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September 16, 2014

ACO Update: What Challenges Lie Ahead?

Proprietary Names

In June, we noted that Accountable Care Organizations (ACOs) have proliferated throughout the United States in the past few years, but they are still a comparatively new model for delivering low-cost, high quality care. As of mid-2013, there were over 4 million beneficiaries covered by Medicare ACOs. Additionally, a report identified 537 ACOs, and found that the number of physicians, nurse practitioners, and physician assistants participating in ACOs exceeds 190,000. Currently, there are nearly 289,000 total healthcare providers and business personnel aligned with ACOs.

Despite these growing numbers, two interesting articles were published describing the difficulties facing ACO growth. First, Dr. Robert Pearl, M.D., described the four major challenges facing ACOs: (1) Perverse Payment Model; (2) Wrong-Sized Medical Staff; (3) Technology Platform Incompatibility; and (4) Lack of Physician Leadership and Management Structure.

Obstacle 1: Perverse Payment Model

Dr. Pearl states that 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.” He notes that in the short term, it is easier to “generate more volume and immediately increase revenue than it is to redesign the health care delivery process, creating greater value over time.”

“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,” noted Dr. Pearl.

Obstacle 2: Wrong-Sized Medical Staff

Dr. Pearl wrote: “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 

Dr. Pearl argued that ACO technology platform solutions are both simple and difficult, and that ACO providers must invest in connecting their information technology systems early on. “Redundancy of care is inevitable without comprehensive medical information or the ability to share patient data across an entire ACO,” he stated.

We recently discussed this issue of “interoperability” in detail in our update on electronic health records and data security issues.

To illustrate the problem, Dr. Pearl proposed the following hypothetical: “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.”

Obstacle 4: Lack of Physician Leadership and Management Structure

“In general, hospital partners in ACOs are the primary source of investment capital for new facilities and technologies,” Dr. Pearl states. “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?

Dr. Pearl stated that the ACO movement is at a crossroads. Either ACOs will figure out how to overcome the obstacles they face, or they will end up using their size and market power to raise prices and resist change. Whatever they choose, it will have a major impact on the future of healthcare in the United States.

“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,” he noted.

Becker’s Hospital Review Interview

Additionally, separate from Dr. Pearl’s commentary, Becker’s Hospital Review conducted an insightful interview with three leaders from well-established ACOs. The industry leaders shared comments regarding the transition into accountable care. The interview text can be found here

In response to the question: “What’s the most difficult part of leading an ACO?”, Lynn Barr, founder of the National Rural ACO said: “There aren't enough hours in the day and three years goes by in the blink of an eye. It is also hard to gain the trust of the physicians, who have been burned too many times and are over-burdened.”

Ruth Brinkley, president and CEO of KentuckyOne Health noted: “I would say it was getting the IT platform together and assembling the component parts. Most health systems probably have the component parts, but they are not assembled the way they need to be to advance an ACO.”

Additionally, Aric Sharp, vice president of UnityPoint Health Partners responded: “There is a temptation to place too much emphasis on the financial mechanism of transitioning payment models. The vast proportion of time should be dedicated to clinical transformation.”

Policy and Medicine will continue to monitor ACO growth and the challenges they face.


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