CMS releases proposed rules for Accountable Care Organizations

The shift from today’s volume-based payment system to tomorrow’s value-based methodologies took a major step forward yesterday. The Centers for Medicare & Medicaid Services (CMS) released  proposed rules for the new Accountable Care Organization (ACO) program.  Although the proposed regulations will be the subject of extensive comment and will undoubtedly be changed before final adoption, the coming transformation in Medicare reimbursement is so profound that the rules command the attention of governing boards and other healthcare leaders now.

Rather than read the entire 429 pages, board members would be wise to read an article in March 31 issue of the New England Journal of Medicine by CMS Director Donald M. Berwick, MD, MPP.  It lays out the rationale and essential principles for ACOs. Key points include:

  • “Because in many settings no single group of participants — physicians, hospitals, public or private payers, or employers — takes full responsibility for guiding the health of a patient or community, care is distributed across many sites, and integration among them may be deficient. Fragmentation leads to waste and duplication — and unnecessarily high costs.”
  • Under the Affordable Care (ACA) Act, ACOs are designed “to foster change in patient care so as to accelerate progress toward a three-part aim: better care
    for individuals, better health for populations, and slower growth in costs through improvements in care.”
  • “Under the law, an ACO will assume responsibility for the care of a clearly defined population of Medicare beneficiaries attributed to it on the basis of their patterns of use of primary care. If an ACO succeeds in both delivering high-quality care and reducing the cost of that care to a level below what would otherwise
    have been expected, it will share in the Medicare savings it achieves.”

The article summarizes the proposed rule’s provisions regarding who can form and lead ACOs, including: physician groups; physician practice networks; hospitals that employ physicians; and partnerships among these entities.  It describes how ACO should be governed –by providers, but with the voices of patients and community involved too.  CMS is proposing to offer two models for ACOs to share financial rewards and risks with Medicare, one low risk, the other higher risk but also high potential return. The article also articulates 65 quality performance measures for judging ACO performance.

The shared savings program is not the end point for ACOs, Berwick stresses, but rather, it is designed to first of many “delivery-reform efforts such as expanded use of medical homes, bundled payments, value-based purchasing, adoption of information technology, and payment reforms are under way or under consideration.” 

Thus, an ACO is really a structure for carrying out a cultural transformation in healthcare delivery from incentivizing volume to rewarding peformance in in improving individual and population health and controlling costs. Boards should be asking how ready their organization is to work in collaboration with physicians to measure and manage both the costs and quality of patient care — to individual patients and to targeted populations groups such as those with diabetes, heart disease, hypertension, and the frail elderly.

Berwick concludes: “Whatever form ACOs eventually take, one thing is certain: the era of fragmented care delivery should draw to a close. Too many Medicare beneficiaries — like many other patients — have suffered at the hands of wasteful, ineffective, and poorly coordinated systems of care, with consequent costs that are proving unsustainable. CMS believes that with enhanced cooperation among beneficiaries, hospitals, physicians, and other health care providers, ACOs will be an important new tool for giving Medicare beneficiaries the affordable, high-quality care they want, need, and deserve.”

Healthcare Reform: The Next Chapter Begins

As hospitals, health systems and physicians gear up for the implementation of the Affordable Care Act (ACA), the board’s radar screen has to track the growing judicial and legislative challenges that could alter or even nullify the new law.

This week featured major developments in Congress and the courts, as well as from CMS.

On Monday, in a case brought by 26 state attorneys general, U.S. District Court judge Roger Vinson ruled the entire law unconstitutional. An editorial in the Wall Street Journal details Vinson’s rationale that law exceeds the federal government’s Constitutional powers, by requiring people to buy something, i.e., health insurance, and penalizing them if they don’t. Because the bill’s backers excluded the usual “severability clause” (arguing that the law’s elements reforming the healthcare system are irrevocably intertwined), Vinson said he had no choice but to label the entire law unconstitutional. A Virginia judge previously ruled only part of the bill unconstitutional.

But the battle isn’t over. Experts expect these cases and others will work their way through the appellate courts to the Supreme Court, with a decision not expected before the end of 2011 and most likely 2012. There, the law’s defenders will mount an impassioned legal defense of the law. To read one thoughtful analysis, look at attorney Timothy Jost’s response to the Vinson opinion, published by Health Affairs.

In Congress, the Senate as expected rejected a House-passed bill to repeal the ACA, but Republicans promised to dull the law’s impact through other means, such as not funding agencies and programs created by the new law.  A story by Congressional Quarterly HealthBeat Editor John Reichard, published by The Commonwealth Fund, predicts thatworries over deficit spending are going to frame Washington’s big policy debates in the coming year. One proposal will be to change Medicare from a defined benefit to a defined contribution plan and give seniors a voucher to buy their own plans on an open market.

