Three Novel Suggestions for the Regulations That Will Govern Accountable Care Organizations (ACOs)

When Robert Berenson speaks, the Disease Management Care Blog listens. In the past, Dr. Berenson had some important cautions about the Patient Centered Medical Home and now he's tackled Accountable Care Organizations (ACOs). It worth clicking here and reading it at some point, but until you have the time, your helpful DMCB is pleased to offer this quick summary.

Dr. Berenson points out that the Affordable Care Act (ACA) specifically addresses ACOs as a "program" that will promoted nationwide through regulations. This is a big departure from the usual pilot or demo approach that that hinges on "requests for proposals" (RFPs). The ACO was included in the ACA because of its promise to generate savings by incenting physicians to reduce waste and inefficiency in a non-threatening manner. Another reason was its potential to promote better coordination of care for costly and chronic conditions "under one virtual roof."

In order to make this happen, the regulations may ultimately make ACO funding look a lot like the "delegated capitation" that's been used for years in risk-bearing "provider service organization" (PSO) arrangements. Unlike PSOs, however, ACO's will only have "upside" risk. In other words, if claims expense is lower than anticipated, the savings will be shared with the ACO. However, if claims expense is higher than anticipated, the ACO will be held financially harmless. It's a no brainer and ACOs wannabes will flock to this faster than IT consultants glomming onto "meaningful use."

Which, according to Dr. Berenson, is the rub.

If the risk is only upside, the physicians and hospitals pondering forming an ACO will be far more likely to participate, even if they have little interest in true coordination and cost savings. Since there are no penalties for higher than expected spending and they don't have to deal with the unpleasantness of patients being "locked" into their networks HMO-style, they'll figure they have little to lose. Years later, it'll look much like a lottery. Many nascent ACOs will fail while some will randomly succeed. The resulting disappointment may lead to an otherwise promising idea being abandoned.

To combat this, Dr. Berenson has three suggestions:

1. Avoid invisible assignment. While the regulations have yet to be unveiled, it's widely anticipated that ACOs won't really know which patients have been "assigned" to them. Knowing that up front would better enable the physicians to avoid unnecessary costs, patients should know that their physicians may have an economic incentive to withhold care and physicians and patients may ultimately benefit from a mutual social compact. The chance of success will increase.

2. Introduce shared risk. In other words, there should be a downside, albeit "limited and manageable" chance of a loss, using "risk corridors." This will separate the wheat from the chaff. To guard against any significant losses, ACOs that are serious players could purchase "reinsurance."

3. Use a different baseline: Instead of using local costs as the comparison baseline for shared savings, use a) the national projection of Medicare spending growth in dollar terms, or b) adjust the baseline against an national historical risk-adjusted average. That way, baseline wasteful spending patterns would not be rewarded in the reconciliation of the pre vs. post shared savings calculations.

For additional reading on ACOs, there's more DMCB discussion and links to the peer-reviewed literature here.