Featured Health Business Daily Story, April 19, 2012

Preliminary Data From ACO Models Show Improving Quality; Some Question Results

Reprinted from ACO BUSINESS NEWS, a hard-hitting monthly newsletter on the latest industry actions to design and create ACOs, for hospitals, physicians, health plans and their advisers.

April 2012Volume 3Issue 4

In answering one of the most anticipated questions about the accountable care movement — can ACOs reduce costs and improve quality? — some developers in releasing preliminary data say they’re hitting these targets by reducing or avoiding hospital stays and doing a better job of monitoring chronic illnesses.

In early March, Kaiser Health News reported that AdvocateCare, the ACO formed by Advocate Health Care and Blue Cross and Blue Shield of Illinois in January 2011 (ABN 3/12, p. 1), managed to reduce hospital admissions per member by 10.6% and emergency department (ED) visits by 5.4% based on six months of data. Other early financial results on savings have trickled in over the past year from major insurers such as Blue Shield of California, Aetna Inc. and Cigna Corp., regarding ACO ventures they’ve invested in (see box, p. 3).

Some health care observers, however, emphasize that these results can’t just be about driving down utilization. Advocate’s model “does put a cap on what they’re willing to pay for certain services and they’ve got a very sophisticated program in terms of risk-adjusting some of those payments. Those are all good things,” William DeMarco, president and CEO of Pendulum HealthCare Development Corp., a management services firm, tells ABN. But some pieces are missing, he continues.

The model seems to be predicated on the concept of bundled payments, a combined physician-hospital-ancillary payment or global payment for an episode of care tied to a specific risk-adjusted patient profile, he explains. His experience has been that “if you have bundled payments by itself” accompanied by no guidelines or medical management, that’s not really going to fundamentally change the health care system. “It’s not going to incentivize providers to remove waste from the system,” he says.

ACOs Cite Quality Improvements

Instead, Advocate appears to be taking the bonus money it accrued from its shared savings agreement to offset the number of admissions it has lost through this ACO agreement, DeMarco says. What a true ACO does is find a way to re-engineer both primary care at the front end and hospital care at the back end so this isn’t a matter of trying to get subsidies or replace money or services, DeMarco contends. “It’s really a matter of building more necessary services and building a bigger market share in that process and becoming more efficient.”

In the Kaiser Health News report, AdvocateCare Vice President Lois Elia said the ACO has been successful in driving down utilization, citing 60 case managers who work with high-risk and post-acute cases as one of the key factors of these results. While all of this is promising, Elia said that it was too early to draw conclusions from these findings.

Representatives from the Illinois Blues plan were unavailable for comment at ABN’s deadline. Advocate verified the accuracy of the Kaiser report, but did not offer further comment.

Reports Reflect Payers’ Views

These initial reports on ACO savings “don’t actually surprise me, because they’re from the payers’ point of view,” Sharon Siler, a director at consulting firm Avalere Health LLC, tells ABN. Proof that these ACO models are reducing length of stay and emergency department visits “is more about efficiency measures, not quality measures,” which don’t necessarily equate to better patient outcomes, she says. Take length of stay, for example, Siler continues. “That’s beneficial for a payer because their financial responsibility is shortened. But being in the hospital for a shorter period of time doesn’t mean the patient got well [faster] or should have been discharged” at that time.

From the hospitals’ point of view, “reducing admissions, readmissions, lengths of stay and ED visits doesn’t really save any money — the ED will still be open regardless, and the hospital has to bear the cost of keeping it up and running for the patients that do need it. What it does is create excess capacity that they’ll try to fill with additional patients. An empty bed might be a good thing for a payer, but not for a hospital,” Siler says.

At least in the short term, the obvious winner of an ACO agreement such as AdvocateCare’s would be the Illinois Blues plan, “because they’re achieving some percentage of the savings, and they don’t have an offsetting revenue headwind,” Matthew Coffina, a securities analyst at Morningstar, Inc., tells ABN.

“The one we’re not so sure about would be Advocate, the provider system that’s participating in the ACO,” Coffina says. To the extent Advocate would lose revenue among its own providers, it may get only a portion of that back through the shared savings. It’s possible that it could find ways to cut costs to make up for that lost revenue. “Maybe they’d need fewer nurse hours, maybe they could cut down on beds, or maybe they’d need fewer MRI machines.” There’s also the offset of potentially gaining market share from other competitors as you try to keep people within your own system, Coffina suggests.

Andrew McCoy, vice president of revenue management, Fairview Health Services, which has an ACO-type arrangement with Blue Cross and Blue Shield of Minnesota (see story, p. 9), touched upon these issues at a Premier healthcare alliance event in February. What Fairview essentially is doing in the marketplace is eliminating services through this new care model, which it has been using with a variety of payers, McCoy said. “If we’re successful, we’re going to drive out revenue for us, out of the system.”

McCoy said Fairview will get some of that revenue back through shared savings incentive payments with payers, “but that won’t be enough for us to cover the losses that we’re going to take on revenue. So, what we need to do is work with the payers, so we are recognized for the value we’re providing. What we need in exchange for that value we’re providing to them is…we want them to drive more members to us,” he explained.

Successful ACOs Will Grow Populations

Dick Salmon, M.D., national medical director at Cigna, observes that ACO-type models that perform well will be able to replace reduced hospital admissions “because the population they take care of will be larger” as a result of improved outcomes. Consumers over time are going to choose where they get their care based on the overall quality, satisfaction and cost of that care. Delivery systems that score high in these areas “will be rewarded with increasing patient volume as consumers become more sensitive to those kinds of choices,” Salmon tells ABN.

Addressing the concern that some ACOs in reducing utilization are focusing just on efficiency and not on quality, Salmon says both have to factor into this model.

“When you treat a diabetic more appropriately so that they never get sick enough to need to go to the emergency room or they need to be hospitalized, that’s about efficiency and quality,” he emphasizes.

If a patient progresses as rapidly as possible due to efficient and intensive care and is therefore ready for discharge earlier than he or she would have been without such care monitoring, that’s about efficiency and quality, he adds.

“Certainly, if I’m sick and hospitalized, I would rather feel better in three days than in four days. What we’re driving for here is improving quality and improving costs while we do that,” Salmon says.

As far as the hospital’s point of view is concerned, “we are absolutely dedicated to working with our health care professional partners and in many cases this has included working with greater delivery systems like hospitals, on improving quality, efficiency and satisfaction of care,” he continues. In the end that means avoiding trips to the emergency department to keep people healthy and it means following evidence-based medicine guidelines, such as ordering MRIs only when they’re truly necessary. “All of that can reduce utilization while it improves quality and lowers cost,” Salmon says.

© 2012 by Atlantic Information Services, Inc. All Rights Reserved.

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