Accoutntable Care Organization Study

Published by Beacon Partners. © 2011, Beacon Partners, Inc. All Rights Reserved.

Beacon Partners Accountable Care Organization Readiness Study

Summary

In the Summer of 2011, Beacon Partners conducted this original research study to assess healthcare organizations understanding of, and preparation for, Accountable Care Organization (ACO) development. This study, now the sixth of its kind by Beacon Partners, builds upon our previous efforts to understand industry challenges related to EHR Adoption, Changing Economic Times, ARRA Preparedness and Sustainability, Health Care Reform and a PPACA Scalable Solution. As part of our commitment to a series of thought leadership studies, including support of a series of national trade associations and their learning series for individuals practicing in healthcare and provocative roundtable panel discussions in a recognized trade journal, these research studies have formed the basis for Beacon Partners’ brand of industry-leading views reflecting top-of-mind concerns for C-suite healthcare executives. More than 200 healthcare executives responded to this study, which was completed in the third quarter of 2011. Half of those respondents were from community hospitals, with critical access hospitals representing 21% of those participating. As one might guess, it is the CEO who is responsible for ACO development at many hospitals. Of our respondents, just under half related that this was the case at their organization. Surprisingly, only 15% of our respondents were “very familiar” with ACOs as they are currently proposed. Only 61% related they were “somewhat familiar” with this component of PPACA. In what would seem a contradiction given the above, more than 90% of respondents stated that they are in the planning or development stages of an ACO, representing a jump from our second quarter survey where the number came in at 47%.

Summary Cont.

Still, nearly half are unsure about how an ACO will affect their organization or whether it will improve patient care. Perhaps none of this should be surprising given that ARRA and PPACA regulations have challenged providers to move forward without the benefit or clarification of final rules and regulations. Nor should it surprise that this confusion has also led to uncertainty about how to communicate ACO developments to their patients. In terms of budgeting for an ACO, even though the March 2011 Medicare Proposed Ruling estimated startup costs to be $1.8 million, a full 45% of those surveyed have not committed money from their operating budgets to ACO planning efforts and 27% are unsure of their budget for these planning efforts. And yet, thanks to commitment by senior leadership, operating budgets have increased when compared to last year. According to Modern Healthcare, capital expenditures for IT have been growing over the past three years and plans to continue increasing them are expected for most organizations. This may be a sign that many CIOs and COOs are becoming optimistic regarding the potential benefits an ACO will provide to their organization. Still, most organizations have not yet created a department or executive role dedicated to ACO development. With a full 53% falling into this category, it would be logical to wonder how the industry will be fully prepared for healthcare reform? Finally, with ICD-10 and 5010 requirements being top of mind for most providers these days, it’s not surprising that more than half of our respondents reported having an action plan in place to support those requirements and meet those current federal timelines. We hope you find the following survey informative and useful. If you have any questions concerning its content, please contact Beacon Partners at beaconpartners.com or (800) 4BEACON. Thank you.

Study Perspective: Respondent Title

The majority of survey respondents were CIOs (28%) and Clinical Management Executives (27%). With much of the work to operate ACOs residing with CIOs for network

development and clinical leadership for practice protocols and electronic record documentation, the results are in line with industry views.

CIOCMO/CMIO/CNO

CEOCFOCOO

General ManagementOther Management

CPO

0% 5% 10%15%20%25%30%

Study Perspective:

Type of Organization Size of Net Patient Service Revenue

51% of respondents are from community hospitals, the largest segment of the hospital industry according to the American Hospital Association. Critical access hospitals (CAHs) are second with 21%. Only 28% of respondents have a net patient service

revenue (NPSR) of over $150 million.

Community hospital

Critical access hospital

Academic medical center

Ambulatory clinic

Multi-specialty group practice

Faculty-based practice plan

Single specialty practice

0% 10%20%30%40%50%60%

Less than $25 million

$25 million - $75 million

$75 million - $150 million

$150 million - $500 million

Greater than $500 million

Unsure

0% 5% 10%15%20%25%30%

Surprisingly, 15% of respondents are ‘very familiar’ with ACOs as currently proposed

Given the strong representation by C-suite respondents, we were surprised that only 15% are ‘very familiar’ with ACO federal regulations as currently proposed. While 61% were ‘somewhat familiar’ with ACOs, a shocking 1 out of 4 answered ‘not familiar’ with this

aspect of the Patient Protection and Affordable Care Act (PPACA).

