Stalking the ACO Unicorn May 2011 Health Research Institute (HRI)

Stalking the ACO Unicorn

May 2011

www.pwc.com

Health Research Institute (HRI)

PwC Health Research Institute

Agenda

Health Reform Landscape

Physician and Hospital Alignment

Stalking the ACO Unicorn

Q&A

2May 2011


Health Reform Landscape

3May 2011


Federal budget pressure: Record deficits projected over the decade

4

Sources: Congressional Budget Office, January 2011

Health research institute May 2011

-12.0%

-10.0%

-8.0%

-6.0%

-4.0%

-2.0%

0.0%

2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021

Pe

rce

nta

ge o

f GD

P

Federal budget deficit as a percentage of GDP: 2010-2021

CBO January 2011 Projection assuming: - Extension of all expiring tax cuts and AMT indexing - Phase-down of Iraq/Afghanistan spending - Discretionary spending grows with GDP - Medicare “Doc Fix” extension

CBO January 2011 Baseline

40-Yr Historical Average = -2.8%

Previous post-war max = -6.0% in 1983 (reached -30.3% in 1943)

2010 Actual -8.9%


Healthcare entitlements accounts for 60% growth in spending over the budget period, 2011-2021

5

Sources: Congressional Budget Office, January 2011

Health research institute May 2011


Costlier care is often worse care

The June 1, 2009, Atul Gawande New Yorker article, “The Cost Conundrum: What a Texas town can teach us about health care,” compares healthcare costs (using 2006 Medicare data) in McAllen vs. El Paso, two Texas cities with similar demographic characteristics

6

Market

Medicare Spending per Enrollee

Utilization

Quality

El Paso

~ $7,500

See below

Hospitals on average performed better on 23 of 25 Medicare quality metrics (than McAllen average)

McAllen

~ $15,000

Significantly higher per capita rates (than El Paso) of: specialist visits, diagnostic studies, surgeries, implantable devices, home health visits, etc.

Hospitals on average performed better on 2 of 25 quality metrics (than El Paso average)

Source: The Cost Conundrum, The New Yorker, June 1, 2009; Atul Gawande: The Cost Conundrum Redux; The New Yorker; June 23, 2009

May 2011


Physician and Hospital Alignment

7May 2011


Interest in hospital and physician alignment

8May 2011

Cardiologists

PCPs

All SpecialistsAll

Physicians46%


Top 5 reasons physicians want hospital alignment compared to the top 5 reasons they think hospitals want them

9May 2011

Why physicians

want hospitals

Why physicians

think hospitals

want them

PwC Health Research Institute 10

Most physicians considering hospital employment expect their income to remain the same or increase

10

May 2011


Stalking the ACO unicorn: What the proposed rules tell us

11May 2011


The draft rules select for “DNA” traits that are more likely to result in ACO status

12

IDS, PGP Stand aloneStructure

Technology

Community

Care

More likely to be an ACO

Less likely to be an ACO

Sticky Transient

Population focused Individual/episodic

100% meaningful use Partial meaningful use

Traits Why?

Estimates of over $1.5M in infrastructure cost in addition to EMR.

Data reporting requirements around quality and cost require EMR and care coordination.

It’s difficult to manage care with an estimated 25% population turn. Snowbird effect.

Cost savings are often found through chronic disease management

May 2011


“Top 10” key findings

13May 2011



1. The draft rules favor health organizations that are ACOs in everything but name – much of the draft rules are based on the experience from the physician group practice (PGP) demonstration project . PGP participants qualify for an expedited application and review process. In addition the barriers to entry are high so that large integrated delivery systems with infrastructure in place will be more likely to meet these requirements than smaller, start-up organizations.

