The Divide in the ACO Debate – Beltway Rhetoric versus Marketplace Cynicism

Amid the broader – and oftentimes highly opinionated and heated – ACO conversation occurring across Washington and the private sector, The Wall Street Journal published an interesting piece last week highlighting the specific views of three individuals:

• Don Berwick is the former administrator for CMS who just stepped down last December.  Don oversaw the creation of the ACO framework under the Medicare Shared Savings Program.
• Tom Scully is currently a General Partner at the New York-based private equity firm Welsh, Carson, Anderson & Stowe.  Tom formerly served as the CMS administrator from 2001 to 2004 and CEO of the Federation of American Hospitals.
• Jeff Goldsmith is a president of Health Futures, a healthcare consulting firm out of Charlottesville, VA and an associate professor of public health sciences at the University of Virginia.

What becomes immediately apparent in the three-way dialogue (done via email) is the lens through which various participants view the industry’s efforts to improve healthcare’s fundamental problem of shifting from the traditional fee for service to a value-based approach.  There aren’t any quick, silver bullet answers to the debate, but what is evident is the divide among those that represent Washington’s political rhetoric (Don) and those that must figure out ways to make the new framework work within a dynamic, private care delivery system (Tom and Jeff).

Several disagreements bubble to the surface related to:

The role providers will play

• Berwick: “The ACO premise is different. Beneficiaries don’t join an ACO; providers of care do.”
• Scully: “The biggest flaw with ACOs is that they are driving more power to hospitals—not to doctors. Very scary, and I am a hospital guy.” … “If the doctors had the capital to organize comprehensive ACOs to control their own fate and drive us to more efficient care, I would be bullish on ACOs. But doctors are again along for the ride, not driving the bus.”
• Goldsmith: “In practice, however, the ACO is more like asking the hungry horse to guard the granary. The major savings for Medicare are to be found by keeping people out of the hospital, and reducing the incomes of the specialists who dominate hospital politics. To get those savings, hospitals and their specialists have to turn their backs on five decades of making more by doing more.”

Emphasis on the patient

• Berwick: “…the formula for ACO success is clear: keep quality high, save money by improving—not by restricting—care, and remain attractive to beneficiaries, who could go anywhere for care.”
• Scully: “The best models for ACOs are doctor groups like Monarch HealthCare in Los Angeles or JSA HealthCare in Tampa. Give doctors lots of patient data, pay them to see patients more often, follow their drug use and health status more closely to keep them out of hospitals—and give them control of the cash!”
• Goldsmith: “The biggest problem with the ACO, however, isn’t the faulty business proposition, but the patient’s role.” … “In the ACO, providers are accountable to Medicare. Patients won’t get a dime of the savings, and no choice whether to participate or not.” “Despite all the rhetoric about ACOs being patient-centered, it is a paternalistic, “we’ll decide what you need” kind of model.”

Prospects for care improvements and financial success of ACOs

• Berwick: “Knowing full well the results of the PGP demonstration, the CMS office of the actuary estimated base-case Medicare savings of over $400 million in the first three years of the ACO program.”  … The “32 physician groups and health-care systems selected for the pioneer program, covering 860,000 Medicare beneficiaries, [are] projected to save $1.1 billion in health-care costs over the first five years.”
• Scully: “In the system we have, ACOs are conceptually right, in that the concept inches toward differential pricing for quality, and Don should be congratulated. But we need to step back out of the trees, look at the forest and question the financing system we have created.”
• Goldsmith: “Having each community, large or small, set up its own ACO is like setting up a backyard steel mill.” … “It is the incredibly heterogeneous 5% of the population that generates 47% of all costs that you need to focus on, and if you don’t have enough of them in your “attributed” population, you cannot concentrate the resources to change their care and lives.”

Startup costs of an ACO

• Scully: “The start-up cost of a real ACO is probably $30 million and up in a midsize market.”
• Berwick: “The actual barriers to entry appear a lot lower than the $30 million cost that Tom Scully mentions; CMS estimates are only a fraction of that.” “… the CMS Innovation Center has proposed a program of advance payment to provide front-end capital and extra operating funds for care coordination, information systems and the like.”
• Goldsmith: “A more credible estimate of setup costs for a provider system with no prior managed-care experience to participate in the shared savings program: $10 million to $15 million per health system (consulting, IT systems conversions, new staff, etc.).”

 Prospects for success

• Berwick: “Smart entrants, focused on seamless care, outcomes and beneficiary satisfaction, will both reduce Medicare’s expenditures and reap financial rewards for themselves.” … “I hope and expect that ACOs will honor the trust they have been given by doing the job—lower cost through care improvements. If they violate that trust, the costs to them and to the future of seamless, coordinated care in America will be high indeed.”
• Scully: “Don’s vision is great, and who can’t like what he has tried to do with ACOs… Except that the incentives are very small, the change will be slow, and we are just nibbling at real system reform.”
• Goldsmith: “There were a lot of good ideas in the Affordable Care Act for saving money and improving quality. Unfortunately, the ACO wasn’t one of them.” … “By pushing this edgy idea from the policy world and ignoring the real-world evidence of its own trials, CMS picked the wrong horse.”

In a final from Jeff Goldsmith: “One of the most serious problems with the health-care world just now is the gap between the policy world and the real world. The ACO is Exhibit A in this yawning disconnect.”  Jeff is right to point out that there’s a divide between the public and private domains, yet progress, however small, has arguably been made.