Meanwhile, the Centers for Medicare and Medicaid Services keep forging ahead.On Jan. 25 CMS issued a final rule implementing the ACA’s provisions to reduce fraud, waste and abuse. Rules implementing the Accountable Care Organizations payment program are expected any time.  The Fierce Healthcare newsletter reports today that in a talk, CMS interim Administrator Don Berwick signalled the rules will address such topics as:

  • What will the risk financing arrangements look like?
  • How will beneficiaries be protected from cherry picking by ACOs?
  • What be the metrics?
  • What will the privacy and data sharing rules be?
  • To raise capital, who can invest in ACO?

What are health systems to do amid the uncertainty? At a governance level, it’s important to separate strategic from operational decisions, and keep the board focused on strategy and risk. Strategically, there’s a compelling case that healthcare payment is truly shifting from piecework to value-based, and therefore, providers must be able to take accountability for cost and quality. An article in the current issue of Trustee magazine from Kaufman, Hall & Associates, Inc. argues that hospitals will need eight core competencies, including physician integration, cost management, and scale/market essentiality.

A column in Bloomberg Businessweek by Susan Devore of Premier articulates the rationale for accountable care organizations and explains why 25 health systems in the Premier alliance are testing a variety of approaches for new forms of care delivery and payment. Generally, the public doesn’t understand the revolution underway in healthcare delivery and the benefits it could offer — but this case needs to be made and Devore does a good job stating it.

The next several months promise a continuing saga in the ACA legislation.

Governing Board’s Role in Mergers and Alliances: New Issue of Great Boards

Healthcare reform is expected to drive a new round of mergers, acquisitions, and strategic alliances among hospitals and other providers.

As a white paper last summer from The Governance Institute noted, “Since the recent passage of healthcare reform, nonprofits have demonstrated much more interest in achieving scale. Also, a number of free-standing hospitals and small hospital systems are questioning whether they can thrive post-healthcare reform, without becoming part of a large system.”

A consolidation strategy goes to the core of a governing body’s fiduciary duty to preserve the organization’s long-term viability to sustain its mission. Directors should ask whether consolidation will strengthen the organization’s finances, operations, market position, growth potential, and core values, and thus support its mission. Or conversely, will consolidation dilute resources and damage stakeholder relationships?

The new issue of Great Boards is designed to orient directors to the key governance issues involved with mergers and strategic alliances. It includes the steps boards should take to prepare for a consolidation strategy; the seven key questions at the heart of almost every deal; and the right timing for engaging a small task force and the full board.  Read and download it now at

Hospitals Taking Initiative to Be Accountable for Care

If health care reform fails, it won’t be for lack of trying by many of the nation’s leading health systems and their physician partners.  Although many hospitals are still trying to determine what the Patient Protection and Affordable Care Act means for them, those on the leading edge are forging ahead.

One example: Fairview Health System in Minnesota.  Writing on the Action for Better Healthcare blog, Mike Stephens, former CEO at Hoag Memorial Presbyterian in Los Angeles, calls attention to Fairview’s efforts in six areas:

  1. Redesigning primary care around multi-disciplinary teams, patient engagement, and technology in Fairview’s 42 clinics
  2. Following “care packages” of best care practices designed by Fairview and University of Minnesota physicians
  3. Delivering care virtually over the Internet without a face-to-face interaction
  4. Collaborating with payers
  5. Collaborating with employers
  6. Using new technology to increase efficiency and improve outcomes.

Fairview has posted a summary of its efforts including a video on its public website.

Fairview is one of several systems profiled November 28  by the Wall Street Journal in an article entitled “Embracing Incentives for Efficient Health Care.”  Among the others, Tucson Medical Center is forming a company that the hospital will own jointly with local physicians’ practices to act as an Accountable Care Organization (ACO). The Billings Clinic in Montana, an integrated physician and hospital organization, is also preparing to take steps to become an ACO. The clinic hopes to build on lessons from an earlier Medicare pilot program in which the the clinic says it reduced hospital admissions for around 500 heart-failure patients by 35% to 43%, saving Medicare more than $3 million over three years. The efforts focused on close monitoring of patients who called in daily to provide measures like their weight.