14May 2011


Pacesetters…

Physician group practice (PGP) demonstration project participants:

Billings Clinic, Billings, MT

Dartmouth-Hitchcock Clinic, Bedford, NH

The Everett Clinic, Everett, WA

Forsyth Medical Group, Winston-Salem, NC

Geisinger Health System, Danville, PA

Marshfield Clinic, Marshfield, WI

Middlesex Health System, Middletown, CT

Park Nicollet Health Services,

St. Louis Park, MN

St. John’s Health System, Springfield, MO

University of Michigan Faculty Group Practice, Ann Arbor, MI

15

Five healthcare organizations are forming a new consortium to share patient e-health records on-demand and serve as a national model for data interoperability:

Kaiser Permanente

Mayo Clinic

Geisinger Health System

Intermountain Health

Group Health Cooperative

May 2011



2. ACOs will be measured on more quality metrics than any other federal program – the draft rules require organizations to track and perform against 65 quality measures set forth in 5 quality “domains.” The PGP program required only 32 and the new Medicare value based purchasing (VBP) program requires only 25.

16May 2011

PwC

ACOs require quality like no other CMS program

17

Value-Based

Purchasing

Accountable

Care

Organizations

SCIP

7

measures

AMI

3

measures

Pneumonia

4

measures

Patient Experience

8

measures

7

measures

Care Coordination

16

measures

Patient Safety

2

measures

Preventive Health

9

measures

At Risk Population

3

measures

31

measures

Diabetes

10

measures

Heart Failure

3

measures

7

measures

Coronary Artery Disease

6

measures

Hypertension

2

measures

COPD

3

measures

Frail / Elderly

3

measures

Total

Measures

25

measures

65

measures

17May 2011



3. Only 50% of physicians participating in the ACO need to meet meaningful use requirements – This brings up a question of timing because certification of meaningful use may not be complete for a 2012 ACO application to CMS. Additionally ACOs without a complete meaningful use capability will find it difficult to track and manage care.

18May 2011

PwC Health Research Institute 19

Implementing meaningful use can enhance hospital-physician alignment which is essential for success under the accountable care model

Source: PwC Health Research Institute Survey of CHIME CIO members

May 2011



4. There are many barriers to managing the ACO population – beneficiaries are free to seek care outside of the ACO and they are free to opt out of data sharing. ACOs may not even know the population they are managing until the end of the plan year. Although ACOs will see a prospective list of beneficiaries, up to 25% of participants may turn over in any given year.

20May 2011


Communication with patients may be a challenge --only 28% of consumers know what ACO stands for

21

Source: PwC Health Research Institute Consumer Survey, 2010May 2011


Stickiness matters -- only half of consumers say they would always stay with a hospital or group of physicians responsible for their care

22

Source: PwC Health Research Institute Consumer Survey, 2010May 2011



5. It’s not easy money for three reasons – 1) miss a single quality domain measure and the ACO may not qualify for shared savings. Even if your costs are below the benchmark 2) If the per capita cost per beneficiary is less than 2% below the benchmark there is no shared savings. 3) If the ACO does qualify for shared savings CMS requires a 25% hold back to hedge against future losses in the three year contract.

23May 2011


Is the risk worth the reward?

24

Shared Savings Distributed (Loss)

ACO 1

ACO 2

Benchmarked cost of care per beneficiary*

$8,000

$8,000

Number of beneficiaries

5,000

60,000

One-sided model:

Assuming 5% decrease in costs**

$231,000***

$7,560,000

Assuming 5% increase in costs

N/A

N/A

Two-sided model:

Assuming 5% decrease in costs**

$1,300,000

$15,600,000

Assuming 5% increase in costs

($420,000)

($5,040,000)

*For example purposes - same as that used in example calculation of estimating an ACO's maximum potential downside risk and estimating the ACO's yearly losses in proposed rules

**Total amount of shared savings distributed includes the 25% of potential savings that would be withheld from organizations to offset any future losses. Organization that experience savings over the course of the 3-year contract are able to recoup these withholds at the end of three year contract.

***Minimum savings rate of 3.9% used in calculation of shared savings for ACO with 5,000 beneficiaries as described in proposed rule

****Illustrative exampled assumes all quality measures are met and FQHC/RHC bonus is met

Estimated impact of a decrease and increase in spending of 5% against the benchmark for ACOs with 5,000 beneficiaries (ACO 1) and 60,000 beneficiaries (ACO 2)…

May 2011



6. FQHCs and RHCs are the ace in the hole–ACOs that provide some of its beneficiaries services through FQHCs or RHCs are eligible for up to a 2.5%-5.0% bonus depending on whether they are in the one or two-sided model. This also works in the reverse to decrease potential pay-backs if targets are not met.

