Don't Confuse Integration With Employment

A recent survey of senior healthcare leaders showed what might best be described as a shocking lack of understanding of what is meant by “integration”. While more than 60% of those responding indicated that reform will result in better hospital/physician alignment more than half said that they would be increasing the number of employed physicians. Signing a paycheck does not assure alignment.


While physician employment is a valuable strategic tool that hospitals need to use to assure adequate physician coverage and a growing number of physicians seek employment as private practice becomes less attractive don’t think that this will translate to cost-effective quality care in a shared-risk environment.

Many hospitals have made practice purchase decisions because the physicians had been loyal members of the medical staff that historically brought business to the hospital. Maybe too much business if we were to examine clinical need. A network based on these physicians may not achieve the desired results. What if the most efficient physicians actually want to remain private. Does that exclude them from integration?

Integration is all about building trust, developing a dialogue, developing a care environment solely based on the best approach to clinical care, and getting beyond egos and turf and creating a patient-centric model. Employment has nothing to do with this process although some of the key physician might be employees. Focus on starting the journey and not on generating more paychecks. Recognize employment for what is is, a strategic tool.

The Economics Of Accountable Care: not a pretty sight

Not many industries spend time thinking about how to shrink their business but that’s exactly what is required if we adopt accountable care. It appears that the consensus of those folks that have started down the path to clinical care reform feel that reductions of 10% to 15% in volume is a reasonable target. This means significant drops in imaging volume, ED visits, and bed days. It also means less revenue and less need for staff.


While primary care physicians would see their business grow dramatically nearly everyone else should begin to think about life in a leaner world.

Of course this decline in utilization will happen gradually over a few years but planners at least need to be aware that this delivery model will have a significant negative impact on some attractive revenue streams. We are, essentially, asking hospitals to invest a substantial amount of money to help develop a delivery model that will hurt them financially. Makes absolute sense!

But what of all the shared savings? ACOs promise to convert lower utilization into revenue. Money that would have been spent will be distributed as incentives. Great concept. Reality? Maybe not.

The first assumption is that utilization will actually be lowered. The financial projections of expected cost will be based on the actuarial projects on the ACO patient population. We question the ability to reliably project those costs on a population as small as 5,000 with folks, especially in the commercial market, enrolling and dis-enrolling from health plans as premiums and plan designs change. We will only have snapshots of historical utilization data on which to predict the future. Medicare data will be much better since individuals are covered for life once enrolled. This means the projected cost assumptions may not be a viable measure of program success but will be used nonetheless.

If we are really able to reduce the cost of care for our ACO population (assumption number two) how long will we receive bonuses based on those historic costs? The ACO is intended to reduce costs so, at some point, our bonus pool may well shrink. We’ll be paid based on the new reality, lower utilization. This means lower revenue.

While the ACO concept may be entirely necessary to sustain our healthcare system it will not be an economic windfall for providers. The ACO model will lower revenue if we are successful and raise costs if we are not. Plan for it.

Accountable Care: opportunity or unnecessary risk?

Here’s a thought that would eliminate the federal deficit. The government needs to take over running the seminars on forming Accountable Care Organizations. With the number that are already scheduled the revenue would easily wipe out what we owe.


This raises a point. Do we all need to work toward being an ACO? This is not a subversive right wing plot to derail health reform. It’s a simple strategic question. Is accountable care in everyone’s best interests?

I recently had a conversation with a multi-hospital system that was both the dominant provider (sole in most of it) in their market and a low-cost provider. What would they gain from an ACO? Not much. Unless they miscalculated their cost position they really didn’t have much upside and it was unlikely that someone would come and construct new hospitals so there was little downside. My suggestion was to fully understand their current readiness but to wait and see what happens. Not a very profitable recommendation for a consultant but clearly the best for the client.

Let’s be clear. It is in everyone’s best interest to fully understand their readiness for the ACO model (whatever final form it may take) and quantify the investment that will be required to become an ACO. Moving beyond that point will depend on a few key factors: 1) market position- can someone else provide the same services as you in your market? If the answer is “no” then caution may be indicated, 2) are you truly a low cost provider- if this answer is “yes” what savings will you realize to offset the investment that will be required to become an ACO, and 3) do you have the financial resources to get from where you are to where you need to be- if this response is “no” then it might be best to identify a potential partner in the ACO environment and contract.

