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recent analysis of the ACO market by Oliver Wyman market suggests we’re well on our way toward being “there.”

My personal take on this report:

Provocative, fresh, thoughtful, well reasoned, expansive — albeit a bit of a stretch

However, I suspect many others will describe it as:

Speculative, harebrained, unsupported, overly extrapolative, out-to-lunch, wishful to the point of being woo woo.

So now that I hopefully have your attention, what’s this report all about? In a nutshell:

The healthcare world has only gotten serious about accountable care organizations in the past two years, but it is already clear that they are well positioned to provide a serious competitive threat to traditional fee-for-service medicine. In “The ACO Surprise,” our analysis finds that 25 to 31 million Americans already receive their care through ACOs—and roughly 45 percent of the population live in regions served by at least one ACO.

Let’s dig in to the report. In this blog post, I’ll summarize their math, surface their critical assumptions and observations, and comment on their reasoning. I’ve indented direct quotations from the report.

While I don’t agree with all of Oliver Wyman’s math and assumptions, I applaud them for the process they have gone through. Please take my commentary as “quibbling at the edges” and that overall I’m on board with their methodology and conclusions.

First, set the playing field with a broad definition of “ACO”

…we’ll use ACO as a catch-all term for providers participating in population-oriented, value-based care delivery and reimbursement models. That means we won’t count providers that have only progressed to the level of piloting bundled payment programs

Commentary: using a broad definition of ACO makes perfect sense.  As I’ve previously explained, ”accountable care” needs to be divided into two buckets: 1) Formal Accountable Care Organizations (ACOs) by which care providers contract with Medicare, and 2) Informal Accountable Care-Like (AC-Like) arrangements between care providers and commercial health plans.

Second, count and project the Medicare ACO numbers

Start with 2.4 million Medicare patients. Medicare’s ACO patients are covered under avariety of programs, including 6 Physician Group Practice demos, 32 Pioneer ACO demos, 27 first round Medicare Shared Savings Program (MSSP) ACOs, and 89 second round MSSP ACOs.

Commentary: nothing controversial here. Just a recap of the facts.

Expect those numbers to grow. More than 500 organizations have applied for the third round of MSSP, slated to begin in January 2013. If this round follows the same pattern as previous rounds, as many as 40 percent of the applications will be rejected—typically because of failure to meet the required minimum number of attributed Medicare beneficiaries. Even if this happens, the number of Medicare ACOs will more than double.

Commentary: while these numbers are projections, they are realistic and fit others’ accounts of the size of the Medicare ACO pipeline.

When the third-round of MSSP participants is announced in January 2013, we anticipate not just more new participants but far more patients per organization, as many larger health systems, which have been slower to apply, finally join in.

Commentary: This is a biiiiiggggg stretch. The authors are correct in noting that early Medicare ACO’s were small – a new, unexpected species.  But it’s a leap of faith to conclude that the next round of Medicare ACO’s will be any larger. Maybe they know something I don’t know about the applications are Medicare pipeline, but I would label this assumption as questionable.

Third, extrapolate the impact of Medicare ACOs on non-Medicare patients

Add 15 million non-Medicare patients in Medicare-oriented ACOs. When a healthcare provider signs up for one of Medicare’s ACO programs, it commits itself to a new way of delivering services and a new way of being compensated—a new model of healthcare delivery. And it is extremely difficult for a provider organization to apply that model to its Medicare patients and not to its commercial patients.

Commentary: Not so fast. My take is that many of the early ACO’s are viewing their participation as an experiment, not necessarily a long-term commitment.

We know that major cost savings opportunities in ACO’s are concentrated in the top 5% of a population that will consume 60% of healthcare costs. A key tactic of ACO’s is concentrating care management attention on this 5% of the population. For example, one of the most effective techniques being employed by a range of physician practices is the use of a nurse care manager to coordinate care for patients with complex needs. This approach is so successful that health plans are proactively suggesting that physicians hire care coordinators and many are offering to pay for the costs through direct subsidy of salaries, additional care management fees, or even a bump in base rates paid to primary care physicians.

