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Assuming Risk as an ACO: What Does it Take?

ACOs have to assess both the opportunities and the challenges in pursuing risk based payment arrangements. However, there are key strategies ACOs can adopt to help with the transition to greater financial accountability, and higher levels of performance. On July 16th, our ACO Learning Network hosted a webinar that explored critical success factors and barriers, as well as potential lessons for ACOs to increase their risk-bearing capacity.

Different Payment Models Pose Unique Challenges

Drawing upon an issue brief authored with colleagues from the American Academy of Actuaries, Greger Vigen highlighted some of the actuarial concerns inherent in various risk-based payment models. For example, when organizations undertake one-sided or “bonus only” shared savings arrangements, the arrangement should create incentives that are adequately aligned across the system to reward physicians that are providing not just cost-efficient, but also high-value, care. They must also find ways to create additional non-financial support when the size of provider shared savings is minimal. Both one-sided and two-sided shared savings models can lead to complex calculations in determining the true amount of savings resulting from the arrangement. Organizations undertaking bundled or episode-based payments must clearly determine what is included in specific bundles in order to justify assuming risk for those services.  Although partial capitation lends itself to an increased level of risk by creating strong incentives to reduce inefficiencies in certain parts of the system, such arrangements create effects on areas not covered by the partial capitation arrangement. Finally, by virtue of the increased risk level, global payment arrangements raise solvency considerations for organizations and require significant investment in infrastructure (or use resources from aligned partners) to manage utilization and facilitate appropriate organizational culture change. As programs move forward, there may be a combination of approaches used, including broad risk sharing or partial capitation arrangements between buyer and provider organizations. At the same time, more focused initiative may be used between the provider organization and the provider partners, such as bundled payments or partial capitation to certain providers. 

Critical Elements of High Performing Systems

Regardless of which risk-type arrangements ACOs choose to pursue, there are some critical elements that most high-performing systems share. According to Vigen, high-performing systems typically use a highly analytic process to understand their performance over time, rely on financial committees that are clear and “blunt” about the organization’s financial state, have in place multiple targeted financial initiatives, use payment reform to show how expenses could reduce revenue across multiple specific cases, have advanced clinical reporting systems, develop strong partnerships within and outside the organization to transform care, and use “next generation” analytic tools from outside organizations. Vigen contends that, in order to succeed at true transformation, organizations must develop initiatives aimed specifically at financial results, to supplement other initiatives designed to simply improve quality.  Building around these initiatives provides targeted results that can effectively engage and utilize actuaries. Actuaries and other external partners can help ACOs to more fully address financial issues and develop a framework for the prioritization and allocation of resources that identifies which existing processes to discontinue and which new processes to initiate.

Jim Whisler, a Principal at Deloitte Consulting, added that there are a number of opportunities to realize savings, many of which can be achieved through reducing variation. He emphasized that ACOs should take advantage of “low hanging fruit” that decrease utilization and optimize costs, such as ensuring appropriate use of generic and specialty pharmaceuticals, reducing inpatient stays, increasing use of ambulatory surgery center (ASC), and understanding appropriate use of lab, radiation, MRI, and CT scans. Savings and gain sharing can also vary between the different providers—primary care, specialists, and hospitals.  Ultimately, actuaries and clinical staff alike must be able to analyze data and pinpoint the true drivers of variation.

Effective Strategies Can Yield Significant Cost and Quality Improvements

In order to shed more light on how these strategies can be deployed in health systems, Bart Wald, Chief Executive for Physicians Services at Providence Health and Services, discussed the approaches that he undertook as President and CEO of Physician Associates of the Greater San Gabriel Valley, an IPA in California. Unlike compensation in most IPAs, which often relies either on fee-for-service (FFS) or capitation, Physician Associates, developed a system that uses a combination of both payment models. While capitation has traditionally been used more for primary care physicians (PCPs) than specialists, Dr. Wald emphasized that developing financial incentives for specialists was critical to effectively engaging them.  In his mind, specialists must be integrated and engaged in order to create a truly effective model. The IPA also created a “peer satisfaction” bonus program, in which PCPs and specialists rate each other and those attaining the highest ratings are given an additional bonus payment. The ratings are also posted on the web to increase transparency, and impact physician behaviors. In addition to engaging specialists, Physician Associates made sure to integrate hospitalists into the care team and incorporate social services and mental health staff.

The IPA was able to further transform care by building a population health infrastructure that directed funds towards ambulatory care management, patient-centered medical home (PCMH) development, complex care centers and disease management programs for vulnerable patients. They have also focused on improving the collection and sharing of patient data to better manage generic drug utilization, prescribing and adherence; track and attempt to minimize care received by patients outside of the physician network; and ensure effective continuity of care across the system. In summary, Dr. Wald stressed a number of factors for succeeding at risk-sharing—engaged practice members, adequate physician incentives to improve care performed in the outpatient setting, hospitalists and outpatient coordination on referrals, more advanced pharmacy management, extended disease registries, and integration between physicians and hospitals that includes joint expense management and other synergies. These interventions have resulted in a noticeable improvement in quality of care and led Physician Associates to run at a price and expense advantage below IPAs using a purely FFS payment model.

Dr. Wald also discussed an example of how hospitals are attempting to improve performance through creative partnerships with medical staff using a joint venture limited liability corporation between Providence Health Systems California and local physicians to reduce the occurrences of specific clinical conditions, such as hospital acquired complications, readmissions, and sepsis mortality. These physicians participate in a shared savings model.

Successful Risk-Sharing Arrangements Take Time

While the interventions described above may work and possibly work very well, truly effective risk-sharing design is an iterative process. Organizations must be nimble and able to adapt and modify tactics as necessary. As Greger Vigen emphasized, payment reform can be used as a tactic at the provider level in additional to a broad strategy or vision between provider and buyer.

  • An expert in health care policy, Larry Kocot was a visiting fellow in Economic Studies at Brookings, examining the challenges of access, quality and financing that face the U.S. health care system. Previously he served as deputy director of the Engelberg Center for Health Care Reform and as senior advisor to the Administrator at the Centers for Medicare & Medicaid Services.