficult.  How could the government or private insurers incentivize providers to provide integrated care?  How can they incentivize providers do perform fewer services and, thus, make less money?

An article by Shortell and Casalino (2010) takes a tiered approach.  ACOs would be classified into one of 3 tiers.

  • Level  I: ACOs bear no financial risk, but simply receive a share of savings and bonuses for hitting quality targets.  This payment structure is similar to the Medicare Group Practice Demonstration.  The organizations would have to establish a legal practice entity that would be able to provide performance measures.  A minimum number of PCPs would also be required.
  • Level II: ACOs in this level would be eligible for a larger share of savings gains, but would also be liable to penalties if costs rise above predetermined targets.  Level II ACO’s would also be required to meet a wider scope of performance metrics.  Further, these ACOs would receive more bundled payments and episode of care payments as well.
  • Level III: The most “advanced” ACOs could be paid through full or partial capitation.  These ACOs would also be required to have public reporting of a comprehensive set of performance measures and electronic health records.

The Level I and Level II ACOs likely will only have a marginal impact on physician behavior.  For instance, assume that the cost per patient is $100 per year and ACOs in level II must pay 25% of any additional costs above $100.  If an ACO has $200 of charges per patient, even after the $25 penalty, they will still make $175, which is greater than what they would have made by reducing volume.  [This example does not take into account that performing more services also increases the cost for the physician.]

There is little doubt that paying physicians in Level III ACOs via capitation will decrease cost.  Physicians will not have an incentive to provide excessive services since they will not receive additional revenue.  The question is will quality remain the same?  Policymakers may claim that it will because of all the necessary quality metrics.  Nevertheless, most healthcare outcomes are difficult to measure and measuring some outcomes may cause physicians to transfer their efforts from improving more important, unmeasured outcomes to less important but measured outcomes.

Currently, Medicare is a fee-for-service system with the exception of the Medicare Advantage system.  Instituting a capitation-based system may meet much resistance from physician and hospital organizations such as the AMA and AHA.  It might be easier to simply transfer all Medicare beneficiaries to managed care rather than create ACOs.  Regardless, implementing ACOs in the U.S. will not be as easy as it seems.

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What are Accountable Care Organizations?

January 26, 2010 in Medicaid/Medicare, Physician Compensation, Supply of Medical Services | 12 comments

Accountable Care Organizations (ACOs) are the latest rage in the health policy world.  The question is, what are ACOs.  The Urban Institute’s Kelly Devers and Robert Berenson try to answer the following question: “Can Accountable Care Organizations Improve the Value of Health Care by Solving the Cost and Quality Quandaries?”

The goal of ACOs is to pay providers in a way that encourages them to work together, to pay providers in a way that does not encourage supplier induced demand, and to create an organization that is rewarded for providing high quality care.  What kind of organizations are currently poised to evolve into ACOs. This chart evaluates the prospects.

One question is why doesn’t Medicare just use their current Medicare Advantage program to accomplish these goals.  In the Medicare  Advantage program, Medicare pays a lump sum to private insurers and holds them accountable for all the medical care the beneficiary needs.  However, there are three main differences between ACOs and HMOs.

  1. The “accountability” rests with the providers.  Providers or provider groups, rather than insurance companies, are evaluated on the quality and efficiency of care.
  2. Direct contracting with provider organizations without the reliance on a health plan intermediary.
  3. The ACOs allow for flexibility in the type of organization.  Some regions may prefer independent practice associations (IPAs) while others  may prefer a physician-hospital organization (PHO).

The physician-centered organization makes much sense to many policymakers because “the resources that flow from the decisions physicians make with patients account for a major portion of overall health care costs, regardless of where the care actually takes place.”

Medicare could pay ACOs with a “gainsharing” mechanism.  In the gainsharing framework, the fee-for-service payment structure remains, but a portion of patient cost savings gets passed through to the physician. On the other hand, Medicare could institute a partial capitation scheme.  This would be similar to Medicare Part D, where the prescription drug plans get a flat rate per person, but they also receive are involved in risk corridors, which “limit a prescription drug plan’s potential losses should the plan happen to experience much higher utilization and costs than expected.”

One problem with this framework is that physicians are good at treating patients, not at risk management.  Thus, many physicians may get stuck with high-risk patients and some ACOs may become insolvent unless there are adequate Medicare risk adjustment payments.

Secondly, patients may see ACOs as HMOs in disguise.  ”[I]f beneficiaries believe that ACOs are essentially tightly managed ‘HMOs in drag’ that are going to restrict their choices, undermine the doctor-patient relationship, and result in cheaper but lower-quality care, the concept will be met with skepticism, if not overt opposition.”

Other obstacles to ACOs include possible FTC and DOJ desires to quash ACOs on anti-trust grounds.  Further, state governments may need to change laws related to insurance regulation as well as organizational and professional liability.

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