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.
Monday, December 20, 2010
Friday, December 10, 2010
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.
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.
Friday, December 3, 2010
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.
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.
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