Of the 10 Mistakes to avoid for ACOs, this is the most important one

Authors Sara Singer and Stephen M. Shortell provide a succinct and practical summary of ACO risks in their JAMA article “Implementing Accountable Care Organizations: Ten Potential Mistakes and How to Learn From Them“.  ACOs are “deja vu all over again” for anyone who has been in healthcare for more than 15 years.  I spent 14 years with Kaiser Permanente (KP) including some very turbulent years in the late 1990’s when they closed regions for the first time in their history.  KP can be considered the prototypical ACO.  The regions that failed could be considered failed ACO expansions and many of the problems that Singer and Shortell identified were in play in the failure of those regions.

If I were going to pick the single more important risk, it would be their factor number 1, “Overestimation of Ability to Manage Risk”.  This is an outcome measure which is dependent on successfully addressing multiple other potential points of failure as noted in the article.  This factor is critical because the most important test of the ability to manage risk is the compatibility and adaptability of the physician culture to the demands of today’s healthcare marketplace.  Culture is the most challenging aspect of organizational success.  And culture trumps even the best and most rational strategy.  To become good at managing risk today, there are several value shifts that individual physicians need to make and several negotiations organized provider groups (physicians and managers) need to make in order to create a culture of performance.  This is made more difficult by the fact that the reimbursement system is generally misaligned to the development of this culture.  However, even when the reimbursement system is aligned, as it is with KP, physician leadership and cultural adaptation is critical.

Managing risk today fundamentally means managing chronic diseases which generate roughly 75% of a population’s costs and managing that sickest 1% of the population which can generate up to 25% of costs.  Prevention and keeping people healthy is also important in the long-run but short-term risk management means efficiently managing the care of the chronic population while stabilizing their condition to prevent the morbidities and complications they are at high risk for.  Accomplishing this objective means you have to have a very different culture than the one that has existed in healthcare since the 1800’s and has been fattened by the fee-for-service reimbursement model today.  Our current care delivery model was created in the mid-1800’s when acute and infectious diseases were the primary reasons for seeing a doctor and average life expectancy was in the late 40’s (though primarily due to high infant mortality).  The medical practice culture was centered around treating urgent and acute problems that were resolved in short order or rapidly lead to death.  After leaving the medical office or the home visit, no news was good news.  A Fee-For-Service (FFS) payment was generally made by the patient directly to the doctor in cash or barter.

However, things changed dramatically in the US beginning in the 1960’s.  The third party payment system including employer-based health insurance and government Medicare and Medicaid programs injected steroids into the FFS payment system.  Physician payment changed from direct cash-based FFS payment to a FFS reimbursement system where third parties paid the doctor and the customer (the patient) was shielded from the real costs.  It didn’t take long for doctors and hospital managers to figure out that in addition to the basic demand for healthcare, that they could create their own incremental demand.  That incremental volume could mean big dollars.  The factory-type design (from the 1800’s) and the incentives for volume (FFS on steroids) created a medical practice environment of individualism, fragmented silos of care and high-stakes battles over turf.  In particular, the physician culture was one where autonomy and independence were highly valued.  Therefore, medical groups and organized systems of care were relatively rare in the 1960’s.

Unfortunately, with the growth in the prevalence of chronic conditions, the patient population and demand changed dramatically from that for which the current system was designed.  Chronic conditions cannot be fixed in one office visit and treatment means changing complex and life-long behaviors and habits.  Many of the conditions are without symptoms until a catastrophic event like a heart attack or stroke occurs.  Therefore, no news is not necessarily good news.  Surveillance and prevention becomes much more important.  Managing chronic conditions means checking with patients, outreaching and engaging them as noted in the authors failure point 6 “Failure to Sufficiently Engage Patients in Self-care Management and Self-determination”.  Population management and coordinating care to ensure patients do not “fall through the cracks” becomes critical.  The demands for improved quality has created time constraints on what and individual physician can realistically do to manage chronic and preventive care as well as take care of acute conditions for a typical population of patients.

Therefore, meeting the demands of the healthcare market today means that physicians have to shift their values to ones that will create more effective and efficient delivery models.  That includes less autonomy, practicing in groups, leading teams, delegating more activities to other clinical staff and working with colleagues in a more collaborative way.  It may also mean confronting colleagues when the needs of the patient or the group are playing second fiddle to the needs of an individual physician.  It will also mean doing more of what they already are doing such as delivering care over the telephone and through email, spending more time persuading patients to change habits, working with families to coordinate care, establishing group practices standards and holding themselves and colleagues accountable for practicing evidence-based medicine.  As noted in the article, measurement is critically important.  But it is necessary but not sufficient.  You also must have the culture of high performance that will respond and manage to new and higher levels of results.

