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Will Accountable Care Organizations (ACOs) Lose Money - and Mimic Disease Management's Medicare Health Support?

Posted Mar 24 2011 7:19pm
Remember the much regaled "Physician Group Practice" (PGP) CMS Demo ? Ten group practices (five integrated delivery systems, two free standing, two academic organizations and one hospital sponsored provider network) continued to bill Medicare on a fee-for-service but were eligible for a bonus if they reduced costs. The bonus consisted of 80% of Medicare's savings in excess of 2% - assuming they also met some quality targets. To pursue those savings, the ten groups used a varying mix of care management protocols, registries, provider education, data feedback, HIT, remote patient monitoring, team-based disease and case management programs as well as discharge and palliative care programs.

You can read more here and here but the financial bottom line is nicely summarized here . Six out of ten of the participants met the quality and expense goals. Each was rewarded with at least one bonus during one of the three years which, in all but one case, amounted to millions of dollars.

The PGP observation that providers could organize and use the mix of interventions mentioned above to save taxpayer dollars helped advance the notion of "Accountable Care Organizations" (good summary here ) in the Affordable Care Act
“….with respect to the quality performance standards established by the Secretary under subsection (b)(3), if an ACO meets the requirements under paragraph (1), a percent (as determined appropriate by the Secretary) of the difference between such estimated average per capita Medicare expenditures in a year, adjusted for beneficiary characteristics, under the ACO and such benchmark for the ACO may be paid to the ACO as shared savings and the remainder of such difference shall be retained by the program under this title.”

The prospect of being able to form regional ACOs has provoked an organizing/merger/buy-out frenzy among hospitals and physicians. While the DMCB suspects ACOs will turn out be more about physician vs. hospital control of monopolistic cartels, being able to bill fee-for-service and still get a bonus is too sweet to ignore.

Or is it? While the PGP groups were awarded millions, how much did they have to spend on all those additional care management programs?

Writing in the latest New England Journal, Trent Haywood and Keith Kosel report on a financial analysis they conducted on the Group Practice Demo . Combining data from the Demo reports, the Government Accountability Office and the HHS Report to Congress, the authors created this curve . Based on a mean investment of $737 per provider or $1.7 million per organization, a 13% and 20% margin on that investment is needed for a break-even within 5 years and 3 years, respectively. If that's not bad enough, recall that 4 out of the 10 Demo participants never received a single cent.

And remember how the Medicare Health Support Demo on the topic of disease management was partially tripped up by delays in promised beneficiary data from CMS? The authors note their analysis may be limited because
"....the participants did not receive provider- feedback reports and bonus payments in a timely manner, which may have negatively affected their ability to perform more effectively and receive greater shared savings."

In response to their findings, the author offer up some cautions for ACO wannabes
1) This is not about fee-for-service. Think hard about the high cost of those up-front investments in care management and be prepared for a return on investment that may not materialize for five years.

2) Think really hard about doing this if you are a small provider organization with limited access to capital, a short time horizon or an inability to tolerate a 40% chance of this being a complete bust.

The DMCB offers up this third consideration: think hard about taking that money and investing in a broadly diversified mutual fund.

There are also some policymaker recommendations
1) Limit ACO participation to provider organizations with sufficient financial strength

2) Change the bonus from being based on demonstrations of annual savings to cumulative savings.

The DMCB offers up this additional thought: If there is a chance that ACOs will end up like Medicare Health Support, the good folks at CMS may want to reconsider. The poor design, inadequate data support and the lack of a cumulative time frame was not part of CMS's calculus when they shut down the disease management demo. Here's a Healthways study that shows it was a mistake that set care management back years. It'd be unfortunate ACOs failed not on their merits, but on poor planning and execution by CMS.
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