The real question is whether “the vision” put forth by Don Berwick will ultimately evolve into a pervasive performance-based delivery model in which quality, efficiency, and choice are the driving factors behind private sector reimbursement and profitability.  To those outside of Washington, there certainly seems to be a long way to go – let us know what you think.

Seth Kneller

Seth Kneller is a Vice President at TripleTree covering the healthcare industry, specializing in revenue cycle management, clinical software solutions, geriatric care and healthcare analytics. Follow Seth on Twitter or e-mail him at skneller@triple-tree.com.

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Nintendo Wii and Microsoft Kinect in the Doctor Bag

Gaming is mainstream, but a new consumer for these technologies is evolving… healthcare professionals.  Most people think of games as entertainment, but health educators are learning games are also an effective training platform.

A classification of games known as “serious” games, describe video games that have been designed specifically for training and education.  Medical schools, hospitals, physician practices, and health systems are seeking more ways to engage their healthcare professionals and serious games and video simulation are earning their stripes:

• Duke University School of Medicine is teaming up with Virtual Heroes, a company that creates training products for healthcare, federal systems, and business
• Texas A&M University-Corpus Christi, Department of the Navy’s Office of Naval Research, and BreakAway Ltd. developed Pulse!!, immersive virtual learning space with graphics that recreate a lifelike, interactive, virtual environment in which civilian and military heath care professionals practice clinical skills in order to better respond to injuries sustained during catastrophic incidents, such as combat or bioterrorism
• Banner Simulation Medical Center is a 55,000-square-foot “virtual hospital” undergoing a pilot study with specially adapted Nintendo Wii, the doctors who regularly played scored 48% higher on tool control and performance than those who didn’t use the game

The ability of a video game to reward success, engage healthcare professionals, encourage collaboration and interaction amongst colleagues is a new twist on standard learning models.  The real-time feedback games provide can motivate “gamers” to proceed to the next level in the game, akin to attaining the next level of patient care.

Studies on the effectiveness of “gamification” for healthcare professional training are evolving.  However multiple industries have proven “serious” games to be successful including:

• Flight simulation for pilots
• Military games for combat training, a tool used since the 1980s
• Computer network building for technicians of technology vendors like Cisco Systems

Gaming is a lower cost alternative.  A recent article in the Wall Street Journal allude to the fact that lawmakers are “considering reducing the Medicare reimbursement for doctor training, possibly in half, to cut about $4 billion from the federal budget.”   With this proposed cut affecting reimbursement for academic medical centers and teaching hospitals, utilizing serious games could help the training budget pressures soon to be felt across the country.

While traditional education will always continue, utilizing this new form of training is proving in its early stages to be effective and lower cost.

Let us know what you think!

Joanna Roth

Joanna Roth is a Senior Analyst at TripleTree covering the healthcare and technology industry, specializing in education solutions. Follow Joanna on Twitter or e-mail her at jroth@triple-tree.com.

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Mini-Med Plans & Unintended Consequences of Health Reform – 10/01/10

The gap between health insurance affordability and accessibility may have just become wider. Current economic conditions are driving employers to consider hiring hourly and part time workers and labor statistics underpin that this trend may persist for some time.

For some time, health insurers have offered “mini-med” plans as an inexpensive way to cover basic medical needs (primary care doctor visits, or prescriptions) for part-time or hourly employees who otherwise could not afford or necessarily want full coverage insurance (e.g. a major medical plan).

Health Reform (aka ObamaCare) has set in motion a series of dictates from agencies like the National Association of Insurance Commissioners, a coalition of state insurance regulators. High on this organization’s list of priorities is how to address the Medical Loss Ratio (MLR) constraints being thrust on health plans. The MLR is a financial metric that calculates the percentage of premium dollars that are directed to medical costs versus general business and administrative overhead. The ratios aren’t yet finalized and will vary by size of employer from 80% – 85% (which is a higher, more efficient ratio than found in most health plans where some industry sources cite an average MLR in the mid seventies); but it is clear that those who don’t meet federal thresholds, will pay a penalty (possibly in rebates to members).

Yesterday, news broke through various sources that McDonald’s Corporation may be considering dropping its mini-med health plan for nearly 30,000 workers unless the MLR constraints for its health plan (BCS Insurance Group) are modified. The news, as reported in Wall Street Journal, stated “last week, a senior McDonald’s official informed the Department of Health and Human Services that the restaurant chain’s insurer won’t meet a 2011 requirement to spend at least 80% to 85% of its premium revenue on medical care.” The rationale for missing this threshold stems simply from the nature of employment in the food service industry…high turnover; low claims revenue and high administrative costs.

The debate continues as additional posts and stories emerge which both support and debunk what the Journals and other outlets initially reported.

Regardless, it brings to light a few realities:

• Small health plans and specialty plans will consider exiting the market altogether
• Effectively modeling the impacts of health reform is absurdly difficult
• Federal spending on simply “explaining” to the U.S. citizenry what the heck is going in will cost billions (if not more)
• In their quest to become more efficient, health plans continually scramble for solutions to address product marketing, pricing and packaging aimed at consumers, and not employers or groups
• Employers will need to quickly begin a steady campaign of internal messaging to concerned employees
• Self-insured employers (e.g. Wal-Mart) will look increasingly brilliant as they side-step these federally placed economic land mines
• Mini-med plans will likely fade from memory in the next three years

Let us know what you think, and have a great weekend!

Chris Hoffmann

Chris Hoffmann is Research Director at TripleTree covering Cloud, SaaS and enterprise applications and specializes in CRM, loyalty and collaboration solutions across numerous industries. Follow Chris on Twitter or e-mail him at choffmann@triple-tree.com.

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