The difficulty is that until the reimbursement system catches up, it may mean forgoing some income during this transition period.  An organization with a culture of high performance that establishes practice standards consistently followed and manages chronic conditions well will be a successful risk manager as an ACO.  Ironically if you are decreasing your FFS reimbursement, you are probably doing a better job of managing care and therefore positioning yourself to be a successful ACO.


The regs are here, the regs are here!

CMS released the long awaited proposed Accountable Care Organization regulations on April 7, 2011.  Foreshadowed in last year’s Patient Protection and Affordable Care Act, the change in how CMS reimburses providers based on the concept of sharing savings generated from improved efficiency while meeting quality standards is expected to drive transformation of the healthcare delivery system.  There were rumors that the regulations would be over 1,000 pages long but actually weighed in at just over 400 pages.  There will be much review and analysis over the next few weeks. The comment period lasts for 60 days and the final regulations are expected in the fall.  However, that is a tight timeline for the proposed first round of ACOs to begin operation in 2012.  It will be very interesting to see how things play out.  These regulations will potentially drive a new business model for how healthcare is organized and delivered.

I have found the following to be useful resources for commentary and analysis of the regulations:

Stealth Healthcare Reform

In 2010, in what has, unexpectedly, turned out to be a very productive legislative year, a historic healthcare reform bill was passed.  Many will say that the bill passed will NOT ultimately solve the underlying cost problem and will only add cost to the system.  In many ways the naysayers are correct.  The bill focused on health insurance reform and not on reforming the entire healthcare system.  Coverage will be increased and the uninsured rolls will decrease.  However, without controlling costs, they are bound to skyrocket, as it has occurred in Massachusetts.  There is a lot of gnashing of teeth and legal challenges to the major provisions of the healthcare reform bill, dubbed “Obamacare”.  However, it is really much ado about nothing.  In effect the bill will tweak the insurance industry and provide a path for greater coverage of the uninsured.  However, real healthcare reform actually was initiated two years ago.  In what I would call “Stealth Healthcare Reform” by luck or happenstance, I am sure not wisdom, the wheels of true healthcare reform are turning beneath the surface of what you see in the newspapers.  The real revolution is not being televised.  If you are not in the industry, you may not even realize what is going on.  However, contained within the stimulus bill passed two years ago and the reform bill are innocuous appearing, small but incredibly transformative provisions that all smart and aware healthcare organizations are responding to right now.  When you put them together, you have the catalyst for the entire healthcare industry, including providers and payers, to transform and challenge themselves to rein in runaway costs.

The first important provisions of stealth healthcare reform were embedded in the stimulus package.  The American Recovery and Reinvestment Act of 2009 (ARRA), commonly referred to as the Stimulus or The Recovery Act, was enacted in February of 2009.  The stimulus funding was intended to create jobs and promote investment and consumer spending during the recession.  The bill also included incentives for the first steps towards true healthcare reform.  The bill included over $155 billion for healthcare initiatives.  Most were targeted towards supporting current programs such as Medicaid ($86 billion).  However, there was also a provision to allocate $25 billion to encourage all healthcare providers to invest in Health Information Technology (HIT).  Prior to the Act the US trailed most other industrialized nations in the use of HIT.

EHR Adoption

International Comparison of EHR Adoption Rates

There has been an interest in moving the US to Electronic Health Records (EHRs) for over 30 years.  This interest intensified in the early 2000’s as healthcare costs continued to skyrocket and progressive organizations such as Geisinger and Kaiser Permanente were making large investments in HIT and beginning to deliver increased healthcare value.  In 2004, President George W. Bush called for widespread adoption of electronic health records in 10 years.  To further this aim, he doubled government HIT funding to $100 million for demonstration projects and created a new sub-cabinet position of National Health Information Coordinator.   Nevertheless, there was still very little traction in terms of EHR uptake, especially in terms of comprehensive EHRs.  In a 2008 survey of ambulatory physicians only 4% reported having an extensive, fully functional electronic records system and 13% reported having a basic system.  In a 2009 survey of hospitals, only 1.5% of U.S. hospitals had a comprehensive EHR (i.e., present in all clinical units), and an additional 7.6% had a basic system (i.e., present in at least one clinical unit).  In both surveys, costs were identified as the major barrier.  The stimulus funding now represents real money to overcome this barrier and catalyze the transition to EHRs.  Through the Center for Medicare and Medicare Services (CMS), the government has created an incentive structure to ensure that EHRs are not only implemented but also used in ways that have demonstrated value for patients and payers.  The so-called “Meaningful Use” regulations provide incentives for all providers to move their business model to a new platform and operate in a way that focuses on value creation.  Competition will shift to how well can you use your EHR to deliver differentiated value.  A first step towards true delivery system reform, necessary but not sufficient.