Very familiar

Somewhat familiar

Not familiar

0% 14% 28% 42% 56% 70%

In most organizations the CEO is responsible for developing an ACO

Far and away, the top respondents (49%) named the CEO as the person responsible for ACO development. CEOs are forward-looking, visionary leaders tasked with balancing

day-to-day operational needs with physician alignment strategies based upon community healthcare needs. ACOs intersect these position responsibilities directly.

CEOOther, please specify

COOUnsure

CMOCFOCNOCIO

CMIO

0% 10% 20% 30% 40% 50%

Still, most respondents are currently developing ACOs

92% of respondents underway with planning/development of an ACO, a jump from 47% in our 2Q2011 survey. Now, 49% are currently in development of an ACO, with another

30% already operational.

In development

Operational

Pre-planning

Unsure

No current plans underway

0% 10% 20% 30% 40% 50%

Zero respondents anticipate paying penalties in outer years of ARRA

While part of the economic stimulus package, Meaningful Use (MU) stages are tied to ACO participation. It is encouraging to note a shift nationally to attaining MU. 54% of

organizations with a net patient service revenue of greater than $500 million are already operational in attaining Stage 1 objectives.

Pre-planning

In development

Operational

Unsure

No Current plans

0% 10%20%30%40%50%60%

Less Than $25 million$25 million - $75 million$75 million - $150 million$150 million - $500 millionGreater than $500 millionUnsure

More than half of respondents have developed an action plan to support ICD-10 and 5010 requirements

These project plans and operational changes come with important headlines and deadlines. On pace to meet those measures, 56% of respondents have already

developed an action plan with their hospital and sponsored/affiliated system (33%), or within their affiliated healthcare system (23%) to support ICD-10 and 5010 requirements

within the current federal timelines.

Yes, with our hospital and sponsored/affiliated practices

Not yet, in preliminary planning phase

Yes, within our affiliated healthcare system

Unsure

No, none planned

Other

0% 10% 20% 30% 40%

Many believe certain components of ACOs will have a positive impact on their organization

Over 39% of respondents believe that clinical quality reporting, medical staff alignment and continuum of care transitions components will have a positive impact on their organization. Others are unsure on certain components such as interoperable IT

systems and healthcare connector contracting. From our 2Q2011 survey, which posed a similar question, we note a prioritization for interoperable IT systems now viewed as a

positive impact (37%).

Per member/per month

Primary care capacity

Clinical quality reporting

Healthcare connector contracting

Medical staff allignment

Continuum of care transitions

Interoperable IT systems

0% 10% 20% 30% 40% 50%

Positive impactNegative impactNeutral impactUnsure

Still, most organizations have not yet created a department or executive role to develop an ACO

With the magnitude of the PPACA changes, and the development of an ACO being just a piece of necessary organizational-wide efforts, we find it short-sighted that only about 1/3

of responding healthcare organizations have created a department or executive role to develop an ACO. And, with 53% not having done so yet, one could logically wonder how

the industry will be fully prepared for healthcare reform.

Yes

No

Unsure

0% 10% 20% 30% 40% 50% 60%

And only 1/3 of organizations plan to hire or reallocate existing personnel to develop an ACO

Fiscal budgeting cycles are in full swing for most organizations and now would be the time to plan for support to develop reform related roles. However, 44% of organizations have no plans to hire personnel to handle ACO development, and another 25% plan to

reallocate existing personnel.

No, we have no plans to hire

We are reallocating existing personnel

Unsure

Yes, we have plans to hire

0% 10% 20% 30% 40% 50%

Operating budgets for ACO development remain low…

In the Proposed Rule published 3/31/2011, Medicare estimated that start-up costs for ACOs would be $1.8M. Yet, 45% of organizations have not committed money from their

operating budgets towards resources that support ACO planning efforts, and another 27% are unsure what their current budget is for planning efforts.

Less than $1 million

$1 million - $3 million

More than $3 million

None is the budget at this time

Unsure

0% 10% 20% 30% 40% 50%

but thanks to senior leadership commitment, IT investment and systems operating budgets have increased somewhat

compared to last year.

