Modern Healthcare looks at the financial risks facing potential accountable care organizations (ACOs). Here is an excerpt:
The highest performers may not achieve the most savings, warned actuary firm Milliman in a separate report. Providers will need to conduct risk analyses before signing on to Medicare’s shared savings program, according to Milliman. For instance, high-performing systems may not be able to produce sufficient savings. “It will be easier for the inefficient systems to beat their targets,” according to the report.
For instance, “ACOs operating with low inpatient utilization and low cost will need to work hard on non-inpatient services to achieve significant savings,” according to Milliman. In conclusion, Milliman actuaries said the proposed rule offers “much less upside to ACO ‘A’ students who operate in very efficient systems than to ACO ‘C’ students who operate in systems with a lot of inefficiencies.”
Financial success or failure of an accountable care organization (ACO) will depend on meeting rules-based budgets set by the Centers for Medicare and Medicaid Services (CMS). The ACO will need to demonstrate quality as well as reduce spending below targets.
Will ACOs achieve these efficiency requirements? Improving quality will create some savings but probably not enough to generate shared savings payments to the ACO. Furthermore, the financial targets will be harder to accomplish for providers already operating efficient systems.
Actuarial models can help potential ACOs assess the financial risk and make the right decision as they contemplate whether to establish an ACO.
Read the full briefing paper here.
Accountable care organizations (ACOs) must manage toward actuarial targets, which is a key means to attain the end of more efficient care. This process requires both “supply-side” medical management and “demand-side” medical management. Here is an explanation of each:
Supply-side medical management services are what many consider the more challenging side of medical management but they are also what produce the savings. These services are intended to reduce utilization and payment for medically unnecessary services and also ensure that care is delivered in the most appropriate setting, which for an ACO should mean delivered by an ACO-associated provider. Clinical guidelines help evaluate the medical necessity of requested (or, retrospectively, rendered) services…
Demand-side medical management services optimize a population’s health so that demand for services will be lower. In particular, these services can impact ambulatory care sensitive admissions, preference sensitive admissions, readmissions, and ER visits.
For more on managing to actuarial targets, read the recent paper, “Nuts and bolts of ACO financial and operational success.” For more on medically unnecessary services, view this blog post or this paper.
Accountable care organizations (ACOs) need to properly deploy medical management in pursuit of certain utilization and cost targets. This dynamic is explained as part of a recent briefing paper on the nuts and bolts of ACOs. Here is an excerpt:
ACO’s should focus initial medical management efforts on reducing leakage to hospitals and specialists that are not part of the ACO. This will increase volume to ACO providers and help offset revenue loss due to improved utilization management. Inpatient utilization management is another target for initial medical management efforts particularly since inpatient costs make up approximately 30% of total costs for a commercially insured population and 37% of total Medicare Part A and B spend. Successful ACOs will focus medical management efforts both on avoiding potentially unnecessary admissions and on reducing inpatient hospital leakage (admissions to hospitals not associated with the ACO). Potential reductions in admission vary significantly by admission type, so identifying real opportunities requires analyzing historical data to identify impactable and non-impactable admissions. In particular, ambulatory care sensitive admissions, preference sensitive admissions, and readmissions are considered as impactable (see Definitions). Claims data logic available from the Agency for Healthcare Research and Quality and published reports can help identify benchmark rates for these impactable admissions—and a sense of how many can actually be eliminated.
See the full paper for more detail and for citations.
Here are some key concepts for anyone who wants to understand accountable care organizations (ACOs):
Ambulatory care sensitive admissions (ACSA) are those for which good outpatient care can potentially prevent the need for hospitalization, or for which early intervention can prevent complications or more severe disease. ACSAs are considered a measure of the quality of ambulatory care delivery in preventing medical complications. High rates of ACSAs might indicate inadequate access to high-quality ambulatory care, including preventive and disease management (DM) services. DM programs focus on individuals with chronic conditions to aggressively monitor and educate patients in self-management of these chronic conditions. ACSAs that involve complications of diabetes, chronic obstructive pulmonary disease (COPD), congestive heart failure (CHF), coronary artery disease (CAD), asthma, and hypertension are admissions that are directly impacted by effective DM/primary care coordination efforts. Based on a Milliman analysis of Medicare claims data, 14% of total admissions are considered ambulatory care sensitive admissions.
Potentially preventable hospital readmissions are an important indicator of quality care and cause unnecessary expense. Preventable readmissions can occur because of inadequate discharge planning, inadequate post-discharge follow-up, or lack of coordination between inpatient and outpatient healthcare teams. Transition of care programs, case management, and disease management services aim to coordinate care at discharge and after; with effective care coordination and oversight, preventable readmissions should be reduced. The rate of preventable readmissions within 30 days has been reported at 11% from a study of all hospital admissions in Florida. The rate of all readmissions reported from a recent Medicare analysis is 19% with the majority reported to be preventable.
Preference sensitive admissions are admissions for elective surgical procedures where the evidence does not suggest greater efficacy between surgical management and medical management for treating particular conditions in some patients. Examples include spinal fusion, joint replacement, hysterectomy, bariatric surgery, cardiac catheterization, percutaneous transluminal coronary angioplasty (PTCA), coronary artery bypass graft (CABG), benign prostate surgery, and others. There is significant variation in the rate of these procedures by region suggesting that local medical opinion and practices have a strong influence on the choices of treatment. There has been a recent focus on the need for patients to be better informed about the treatment options along with consideration for a patient’s personal values and preferences when making medical treatment decisions. This recent trend in patient decision support has been reported to reduce the rate of these procedures. A Milliman analysis identified that, for a commercial population, approximately 16% of non-maternity admits are preference sensitive admissions.
Leakage is defined by services delivered by non-ACO providers that could be delivered by providers associated with the ACO.
For more information, see the recent healthcare reform briefing paper.
The Patient Protection and Affordable Care Act (PPACA) calls for the creation of accountable care organizations (ACOs) as a more cost-effective way of paying for healthcare. In order to succeed, ACOs will have to establish actuarial cost and utilization targets and use medical management to achieve those targets. This process of benchmarking and managing toward targets requires a delicate balance of actuarial and clinical know-how.
A new briefing paper offers a practical guide for approaching this analytic and management imperative. In addition to identifying the steps required, it identifies the medical management priorities for an effective ACO and highlights some of the risks involved.