We’ve written in the past about innovations at Advocate Physician Partners in Chicago. Advocate Physician Partners’ Clinical Integration Program unites over 3,600 independent and employed physicians and the eight Advocate hospitals in a nationally recognized program with improved clinical outcomes and reduced health care costs. Now, Advocate has announced a new educational symposium on February 24th that explains how its Clinical Integration Program works.  This is a pragmatic, practitioner-led symposium that can help others move forward to take accountability for value and outcomes.

Other sources of information include the Commonwealth Fund, American Hospital Association, and Great Boards.

The early adopters aren’t waiting for certainty from Washington. They are moving forward with integrated, accountable care, and many are sharing what they’re learning along the way. Other hospitals and health systems would be well-advised to take advantage.

What the Election Means for Healthcare Reform

by Elaine Zablocki, Editor, Great Boards newsletter

Increased Republican power in Congress will mean continuing debate over healthcare reform, but hospitals shouldn’t abandon delivery system reforms, according to Kristin Welsh, Vice President of Federal Affairs for the American Hospital Association. She made her remarks during a webinar on “Post Election Analysis on Health Reform — from Inside the Beltway,” presented last Friday by the QHR Learning Institute.

Welsh predicted that early in the year there’ll be many votes on repealing or replacing healthcare reform, but in the end, Congress doesn’t have the votes to override a Presidential veto. As a New York Times story on Nov. 6 by Robert Pear explained, Republican legislators are likely to withhold appropriations for some of the estimated 100 sections of the law that require funding as well as trying to repeal or scale back provisions that conservatives despise most, such as the individual mandate to buy insurance or the new IRS form 1099 requirements.

“House Republicans could easily pass … provisos stating that no federal money could be used to carry out specific sections of the new health care law,” Pear wrote. “By attaching the restrictions to appropriations bills, House Republicans can force negotiations with the Senate. The Hyde amendment, restricting the use of federal money to pay for abortion, began as such a rider more than 30 years ago.”

“The individual mandate is being addressed at the state level, through the courts, and it remains to be seen how that plays out,” Welsh said. “Obviously it’s very important for us (AHA) that it stays in. That was the crux of our involvement in the reform package at the very beginning.”

Welsh also noted potential opportunities for hospitals as they work as with the newly empowered Republicans in the House. Labor won’t have the votes to pass card check “so we have a reprieve on that issue,” she said. “Liability reform is an issue that clearly resonates with Republicans. The House could probably pass a liability reform bill now but the Senate probably cannot.”

Republicans generally support regulatory relief, and that poses an interesting situation for hospitals, Welsh said. “If regulations are seen as advancing healthcare reform, the Republicans are going to be very skeptical of providing help to those regulations. They don’t want to see reform advance; they want to rein it in. Unfortunately, clinical integration is seen as part of health care reform, so we’ll need to explain this issue in a way that puts it outside the scope of reform.”

Republicans also face particular challenges as they plan their strategy, Welsh said. Since the reform has been counted as money-saving legislation, any attempts to repeal provisions of the bill will require off-setting savings. “It’s a complicated bill, all very intertwined,” Welsh said. “To pull one thread could unravel things you might not want to unravel. I think right now Republican staff must be struggling to figure out how to dismantle this in a thoughtful way.

Back at the start of the debate on health care, provisions on insurance reforms, delivery system reforms and transparency had widespread support on both sides of the aisle, Welsh said. “That’s important,” Welsh said. She urged hospitals to continue preparations for delivery system reforms, because “issues such as ACOs, bundling and gain sharing are not going away. These issues will stay with us, because they are the crux of moving the way care is delivered and paid for.”

Hospital consolidators need to take accountability for results

As hospital consolidation increases and health systems grow, some researchers and policy makers are airing concerns that hospital mergers actually increase healthcare prices and don’t deliver promised savings to their communities.  As an article co-published by Kaiser Health News and The Washington Post, “As Hospitals Consolidate, They Get Pricier” put it, “The Federal Trade Commission found rapidly rising prices in some markets after hospitals joined.”  The Federal Trade Commission’s view is that “the increasing consolidation of hospital markets (is) of national concern. “

My view: Big health insurers have gotten a bye on anti-competitive consolidation, and they have the upper hand negotiating with independent hospitals and small systems, which have have no pricing power for the bulk of their other business with Medicare and Medicaid.  So hospital consolidation and physician integration merely level a presently unequal playing field.

That said, resistance to mergers from insurers and skeptical regulators will grow. Hospitals that seek to merge need to do more than make the legal case to regulators that consolidation isn’t anticompetitive. They will have to take a value proposition, not merely market clout, to payers at the bargaining table.  They will need to take a community benefit case to the public and also be willing to accept accountability for merger results.  To be precise, merging hospitals will need to demonstrate they are successful in delivering on their promises to increase efficiency and improve the quality and value of their care.