Thus, while experimenting with an ACO might (and hopefully would) create a long-term commitment to a new way of delivering services, this doesn’t necessarily need to happen on day one. The nursing care coordinator example is one way that clinicians might carve out a segment of their population for particular attention, but not necessarily change their practice style and work flow for all the patients in their practice.

Fourth, guestimate the impact of commercial, AC-Like arrangements

Add an additional 8 to14 million patients in non-Medicare ACOs. While government sponsored ACOs tend to take up much of the spotlight, there are roughly the same number contracting with private payers.

Commentary: while speculative, this assumption is reasonable, and the numbers strike me as in the ballpark. Unlike Medicare ACO’s which are highly visible, AC-Like arrangements are typically negotiated behind closed doors, terms aren’t public, and thus they are impossible to count and compare with precision.

Fifth, add it all up

These three patient groups add up to 25 million to 31 million US patients receiving their healthcare through ACOs—or roughly 10 percent of the population.

Sixth, opine on the implications

When we examine the landscape on the level of primary care service areas (PCSAs), 45 percent of the population live in PCSAs served by at least one ACO.

Commentary: Wow! While some will argue that this statistic is meaningless, it strikes me as a good leading indicator of ACO market penetration — a stat worth monitoring over time.

The Bottom Line

Kudos to the Oliver Wyman analysts. While overall my personal numbers would be slightly more conservative,  their overall approach is sound. ACOs are well on their way toward being “there!”

Vince Kuraitis, JD, MBA, is a health care consultant and primary author of the e-CareManagement blog, where this post first appeared.

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2 Responses for “ACOs: Is There a “There” There?”

  1. Vince,

    While I’d like to think that the uptake could be anywhere approaching what you describe, I just don’t see it. I talk with many health system execs each week. When it comes down to brass tacks, the CFO invariably says something like, “Explain why, exactly, we should take less money until we absolutely have to.”

    At the moment, they don’t have to, and so there have been few real driving forces getting them to prepare to take risk or compete on value. As far as I’ve been able to tell, there’s a relatively small group of health systems that are truly focused on changing course – laying in the IT infrastructure, skill sets and cultural changes – necessary to move from FFS to risk/value. A much larger cohort is doing business as usual but still playing wait and see, stashing away cash, and hoping that something materially changes. A third group is doing nothing and has decided they’ll worry about it if they have to.

    In other words, the news of health systems rushing to figure out how to drive appropriate care and cost seemed dramatically over-stated to me.
    I’d love to know why you and Oliver Wyman think this is a pervasive movement.

  2. Bryan, Thanks for your comments. As I noted in the first few paragraphs, I didn’t expect everyone to be agreeing with the Oliver Wyman analysis.

    Agree, hospitals are the foot draggers here – which is economically rational from their POV. So if you’re talking with health system CFOs, I wouldn’t be expecting to hear any optimism. It’s becoming evident hospitals are the ones with the biggest bull eyes on their backs when it comes to ACO cost savings.

    As I’ve written previously, even hospitals’ business models are on a burning platform – the flames just aren’t yet hot enough to make most of them jump – but it’s inevitable. http://thehealthcareblog.com/blog/2012/09/06/are-hospital-business-models-on-a-burning-platform-not-yet-but-it%E2%80%99s-inevitabl/

    The drivers of ACOs are mostly in the payer community – commercial health plans, Medicare, states, employers. Those are the folks whose unwavering pressure is creating this new market.

    What I like about the OW analysis is that they spell out their rationale and assumptions. You can agree or disagree point by point. And even I agreed some of their assumptions are stretched.

    I find the baseline “facts” on ACO uptake persuasive. Expect 300 + Medicare ACOs by Jan 2013. Then add the commercial health plans which admittedly are difficult to estimate accurately, but nonetheless very real.

    Many of the Medicare ACOs are smaller, physician-led, more entrepreneurial ACOs. This is unexpected and worth watching. Will the physician led ACOs go for the jugular in reducing hospital utilization? http://e-caremanagement.com/medicare-announces-27-acos-a-new-species/

    Ultimately it boils down to a subjective interpretation of the “facts” – are ACO’s gaining market traction? OW’s answer and my answer is “yes”. Doesn’t mean that ACO’s are a done deal or that the momentum won’t fade.

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