Tag Archives: Quality

How Can Accountable Care Organizations (ACOs) Generate Savings to Share?

The existence of the new healthcare organizational structure, the Accountable Care Organization (ACO), has taken off like none other. As of June 2012, there were 221 ACOs in 45 states testing various methods of sharing risk, up from 160 in November of 2011. Although there is tremendous interest and rapid growth, it remains to be seen if ACOs can be successful. How are ACOs going generate enough savings to share? Because the transformation to an ACO requires a significant capital investment, restructuring role and responsibilities, usually hiring new resources and redesigning workflows, how are these investments going to pay off for the provider making these changes?

A Health Affairs study shows that the savings are unlikely to come from quality improvement efforts alone. Dr David Eddy used the sophisticated Archimedes simulation model to analyze the effects of the Shared Savings Program quality measures and performance targets on Medicare costs in a simulated population of patients ages 65–75 with type 2 diabetes. They found that a ten-percentage-point improvement in performance on diabetes quality measures would reduce Medicare costs only by up to about 1 percent over a five year period. When you consider the costs of attaining this level of performance improvement the savings would decrease or become a net cost increase. To achieve greater savings, accountable care organizations will have to lower costs by other means, such as through improved use of information technology and care coordination. This is the reality of the challenge of quality improvement. Although it is the right thing to do, even in a shared savings environment, at least for the short term, it may not be profitable.

So what are the critical success factors for an ACO to generate enough savings such that there is a profit margin? The Return-On-Investment (ROI) for making these changes from a provider perspective will depend on the provider’s ability to achieve a certain level of cost reduction, generally greater than 2%. If this is not achieved, margins are worsened because the capital costs will not be reaping benefits and the organizational changes will be disruptive without generating value. At the same time you are, by design, decreasing your FFS volume which may have been the cash cow sustaining your margins. Becker’s Hospital Review discusses how to calculate provider revenue loss in an ACO. The important point is that in the new world of value based reimbursement, you create margin by safely decreasing the use of services and creating internal efficiencies to do so at the lowest possible cost. This is the new game. And, very importantly, old foes can be critical allies in achieving this goal. In particular, this shift in the reimbursement model now aligns provider and health plan incentives.

As cost became an issue over the past 30 years for the ultimate payers or funders of healthcare services (i.e. the government and employers), health plans have successfully and profitably become a powerful middle man. Because, for every financial transaction, one person’s cost is the other’s income, this tug of war between health plans and providers has been waging for years. Health plans have used various means to decrease their cost and providers have fought back with countermeasures to increase their revenue. This situation has lead to an acrimonious relationship between health plans and providers characterized by a lack of trust and bitter battles to gain an advantage with sometimes very high stakes. In the late 1990’s, there was an inappropriate and disastrous shift of insurance risk to providers that led to provider losses and increased the animosity between health plans and providers.

There are two kinds of risk to manage as it relates to the use of healthcare services. First is insurance risk, which is the risk that a patient will develop a catastrophic illness or injury such as cancer or have severe injuries from an auto accident. This is generally the purpose of insurance. Insuring against this risk is the primary reason why health insurance companies exist. The second kind of risk is performance risk. Performance risk is the risk of over-, under- or mis-use of healthcare services for a particular condition, illness or injury. This is particularly difficult to manage because the gold standard is so difficult to determine. So much is based on patient characteristics, co-morbidities, medical evidence and clinical judgment. When costs in healthcare began to dramatically increase, it was noted that there was great variation in the use of services for the same condition. This was evidence that clinical performance risk was not being managed. Health plans stepped in to do so. Health plans have build up infrastructure over several years to micromanage the clinical performance of providers through various means which typically culminate in denial of payment for services deemed inappropriate. These tools include guidelines, data analytics, predictive models, case managers and other clinical staff, disease management systems and provider profiling systems. This has been a frustrating situation for physicians who have had their clinical judgment challenged and for patients who have been caught in the middle. However, now the game has changed. In an ACO world, health plans and providers have the same perspective on what are costs. The goal is to decrease cost from the perspective of the government or employer payer. Therefore there is an opportunity for health plans and providers to align efforts and partner to create a higher quality and more efficient system. This health plan infrastructure can be used to help providers manage clinical performance risk. Patients still need to be aligned but that is a topic for another time.

A health plan that has been particularly aggressive in developing new ACO-like reimbursement models with providers is Cigna. They recently published early results of their Collaborative Accountable Care initiative. In terms of what must providers do, beyond quality improvement, to reduce costs, care coordination seems to be a critical success factor. In the Cigna model, registered nurses who serve as care coordinators employed by participating practices are a central feature of the initiative. They use patient-specific reports and practice performance reports provided by Cigna to improve care coordination, identify and close care gaps, and address other opportunities for quality and efficiency improvement. This effort included referrals into Cigna’s programs for complex case management. Cigna provided significant resources and support for the practices including consulting support. Cigna reported interim quality and cost results for three geographically and structurally diverse provider practices in Arizona, New Hampshire, and Texas. Although not statistically significant, the early results demonstrated favorable trends in total medical costs and quality of care.

As successful ACO models emerge, it becomes clear that quality improvement will be necessary but not sufficient and partnerships with plans may be a way to accelerate progress and help fund the infrastructure needed. Although there are lingering trust issues and there will be other battlegrounds to negotiate, in the ACO model of care, plans and providers can be on the same side.


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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