One model: The “certificate of public advantage (COPA)” issued by the State of North Carolina to the Mission Health System in Asheville, NC.  The COPA requires the health system to file financial reports with the state every year showing its keeping costs in line. Mission has done a good job and is ready with the facts to prove it. Others will have to do the same.

Hospitals in Distress Find Success

Hospitals that have a challenging payer mix can in fact achieve profitability.  That’s the finding of a new study done by the University of California, Berkeley and funded by the California HealthCare Foundation.  Leadership teams at five such California hospitals identified five key, interdependent factors as the primary contributors to their financial success:

  • Quality: strengthening the hospital’s negotiating position with payers
  • Strategic Growth: increasing the volume of patient services
  • Management discipline: intense monitoring and control over expenditures and efficiency of operations
  • Culture: establishing organizational values and beliefs supportive of collaboration, trust, achievement and accountability
  • Relationships: developing strong, positive hospital-employee and hospital-physician relationships

My view: These strategies apply in any market, they’re just more important with a poor payer mix.  Although healthcare reform promises broader coverage for the uninsured, if that happens, reimbursement rates are likely to be insufficient to sustain safety net providers.  That’s already happening in Massachusetts, according to an outstanding analysis by the Center for Studying Health System Change.  Low state rates are jeopardizing safety net providers like Boston Medical Center.  So these case studies are compelling, but for many hospitals serving poor communities, strategic partnerships and improved relationships with state Medicaid officials will be equally critical.  Directors can help build both of these bridges.

Growing an ACO — Easier Said Than Done

That’s the provocative title of the lead article in the September/October issue of Physician Executive Journal.  It describes how Baylor Health Care System in Dallas faces big hurdles creating an ACO, even though it has a 15 year head start building an integrated delivery system. But Baylor is committed: it’s made ACO development a strategic priority, is investing millions of dollars in disease and population management, and is visiting major employers to convince them to sign on to new integrated delivery products. Still, big question marks remain: Will Medicare pay enough? Will rules against fraud and abuse be interpreted to allow hospital-physician risk and gain sharing? Will doctors collaborate to the extent necessary? This well-done piece makes for good reading by doctors, directors and senior execs.

Bundled Payments: Primer for Boards

The October issue of Trustee magazine includes a concise primer on bundled payments and the implications that hospital and health system boards should understand. Bundled payments alter the incentives of fee-for-service. Instead of being paid more to do more, hospitals, physicians and other providers will be at risk for their costs , fixed prices and quality. The article explains how bundled payments may work and describes the major models and demonstration projects that are underway.

If you don’t subscribe to Trustee, you can see the article at the Trustee magazine website.

Webinar, Resources on Accountable Care Organizations

The Governance Institute has announced a new webinar on “Accountable Care Organizations: The Challenge of Setting Strategy amid Uncertainty.” The webinar will be broadcast Wednesday, September 22, 2010, from 2 pm – 3 pm Eastern time. The 60-minute program will include a live question and answer session. 

Registration is free to members of The Governance Institute and $295 for non-members. To register or for more information click here.

The presenters will be two highly experienced healthcare strategy  consultants: Don Seymour, president of Don Seymour & Associates and Governance Advisor, and John Harris, Principal, DGA Partners.

What’s an ACO? Accountable care organizations (ACOs) are networks of physicians, hospitals and other providers that work together to improve the quality of health care services and reduce costs for a defined patient population.

What’s new? The health reform law establishes a “Medicare shared savings program” for ACOs, to begin no later than January 2012. The law says ACOs are not just a demonstration or pilot project; contracting with ACOs will be a permanent option under Medicare. If they take off, ACOs could accelerate the trend of Medicare paying providers based on value rather than volume. Private payers might take similar approaches. However, Medicare has yet to define many specifics of the program, leaving providers unsure how to proceed. And some integrated delivery models, such as the Greater Rochester Independent Practice Association (GRIPA) have invested in developing clinical integration but found few private health plans would contract with them.

How to respond? Highly integrated providers such as Kaiser, Geisinger, Mayo, and Advocate are already well-positioned to respond when the Medicare program begins.

Most hospitals and physician groups, however, are at an earlier stage of integration and must evaluate what the ACO program means for them. Put bluntly, will Medicare’s shared savings program offer providers sufficient benefits for improved quality and efficiency to justify their investment in the infrastructure needed for integration, from information technology to physician alignment? A pilot group involving ten medical groups had mixed results, but a final report has yet to be released.

For more information on ACOs, check out these resources: