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Insights from ACO Pioneers (Part Two: Hospitals)

How can healthcare organizations that were built on volume adapt to the arrival of a value-based reimbursement system?  American providers, as well as payers, are struggling to find an answer to that critical question. When it comes to the Accountable Care Organization (ACO), the struggle generally takes two forms: either to jump in with both feet via a model such as the Medicare Pioneer ACO program, or to sit back and take a wait-and-see approach.

In a new white paper, Allscripts Chief Medical Officers Doug Gentile, MD and Toby Samo, MD explore the unique perspectives of both types of organizations. The six organizations studied (each an Allscripts client) include two of the original 32 Pioneer ACOs; the nation’s largest commercial ACO; a major IDN that is pursuing its own ACO pathway; a large stand-alone hospital that has yet to take the formal step of creating an ACO but is experimenting with the model; and a large, independent, multispecialty physician group that is wary of stepping into the ACO waters.

Following last week’s post, this is the second in a four-part series, each concerning one of the key stakeholders within an ACO: Physicians, Hospitals, Payers and Patients. 

To read the white paper in its entirety, go to

Hospitals and Health Systems

Key Takeaways: 

  • Physician-hospital alignment is critical
  • Hospitals must contribute savings
  • Even highly efficient health systems can succeed

Four of the five participants featured in this white paper represent hospitals or health systems, and for the most part they described similar paths to developing an ACO. From the outside, their actions over the last decade appear to have been prescient, directed precisely at the current transition from fee-for-service to fee-for-value.  Each of them engaged with physicians through a variety of legal arrangements (employed, affiliated and foundation model) to drive the clinical integration and partnerships essential to an ACO. And each invested heavily in the IT infrastructure required for population health management and care coordination.

But none of them believes the transition to accountable, value-based care will be easy for hospitals. In fact, an ACO forces hospitals to shift from profit centers to cost centers. No longer focused on filling beds and driving volume, hospitals must cut overhead, slash spending and work with physicians to ensure they’re treating only the most appropriate patients at the right time. This sudden transformation in the hospital’s role within the community of providers is the source of heartburn in and out of board rooms.

“It’s not the physician groups who aren’t prepared for (value-based care) – it’s the hospitals who aren’t prepared for this at all,” said Michael James, CEO of Genesys PHO. “Seventy percent of their business will now be in a risk business and they have to rely upon their physician base to produce 30 to 35 percent savings because they can’t provide any savings. It’s a very scary process.”


Physician-Hospital Alignment is Critical

All participants commented that the traditional adversarial relationship between hospitals and physicians must be replaced with seamless alignment if they are to succeed together within an ACO. Yet echoes of the tension exist even within fully integrated ACOs.

“When I talk with physicians from other organizations considering becoming an ACO, many feel the hospitals aren’t going to come along, so they’re going to have to do this themselves,” said Mark Shields, MD, MBA, FCAP, Senior Medical Director of Advocate Physician Partners and AdvocateCare, the nation’s largest commercial ACO, based in Chicago. “And they can make progress but you get to a certain point where you really need the hospitals to go to next level.”

Because of their size, solid capitalization compared to physician practices, and often decades of experience working with payers on a capitated basis, large hospitals and health systems have a lot to offer physicians in an ACO, said Stacy Hrountas, CEO of Sharp Rees-Stealy Medical Group, a 400-physician multispecialty group with 19 locations across San Diego County.

“Within an ACO, we’re building on our core competencies developed over 25 years of managing care for 280,000 capitated full-risk lives,” said Hrountas, who was previously CEO of Sharp HealthCare ACO. “We have utilization management, disease management, care management structures; we can process claims, get data into our system and run our reports … so it’s a matter of applying the tools we’ve developed over 25 years to a new population.”

Hospitals Must Contribute Savings

All of the hospital participants were highly aware of the need to reduce costs as part of their contribution to an ACO. “We realize we are going to get a haircut and we have a responsibility to come to the table with savings,” said Rebecca Armato, Executive Director of Physician and Interoperability Services for Huntington Hospital, a 636-bed not-for-profit facility that is home to the only trauma center and regional NICU in the San Gabriel Valley near Los Angeles. 

Chris Brown, senior director of strategic planning for Scripps Health, a $2.3 billion nonprofit community health system in San Diego, said Scripps is focused on reducing its costs to limit the percent of Medicare losses by 2016.

Both organizations – and the other hospital groups in this paper – have already implemented programs to find savings.   Scripps started three years ago when it decided to break down organizational silos by moving each of its hospital COOs into a corporate “horizontal” structure, a major cultural change that helped centralize financial controls. Huntington is watching every dime including strictly assessing the need to replace people who leave, said Armato.

“Hospitals that are being forthright know you’ve got to have a plan, you have to know exactly what you’re going to cut each year,” Armato said. Acknowledging that part of the cost-cutting process is reversing the focus on filling beds, Armato added that Huntingon “wants patients out of our hospital; we want the right care in the right place and most often it is not the hospital.”

Even Highly Efficient Organizations Can Succeed Under Shared Savings

If that headline reads like a typo, take another look. One of the common critiques of the Medicare Shared Savings model is that efficient, high-quality provider organizations will benefit less from the model than organizations that have been wasteful and low-quality.  That’s because the baseline that determines payment and shared savings in an ACO will be higher for the best organizations than the worst, meaning the best will need to work even harder to make money as an ACO.

Genesys’s James concedes the premise but argues that it doesn’t matter.

“I’ve heard that argument but if you talk to some of the providers, they can identify, even in healthy systems, 30-40 percent waste in their system of unnecessary services,” he said. “So yes the opportunity’s bigger if you weren’t really efficient in the past, but we still in healthcare have huge opportunity in almost every market.”

James notes that Medicare Pioneer ACOs will be challenged to squeeze profit out of the program if they operate in one of the mostly rural regions of the country where Medicare reimbursement averages around $500-$600 a month per patient. But he said the US average for Medicare reimbursement is about $9,000 per year, while the figure in Genesys’s community of Flint, Mich. is even higher, nearly $11,000. “So that leaves us significant opportunity to succeed,” he said.

Watch for Part 3 of the white paper next week …

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