25May 2011


The incentive bonus for providing services through FQHCs or RHCs will make them attractive partners for those pursuing the shared savings program

26

Federal Qualified Health Centers Rural Health Centers

May 2011


“Top 10” key findings7. There are 16 ways to be kicked out – ACOs must comply with communication, marketing, and service guidelines in addition to meeting quality and cost saving requirements. There is a process for a second chance under a corrective action plan (CAP). If you are terminated from the program you forfeit any shared savings you may have earned including the 25% withhold.

27May 2011


Monitoring and Termination of ACOs

28May 2011


“Top 10” key findings8. You can partner with other entities as long as your market share is under 30% – the DOJ and FTC are going to review competitors plans to jointly work in an ACO by each service line. This is going to be a granular analysis of market penetration that may further accelerate physician employment by hospitals and larger groups.

29May 2011


Physician alignment is key – here is what physicians believe

30

Source: PwC Health Research Institute Physician Survey, 2010May 2011


“Top 10” key findings9. You are either in or you are out – by participating in the ACO program you are precluded from other CMS programs. This means the ten participants in the PGP program must choose between the two. The same holds true for the new payment pilots developed by the Center for Medicare and Medicaid Innovation (CMMI).

31May 2011


Can’t have your cake and eat it too…CMS have determined that the following existing shared savings programs overlap with the proposed ACO Shared Savings Program and that no organization can participate in both:

32May 2011


“Top 10” key findings10. Decisions, decisions, decisions – the draft rules point to many decisions that will need to be made by applicants. Who do you form an ACO with and who are its participants? Do you apply for the lower risk one-sided model or higher risk/greater reward two sided model? The application process will be arduous; is it worth it to pursue this given the required commitment and the high bar to receive any savings?

33May 2011


Opportunities

34

Barriers

The draft rules have both opportunities and barriers to ACO implementation

• First year quality domains are reporting only

• ACO HIT requirements are aligned with meaningful use requirements

• Using the “opt-out “patient consent approach to data sharing will be less burdensome than “opt-in”

• If specialists delivering primary care in the ACO are defined as PCPs it could expand the universe of providers for ACOs. For purposes of beneficiary assignment, specialists can provide primary care, but cannot count their patients as assigned beneficiaries

• Strong incentives for hospital and physician collaboration with the inclusion of future inpatient quality measures

• ACO’s are not permitted to participate in several other CMS programs

• Beneficiaries can opt out of sharing data with ACO

• ACO risk and marketing rules may not align with state regulations

• The FTC/DOJ is reviewing ACO's market share at the service line level which will be time consuming and the denial of an application is not appealable

• Organizations could hesitate to become ACO because many quality measures are not currently reported publically

• If under a CAP, ACO’s cannot receive the shared savings payments and can’t reapply for participation until the end of the 3 year agreement

May 2011


The 4 key decisions any organization contemplating ACO status must make

Integration - Can the applicant realistically deliver all that is required for shared savings? How integrated is the applicant now? Will physicians be sufficiently engaged?

Cost-Benefit - The bar is set high to qualify as an ACO and to obtain any significant shared savings. Is it worth the cost to prepare and file an application? Should a provider wait and see how this works out in the first round?

Stickiness - Beneficiaries are in an open model and can seek services anywhere so the ACO must analyze and determine how "loyal" its patient population is since the ACO will be responsible for the cost and quality of the services provided to them.

Risk-Reward - Does applicant apply for the one -sided risk model (first two years --no down side risk but lower reward of shared savings and third year becomes two-sided risk) or the two-sided risk model (greater reward and risk all three years)?

35May 2011

PwC

Questions and Answers

http://www.pwc.com/us/en/health-industries/health-research-institute/

Benjamin Isgurdirector, Health Research [email protected]

Stalking the ACO Unicorn May 2011 Health Research Institute (HRI)

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