There is still a lot of uncertainty about what the required elements of an ACO will be. A recently released White Paper (AAFP, AAP, AOA, and ACOP) identifies the desired traits that would make up an accountable care environment. Really aggressive traits that will cost a lot to deliver. What if you start down that path and find that the government decides on a less aggressive model? Time, effort and money spent.

The point of all of this is to underscore the need to plan and to start that process now but also to fully understand the strategic environment before you move beyond that planning. Some organizations are already sponsoring seminars about how they became an ACO in an environment where there really aren’t any. You might want to skip that one and contribute the enrollment fee to reduce the deficit.

Don't Underestimate The Process

Accountable care will require hospitals and physicians to work collaboratively to improve the clinical process and make care more efficient (and less costly).  To accomplish this there will need to be shared leadership with, perhaps, more control in the hands of physicians.  Don't underestimate the huge paradigm shift this will require.

Hospitals will rely on their employed physician networks for the backbone of their ACO and very few of these networks have mature physician governance structures.  Add to this a mix of private practices with little or no formal management structures and you may well end up with a ship that can't sail.

How do you get from this problematic environment to Hakuna Matada ("no worries")?  Lots of trial and error.  Recently two clients started down the bonding road only to discover major potholes.  The process of ceding leadership to physicians almost derailed both.  One client decided to ignore the need for robust physician involvement and took on a risk contract without first addressing data issues, clinical process improvement, and cost of care analysis.  Are you shocked to learn that the outcome wasn't pretty?

Before you decide to begin developing your ACO take the time needed to work with the folks on the other side of the table (hospital or physician leadership) and work through control concerns and perceived threats.  Creating the vision is the easy part.  Making that vision a reality takes hard work.

Is Accountable Care Really Healthcare Reform?

Some years ago I taught a course called Financing Healthcare and I took great pleasure in shattering my idealistic students’ thoughts that there was some grand design behind the American health care system. By the end of the semester they were agreeing that what we had was a result of financial incentives. Form follows dollars. While I try not to live too much in the past this experience raises the question; “is accountable care really healthcare reform or payment reform”. My bias is for the latter.


Few will argue that we must address the issue of the cost of care. Workers are being asked to pay an ever-increasing share of their medical benefits, companies are struggling to even provide health benefits, and Medicare will be bankrupt in not too many more years unless something drastic is done. If we can’t shift more costs to works and employers are unable or unwilling to cover a larger share of the costs, and politicians are not prepared to cut the benefits promised to our seniors then what is the alternative? Make cuts look like a new approach to care.

Capitation is not new. It’s been around for decades and it works. Care gets managed. The problem is that for capitation to work there has to be rules that require patients to see certain doctors, limits on what services are covered, and penalties for those that don’t comply.

Accountable care is Global Capitation. A fixed amount is meant to cover all the care needed by a specific group. Unfortunately the models that are being considered allow patients to “leak” out of the program, like a PPO. This risks the very concept of managing care. Patients will always opt for freedom of choice (think about the popularity of gatekeeper HMOs).

Before you rush to create or join an Accountable Care organization consider the significant financial risks if your patient population can seek care outside the collaborative network and you then need to pay the bill. We need accountable care (or whatever you want to call it) if we want affordable care but we need to “get real” and understand that lower cost results from tighter control of the care process. Be vocal if you see model proposals that put all the risk on you.

What Do Accountable Care Organizations And New Cars Have In Common?

If you were in the market for a new car would you simply walk on the lot and sign the papers?  Doubtful.  You would likely take your choice for a test drive, maybe read some reviews, and see if the features match your needs.  What has this got to do with ACOs?

Recently I got a call from a health system that said they had already done a readiness assessment and a feasibility study and were ready to form an ACO.  Since we really don't know what an ACO will look like until federal regulations are released and comments are returned I'm uncertain how these folks could have done a feasibility study.  Using the large managed care networks in California as a model may be a big mistake.  They are ready to buy their car with little or no understanding of what the car is supposed to do for them or how it runs.

The message in this is "don't rush to market until you know what the market requires".  We suggest that you learn to walk first and this might include select DRGs or procedures that might be trails for hospitals and physicians to streamline and coordinate care.  see how that goes before you take on 5,000 new patients.