Consistent with our 1Q2011 and 2Q2011 surveys, as well as Modern Healthcare’s 21st annual IT survey, capital expenditures for IT have been growing the past 3 years and are

planned to increase over the next several years for most organizations. With 30% claiming budget increases as a result of senior leadership commitment and another 6% increase as a result of medical staff involvement, the support of their C-suite colleagues

should assist CIO efforts overall.

Stayed the same as previous years

Increased as a result of senior leadership commitment

Unsure

Increased as a result of medical staff involvement

Stayed the same as a result of merger

Decreased

0% 10% 20% 30% 40% 50%

Even though nearly half of respondents are unsure how an ACO will affect their organization

46% believe an ACO is a positive move for their organization or will improve patient outcomes. Patient protection and affordable care were the dual policy

goals of the PPACA.

Unsure how it will affect our organization

Will improve patient outcomes

Positive move for our organization

This is an unnecessary expenditure

Unnecessary burden on our personnel resources

Will have a negative effect on patient outcomes

0% 10% 20% 30% 40% 50%

CIOs and COOs are showing glimpses of optimism regarding an ACO’s effect on their organization

Showing that ACOs, while focused on payment reform, are truly rooted in patient care continuum, only 8% of CFOs and 6% of CMOs believe ACOs will have a negative effect on patient outcomes. No other respondent categories believe patient outcomes will be

negatively affected.

This is an unnecessary expenditure

This is a positive move for our organization

Unnecessary burden on personnel resources

Will improve patient outcomes

Will have a negative effect on our patient outcomes

Unsure how this will affect our organization

0% 14% 28% 42% 56% 70%

CEOCOOCFOCIOCMO/CMIO/CNO

Plans to communicate the development of an ACO to patients are still undecided or unplanned

With uncertainty surrounding ACO rules and regulations in general, it has become apparent that respondents are even more unsure of how to communicate ongoing

developments to patients, while 22% don’t plan to communicate these changes at all.

Unsure/Don’t know

We have no plans to do so

Via a patient portal

Direct mail campaign

Posters and notices inside our facility

Email campaign

We’ll rely upon the Federal Gov’t

0% 10% 20% 30% 40% 50%

Undefined rules and confusion of ACO structure remains to be the top concern in the market

ARRA and PPACA regulations, to name just two, have challenged organizations to move forward without clarity of final rules or regulations. The term used most often is

“directionally correct.” Here, 31% of respondents listed undefined rules and confusion of ACO structure as their top concern in the market, followed by high start-up costs (17%)

and regulatory issues (14%). Clearly, progress still needs to be made.

Undefined rules/confusion of ACO structureHigh start-up costs/not enough capital to support ACOs

Regulatory issuesUnsure

Physician and staff alignmentOther, please specify

I don’t have any concernsNot enough IT systems to support ACOs

0% 10% 20% 30% 40%

Single-vendor solutions are the preference for patient demographics, business/operating systems, clinical and

health record needs.

Single-vendor solutions remain the choice of respondents for inpatients 59% of the time, for ambulatory areas 53% of the time, and for physician practices 47% of the time. These

longitudinal results are consistent with our 1Q2011 and 2Q2011 surveys. As a settled area, while we will likely de-emphasize this aspect of our research over time,

organizations do not have that luxury as they begin to wrestle with support of disparate systems resulting from increased mergers and acquisitions.

For inpatients

For ambulatory areas

For physician practices

0% 12% 24% 36% 48% 60%

Single-vendor solutionBest-of-breedUnsure

2011, 2010, 2009, 2008 and 2007

2011, 2010, 2009, 2008 BBJ Pacesetter Award

2011, 2010, 2009, 2008 Top 100 List

2011, 2008 Top 100 Best Places to Work 2011, 2010, 2009, 2008 Top 20 Healthcare Management Consulting Firms

2008 Category: Staff Augmentation

2008 Lifetime Achievement Award Ralph Fargnoli, President and CEO

For more information, please contact Beacon Partners: Kevin Burchill [email protected] 1-781-681-7460 www.beaconpartners.com Marketing inquiries please contact Jason Shniderson: Jason Shniderson [email protected] 1-781-681-7487 www.beaconpartners.com Media inquiries please contact Tracy Hartman at Aloft Group [email protected] 1-978-462-0002 x103