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The 4 Biggest Obstacles ACOs Face

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In a recent interview, business guru and best-selling author Clayton Christensen described American health care as “sick and getting sicker.”

He criticized the system’s administrative overhead, perverse payment models and lack of leadership for failing to incite meaningful reform.

Christensen thrives on examining complex topics. So, when I asked him what topic he’d like me to cover, he picked one that’s as complex as they come: Accountable Care Organizations (ACOs).

“A lot of the thinking behind the Affordable Care Act, how it can improve quality while lowering cost, relies heavily on ACOs,” Christensen said. “Most health care players would say that ACOs have helped. I’d argue they’re not yet fixing the problems."

To date, ACOs have accounted for measurable quality improvements and a reported $380 million in savings. Despite some movement, progress remains slow and inconsistent.

In response to Christensen’s request, what follows is an examination of the obstacles ACOs face. As you’ll see, solutions are possible but far from painless.

What are ACOs, anyway?  

ACOs are groups of primary care physicians, specialists and hospitals that join together to provide care to a population of patients. In general, the participating physicians and hospitals take joint responsibility for the quality and cost of patient care, and they function under a variety of risk-sharing arrangements.

ACOs were designed to address two shortcomings in U.S. health care: (1) the inconsistent and uncoordinated care delivered by independent primary care physicians, specialists and hospitals, and (2) the dysfunctional and inflationary “fee-for-service” payment system, which rewards care providers for the quantity of services they provide – not the quality or value of those services.

When they’re successful, ACOs decrease health care costs, avoid unnecessary duplication of services and reduce medical errors.

But reaching these outcomes is proving more difficult than initially imagined.

Are ACOs structured to succeed?  

There are an estimated 500 to 600 ACOs in the U.S. providing care to 15 to 17 percent of the population. ACOs exist within three different models: Medicare Shared Savings Programs, Pioneer ACO models and commercial ACOs.

Born out of the Affordable Care Act, Medicare Shared Savings Program ACOs  use a combination of fee-for-service payments and calculated cost savings. Both are based on the past performance of the designated physicians and hospitals to reward participants. The hope was they would help save $940 million over the first four years. Of the initial 114 Medicare Shared Savings Programs, 54 achieved savings in the first year. Just 29 have generated enough savings to offset the necessary investment costs.

Medicare Pioneer ACOs are the product of the Center of Medicare and Medicaid Innovation (CMMI) skunk works. They were designed to attract more sophisticated medical groups with existing prepayment experience and with much of the necessary infrastructure already in place. Of the 32 original pioneer participants, almost a third left the program after a year, citing how additional investments dwarfed the added incentive payments they might receive.

Commercial ACOs represent a variety of arrangements between hospitals, health plans and medical groups. Approximately half of the ACOs in the country fall into this category. Overall, they have improved quality outcomes but have experienced mixed results in lowering costs.

The Promise and the Challenges of ACOs

The concept of the ACO model seems straightforward enough: coordinate care, reduce redundancy, focus on prevention, improve clinical outcomes and make health care more affordable.

But no model has demonstrated consistent success.

That’s because moving from fragmented, fee-for-service, paper-based health care is difficult. Care providers in ACOs face four main obstacles. Each obstacle is tricky yet possible to overcome.

Obstacle 1: Perverse Payment Model

The prevailing fee-for-service payment model rewards volume of services, not superior clinical outcomes. The more procedures performed, and the more complicated the treatment, the more providers are reimbursed.

In practice, it’s easier to generate more volume and immediately increase revenue than it is to redesign the health care delivery process, creating greater value over time.

For many providers, the thought of moving toward an evidenced-based reimbursement system is frightening. They recognize that delivering more effective and efficient care would decrease total revenue in the short-term. And though they may understand the inherent flaws of the current system, they fear their fixed costs and high overhead wouldn't allow them to sustain an income reduction for long.

It comes down to a battle between what’s best for the patient and what’s best for the bottom line. There is a solution here, but it’s one that requires ACO providers to “go big or go home.” Going big means getting aggressive: converting their practices and revenue streams from fee-for-service to a prepaid model as rapidly as possible. Going home is giving up on meaningful changes and trying to hold onto the past for as long as possible. Taking small, incremental steps toward a new payment model is the riskiest strategy of all. Organizations that do will find themselves trapped between the past and the future – ultimately failing in the latter.

Obstacle 2: Wrong-Sized Medical Staff

The typical community hospital has doctors from all specialties on staff. But their staffing numbers are somewhat random. There may be eight orthopedic surgeons and six cardiologists who hospitalize patients. But once they redesign care delivery, what if all they really need is five of each?

The day a hospital excludes unnecessary specialists under a newly formed ACO is the day those specialists export their patients to a different hospital.

The sudden loss of patients and revenue would offset any cost savings from improvements in operational efficiency and impact the bottom line negatively. As a result, hospital-based ACOs tend to keep entire medical staffs, failing to eliminate unnecessary care or to improve productivity.

The solution requires rapid improvements in care delivery and a willingness to reassess pricing based on projected increases in volume.

Obstacle 3: Technology Platform Incompatibility

Different groups of physicians often use a variety of Electronic Health Record (EHR) systems in their offices. And most of them are not the same as the hospital's EHR system. Some of the more advanced Meaningful Use requirements in the HiTECH legislation reward interoperability, but getting systems and organizations to work together isn’t as easy as it sounds. Major technical obstacles stand in the way.

Redundancy of care is inevitable without comprehensive medical information or the ability to share patient data across an entire ACO.

Consider a woman who is about to undergo surgery. Her primary care physician, cardiologist and anesthesiologist all want to see her EKG at the same time. Each will obtain their own if they can't access someone else's. And without a single EHR system, there’s no way to know if this patient might also be due for a mammogram or has had a colon cancer screening. Without a single EHR system, there’s no way to coordinate the best patient care.

The solution is both simple and difficult. ACO providers must invest in connecting their information technology systems early on.

Obstacle 4: Lack of Physician Leadership and Management Structure

Even under the best circumstances, it’s challenging for physician organizations to accurately compensate each physician and improve systems of health care.

That challenge becomes nearly impossible without a well-defined physician leadership structure that can implement clear reporting relationships and individual accountability.

In general, hospital partners in ACOs are the primary source of investment capital for new facilities and technologies. But without a medical group CEO, an ACO can’t make the operational changes necessary to benefit from those investments or produce the expected results across the board.

When the main measure of leadership is increasing a facility's volume and top-line revenue, hospital administration can typically achieve success with little physician input.

But strong physician leadership and self-governance are essential when success is dependent on major improvements in operational performance.

The solution requires hospital administrators to embrace physician leaders as equals while investing in physician leadership development.

Where Will ACOs Take American Health Care?

ACOs offer great promise for the future. And when the pieces are in place, they have the potential to achieve the Institute for Healthcare Improvement's triple aim: better quality and satisfaction for patients, improved health of populations and greater affordability.

But creating an ACO on paper is the easy part. Delivering on the promise of an ACO is much harder.

It’s not easy for organizations to move from fee-for-service to bundled payment or full capitation, to have the courage to right-size their staffing model, to invest in the necessary technology or to develop the requisite physician leadership.

But these changes ultimately distinguish success from failure.

In many ways, the ACO movement is at a cross roads. As Christensen pointed out, either ACOs will figure out how to overcome the obstacles they face or they’ll just end up using their size and market power to raise prices and resist change.

The path they choose will have a major impact on the future of healthcare in the United States.