A client earlier this year was thrilled that they negotiated a global capitation contract with their local BCBS plan.  They were convinced that their 5 hospitals and 500 physicians were on their way to the bank.  They, unfortunately, ignored the fact that their data system environment was uncoordinated, that their physicians did not exhibit the most cost effective care patterns, and that they really had no firm idea of what care actually cost.  The shocking outcome was that the deal was a formula for financial losses.  Surprise!

If you have done a readiness assessment have someone check your work.  Have you really come to terms with this hospital/physician integration thing?  Do you really know where you stand relative to best clinical practices? 

Our opinion is that the ACO delivery model is coming but it is still too early to take on risk in an environment of uncertainty. This certainly does not mean "do nothing".  Begin the assessment and learning process so that you'll be ready to act when the picture becomes more clear.

Does the election mean that "Reform" is dead?

As the dust begins to settle after the election it is only reasonable to question if the recent reform legislation will be repealed as many of the newly elected legislators have promised. If not repeal then what?

An interesting survey was published a month or so before the election but it didn’t get much visibility. The survey looked at opposition to the healthcare reform legislation and, while it found that a majority of those responding were opposed it went a bit further and found that many of those opposed felt that the law didn’t go far enough. What this means is that there is still significant support for changing the system within which we exist.

So, back to the original question: What will happen? The President has already gone on record of drawing a line on his healthcare initiative, he’s not willing to negotiate reform. We believe that the greatest focus of opposition is the coverage mandate. When you read the law the requirements for small and medium size business are expensive and the alternatives for those covered are not all good. We think that universal coverage will be back on the table.

It appears that the Senate will remain Democratic but there may be some willingness on the part of worried Senators to negotiate some changes with the Republican opposition.

One thing that both consumers and employers can agree on is the cost of care. It is too high (let’s ignore the fact that we are essentially getting what we demand…that’s for another day). As we have stated before this means that costs need to be controlled, which translates to utilization needs to be controlled, which means that Accountable Care is likely to be alive and well. We might see a delay in the Medicare initiatives but we don’t think that incentives for integration of physicians and hospitals will go away.

Approximately 60 House seats have changed hands. This means that there will be a learning curve period as these new folks deal with the fact that they now Chair many of the committees and that they don’t even know how to find the rest rooms. This means a period of inaction for the next six months so don’t look for dramatic shifts in policy or direction. We will likely see a set of proposed regulations, based on the current law, before congress takes up the issue. We can safely assume that many of the provisions of those regulations are DOA but we need to go through the process.

Our basic message is that Integration makes sense. It will drive cost containment and both parties will need to continue to address this issue if they want to get reelected. Don’t lose sight of the need to plan for this and, while we may be more than 24 months away we can expect progress before the next election. We can assume the President likes his job and will keep this before the public.

Accountable Care: reality or myth?

If you attend seminars or read journals you know that Accountable Care Organizations (ACO) are in our future, or are they?

The model certainly isn't new.  Clinton had similar provider networks in his failed reform proposal and capitation can trace roots back to the late 1800's when lumbermen in Wisconsin paid Bavarian nuns a fixed amount per year to provide health care.  What might be new is the admission by Medicare that the current fee-for-service model is not sustainable and, as a result, the ACO model was placed in the controversial health care reform legislation.

The ACO makes perfect sense.  It promises to provide financial incentives and rewards for hospitals and physicians to better coordinate care, actively monitor quality, and through collaboration lower the total cost of care by eliminating inefficiencies.  One small problem.  For the ACO model to have a significant impact on overall expenditures most, if not all Medicare beneficiaries need to be enrolled.  This isn't something that most politicians want to tackle.  In fact the current proposals being considered allow for voluntary enrollment by seniors with some out-of-pocket saving incentives to encourage them.  This sounds like the always popular gatekeeper HMO.

The ACO might actually gain more traction in the commercial market where employers are seeking alternatives to their expensive benefit plans and an ACO is certainly better than no coverage for employees.

Even with this motivation ACOs have a long road ahead.  Hospitals and physicians need to agree to work together, they need to agree on how revenue and savings will be shared, they need to address evidence-based care models, and they need to invest in the data environment that will allow the tracking of care and costs within the defined population of patients.  This isn't going to happen overnight.

Progressive organizations have already begun to move toward an integrated delivery model and others may see the value in at least deciding to explore the potential.  The clueless will take a wait and see approach that may prove fatal.

The only thing for certain is that the next couple of years will prove interesting.