The key accelerant applied to this context was The Patient Protection and Affordable Care Act (PPACA), which was signed into law by President Barack Obama on March 23, 2010.  The law includes numerous health-related provisions to take effect over a four-year period primarily targeted at insurers, including prohibiting health insurers from denying coverage or refusing claims based on pre-existing conditions, expanding Medicaid eligibility, subsidizing insurance premiums, providing incentives for businesses to provide health care benefits, and establishing health insurance exchanges.  The front-page fight has been over the legality of the act and the impact on the insurance industry with provisions that would increase coverage but not necessarily bend the cost curve.  However, through some act of accidental brilliance, true reform measures actually are buried within the act.  The fact is that, if you follow the 80/20 rule, the insurance industry should not be the target for controlling costs.  Insurance costs represent 10-20% of healthcare costs.  The delivery system including doctors, hospitals and pharma represent 80% of the costs.  The delivery system MUST be reformed if you are to truly bend the cost curve and not just drive more cost shifting.  There just happens to be several, not well publicized, provisions in the PPACA that are driving the necessary reform on the delivery side, though in a stealth fashion.

First, there are several provisions that improve support for Primary Care.  There has already been a great deal of attention paid to primary care redesign in recent years due to the declining numbers and income for the profession.  A strong primary care system is critical for decreasing costs and improving quality.  Due to increased attractiveness and financial benefits of specialty practice, the ranks of primary care doctors have declined over recent years.  This has led to the promotion of the Patient-Centered Medical Home (PCMH), a revitalized model for how primary care be delivered.  The PPACA also includes several provisions to support and strengthen primary care delivery:

  • Medicare 10% increase in primary care reimbursement rates, 2011–2016 ($3.5 billion)
  • Medicaid reimbursement for primary care increased to at least Medicare levels, 2013–2014 ($8.3 billion)
  • 32 million more people insured, with preventive and primary care coverage, leading to less uncompensated care
  • Medicare and Medicaid patient-centered medical home pilots
  • Grants/contracts to support medical homes
  • Scholarships, loan repayment, and training demonstration programs to invest in primary care physicians, midlevel providers, and community providers
  • $11 billion for Federally Qualified Health Centers, 2011–2015, to serve 15 million to 20 million more patients by 2015

Secondly, there are other provisions that will stimulate changes in the organization and delivery of health services and create powerful incentives to improve efficiency and productivity, but probably none is as powerful as the incentive to develop Accountable Care Organizations (ACOs).  ACOs are collections of health care providers that formally assume responsibility for the cost and quality of health care given to a defined group of patients.  This will usually include doctors and hospitals.  They will be paid differently (e.g. bundled payments) and may share in savings that they generate.  This means that incentives will be aligned between payers and providers, that doctors and hospitals will have to work together and that doing more may hurt providers rather than increase their incomes.  There are also quality performance requirements to counter-balance any incentive to withhold appropriate care.  Just about every healthcare organization in the county is trying to figure out how to position themselves as an ACO.  The implications are enormous in terms of structure, information systems and relationships.

The thing that probably could not have been better planned is that all of these provisions and incentives work together.  The new information technology implemented will support the PCMH and the ACO model.  The PCMH supports the ACO because a strong primary care base will be needed to better manage cost and quality in the ACO.  The ACO will drive alignment and clinical integration of previously fragmented local delivery systems.  The improved integration and coordination will delivery tangible increased value to patients and payers.  Although it is by no means perfect, the government is actually, by chance, on the right track with its Stealth Healthcare Reform plan.

To Bend the Cost Curve You Must Change How Doctors Are Paid

The heated debate over the healthcare crisis and what to do about it has reached a fever pitch. We now have a bill passed from the House though contentious issues remain and the Senate and reconciliation prospects still represent a daunting challenge. The question is how do we fix the American system of care where we pay more than any other country in the world and yet get mediocre quality. Despite the high costs, only 55% of patients receive the care that guidelines say they should. Its like we are paying for a Rolls-Royce that runs only half the time. Care is so expensive that, unlike other industrialized countries, we don’t insure all of our citizens. Part of the healthcare reform puzzle is figuring out how we can pay the insurance costs for an additional 46 million people when the costs of care for those covered is bankrupting companies, individuals and the government. To make matters worse, like a ticking time bomb, cost increases are out-pacing GDP growth every year. How can our businesses be competitive when every year healthcare costs are eating up more and more of their profits? Healthcare costs are a part of the reason for the failure of the automakers. As a country, we now spend more on healthcare than we spend on food. If this situation continues, at some point we will spend all of our money on healthcare. It will crowd out spending on every other good. That scenario would be an economically disastrous and untenable position. This, of course, cannot happen. There will be a breaking point where the government and employers simply will not be able to foot the bill anymore. We are reaching that point now. The early symptoms are that small employers are eliminating the health benefit and larger employers are shifting more and more costs to the employee. If we don’t solve the cost issue, it doesn’t matter who pays the bills, whether it is the government or employers or individuals, they will not be able to afford it.  Most Americans say they are happy with their healthcare. That is because those with private or government insurance are shielded from the full cost of their care. They are paying a small percentage of the full cost and therefore are feeling the pressure on their bank accounts that business are experiencing. Nevertheless, when someone has a catastrophic illness, especially with the increased cost sharing, it still can cause bankruptcy. In this recession, the average American is even more vulnerable to this outcome. In the debate about the public option and death panels, we are missing the root issue. The cost of healthcare is simply the math of price vs volume of services. It doesn’t matter who pays for care, the price is too high. The Health Affairs September/October 2009 issue is focused on “Bending the Curve” of healthcare costs.  This is a very good issue with some of the best thinking on the topic aggregated into one publication. Every one involved in reform should read this issue. One of the most important articles clearly defines what the root issues are that are driving our dysfunctional system. “Market Failure And The Failure Of Discourse: Facing Up To The Power Of Sellers” by Bruce C. Vladeck and Thomas Rice describes the fact that the fundamental problem is the lack of power by purchasers which allows the “sellers” of healthcare services (providers and pharmaceutical companies) to control price. This, in addition to other related structural factors, is why healthcare does not operate like a typical market. Normal market forces are not in play and the power and control of the sellers is one reason. Remember that one person’s cost is another person’s income.  In the US healthcare sellers will resist any effort to reduce their income which just happens to be healthcare costs.  In just about every other country in the world, through various means, purchasers of healthcare have acquired greater leverage. This purchasing leverage is used to control the price of healthcare services and pharmaceuticals and thereby overall costs. This is only one mechanism but it is a fundamentally important and powerful mechanism to control healthcare costs. In other words, we must pay doctors, hospitals and pharmaceutical companies differently if we really want to control costs and improve quality. This is a politically risky proposition due to the power of these groups but, as also noted in the Health Affairs issue, we are seeing promising approaches and experiments popping up throughout the country.

There are only three ways to decrease the underlying cost of healthcare: (1) decrease demand (2) decrease utilization and/or (3) improve efficiency of delivering services (typically through innovation as in other industries) and thereby reduce prices. In healthcare, of course, you must accomplish this while maintaining or improving quality. There are no other options. In other industries due to price pressure, there is an industry motivation to innovate and continually bring to market less costly products and services. In truly competitive markets, there are incentives to fundamentally and continually reduce production costs and innovate to create margins at lower prices and gain market share.  Healthcare is fundamentally difference for two at least reasons. First, clinicians have specialized knowledge that makes it difficult for consumers to judge the quality and reasonableness of their recommendations. In addition when you are dealing with the risk of your or a family member’s health, it is difficult to question the motives or recommendations of your doctor. You can more easily say to a salesperson I don’t need that extra memory on my computer than to say to your doctor I really don’t need that angiogram to see if my heart vessels are clear. When you are not directly paying for or paying a significant proportion of the cost of the procedure as well, why not get the test and gain some reassurance of your health? Secondly, the healthcare reimbursement model is based on Fee-For-Service (FFS) with pricing that is somewhat arbitrary and not necessarily directly related to costs. In the FFS model providers are rewarded for volume of services, not the quality of those services nor the outcomes. In theory, as consumers we should be buying health and longevity for our healthcare dollars. In the US, we are getting a bad bargain for the price we pay. When you combine the FFS model with the specialized knowledge of clinicians, you realize that clinicians can create their own demand apart from the true clinical needs of the patient. Chest pain that could be easily ruled as being dangerous by history, exam, EKG and blood tests could also be extended to include an expensive but unnecessary angiogram. When the price of that angiogram is set by the sellers and not based on competition, as Vladeck and Rice describe, then you get the situation we have in the US.

Therefore in terms of true solutions and not cost shifting, you can attack demand, utilization and/or prices. By changing how physicians are paid you can attack all three issues simultaneously. By shifting from FFS to a global payment model you can address several issues. You can address consumer driven demand by prevention, self-management and healthier lifestyles. However, provider driven demand or “supply driven” demand as described by Wennberg, can be reduced by a global payment method. There are several variations but the principle of paying a set amount for a category of services or episode care reduces the perverse incentive to do more just for the sake of making more. As long as there are controls and monitors for quality and service, then you balance the opposite incentive to do less to make more money. Inappropriate utilization also decreases in this model. If you also have competition at this level, then you begin to move to a more rational market environment. The model also makes it easier to define competition on pricing and can lead to innovative methods of delivering care. This should be where competition occurs. Costs are driven by decisions at the care delivery level and therefore, this is where competition should occur as described by Michael Porter , not at the health plan level.  When you compete at this level you get the kind of innovation that is occurring at Kaiser Permanente, Mayo Clinic and Geisinger. We will see a test of this model in Massachusetts as they test a global payment model. Thus far, the current passed bill and other proposals only weakly impact and acknowledge the importance of this mechanism to control costs. However, the evolution and acceptance of a new model of provider payment will be critical for true transformation of our healthcare system.

At the intersection of system redesign, informatics and quality is healthcare transformation!

It is well accepted that American has a healthcare crisis that is now at the point of failure. The high costs are bankrupting individuals and making this benefit unaffordable for businesses. We have over 46 million people uninsured. Despite having the highest cost, our quality is mediocre and over 100,000 patients die unnecessarily in our hospitals every year. Information technology is barely used in a business where timely and accurate information can mean the difference between life and death. Incomplete, missing and inaccurate information drives inefficiencies and medical errors. The lack of information integration and sharing between providers leads to tremendous inefficiencies and fragmentation of care.  We are in a grave situation.  Yet, the solutions are within our hands if we have the will and commitment to apply them. Regardless of how healthcare reform plays out, the elements of solving this crisis revolves around three fundamental features we must optimize to achieve healthcare transformation.

The three critical elements are:

1) System redesign: our current system was designed for acute care during the 1800’s when infectious diseases dominated our culture. We have substantially managed infectious disease and have extended life expectancy from the age of late 40’s in 1900 to the late 70’s today. Now chronic disease management is the dominant requirement for care delivery. Furthermore, our poor lifestyle habits are driving up the prevalence of obesity which is a risk factor for several chronic conditions. We therefore have to redesign the system to better manage longitudinal, chronic care that is delivered outside of the medical office setting and that is often complex, with the interaction of several healthcare providers. This is in addition to acute and, very importantly, preventive care. Our reimbursement system must be overhauled as well. Paying for the quantity of services without considering the quality or customer service aspects locks providers into a mindset of more is better for financial reasons. With decreasing reimbursement from the government and payers, it leads to a strong incentive to increase services and sometimes, trying to game the system, in order to maintain incomes. There are other important elements of redesign as well such as clinical workflow changes, team-based care and improving patient self-management.  Our healthcare model is an antiquated model T and any version of reform, to be successful, must encourage and support updating the delivery system vehicle.

2) Informatics: the healthcare industry is one of the few over the past 10-15 years that has not substantially benefited from the huge efficiencies gained in other industries from the use of Information Technology (IT).  I now rarely go into the bank and conduct nearly 100% of my transactions online or at an ATM machine.  I pay bills, transfer money and check balances on my computer and now on my mobile phone.  Healthcare is miles behind other industries in terms  of making their records electronic, establishing standards so that different systems can communicate and interact, establishing convenient consumer interfaces for transactions and using intelligent rules engines (such as in the credit processing industry) to improve decision-making.  Despite being one of the most information intensive industries in the world, we have not effectively leveraged IT.  This gap leads to cost and patient risk that is unacceptable.  Medical Informatics, the study and use of IT in healthcare, is a critical enabler of closing this gap.  We must rapidly expand use of IT and reform efforts so far are aligned.  However, there is much work to be done.

3) Quality: a high quality outcome and a high quality experience should be a fundamental characteristic of a healthcare delivery system.  Yet the American system delivers on this requirement only around 50% of the time.  Patient safety issues have been well-documented and persistent.  The status of your physical and mental health has such a far reaching impact on your life achievements, your family dynamics, your community vitality and your work productivity, that we cannot leave it at a 50/50 chance that you will receive quality care.  Improving care to near perfect levels should be the goal as well as better engaging patients in their care.  We are seeing isolated examples of achieving these objectives with tremendous impact, but they are far to infrequent.

This blog will focus on these issues and track, share and explore the many opportunities we have to transform healthcare through system redesign, informatics and quality.

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